Wayne County must reduce pension, health costs
Revelation of $70 million shortfall leaves Warren Evans little choice but to target benefits to avoid a state takeover
Now that Warren Evans has measured the depth of Wayne County’s budget hole, finding the money to fill it becomes the most difficult municipal management challenge in the state. The county executive has only a few options, none of them very good.
But at least Evans has defined the crisis and is expressing a willingness to make the tough decisions to resolve it — something his predecessor was loathe to do.
And it truly is a crisis. Wayne County has a structural deficit of $50 million. Plus, it needs an additional $40 million a year to bring its pension system back to health, and half that money must come from the general fund.
The bottom line: A $550 million annual budget must be reduced 15 percent to make Wayne County whole.
Finding new revenue is unlikely, so the deficit will have to be wiped away by spending cuts. And the likeliest place to make the cuts is in employee pensions and health care costs.
Unfunded pensions and retiree health care account for 70 percent of the county’s $2.9 billion in long-term debt. Those obligations must be reduced either through direct cuts or by adjusting the formulas used to calculate benefits.
Evans is fortunate that 11 contracts with county unions are up for negotiation this year. And he has a hammer going into the talks.
“They only have to look at what happened in Detroit,” Evans told The Detroit News Thursday, issuing a not-so-veiled threat that Wayne County could follow the city’s path to state control and bankruptcy without significant contract adjustments.
And, Evans noted, it is extremely unlikely that either the state or foundations will forge a “grand bargain” to bail out Wayne County, as they did for Detroit.
The choice for the unions is to either agree to substantive changes, including the elimination of the so-called 13th pension check, a non-contractual benefit that costs the county $16 million a year, or risk losing even more in a state takeover.
One of the more distressing pieces of the Ernst & Young report on the county’s finances is the confirmation of gross mismanagement of the pension system, which was 95 percent funded 10 years ago, but only 44 percent today. Blame the horrible decisions by the Robert Ficano administration to reward cronies with generous early buyouts.
Evans will have to make cuts elsewhere, and he acknowledges that. The county must get aggressive about finding opportunities to outsource and privatize services, jettisoning non-essential programs and cutting operating costs across the board.
The county executive says everything is on the table, and that must be true.
He said Thursday he is getting good cooperation from the county prosecutor and sheriff departments, as well as the courts — all of which operate autonomously from the county executive’s office.
Evans agreed the prosecutor and sheriff operations are underfunded, and said he will prioritize public safety in crafting a budget.
But there’s no new money on the horizon, so any additional dollars will have to come from somewhere else.
Cost-saving measures Evans is considering include shelving the new jail. The county has already wasted $130 million on that Ficano boondoggle, and costs may now exceed $300 million. That money doesn’t exist.
And yet leaving the jail partially finished on prime downtown real estate for five years, as Evans suggested as a possibility, seems a horrible option and would hurt Detroit’s revival. A better answer must be found.
But as Evans’ report reveals, there are no easy answers. The road ahead for Wayne County is extremely perilous.