Debt-ridden Detroit has close company
A decade of recession hit one region – southeast Michigan – harder than anywhere else.
So perhaps it's no surprise unfunded pension and retiree health-care debt is concentrated there as well, in a long list of cities that extends well beyond Detroit or Flint.
Southeast Michigan is responsible for a staggering 86 percent of the $12.7 billion in unfunded retiree health care debt in the state, according to a study co-authored by Michigan State University economist Eric Scorsone. Detroit alone had unfunded retiree health care of nearly $5 billion in 2009.
The list of communities with so-called legacy debt is especially heavy in Wayne, Macomb, Oakland and Genesee counties and include:
- Hazel Park, a community of about 16,000 in Oakland County, with $66 million in unfunded retiree health care debt and $15 million in unfunded pensions
- Center Line, in Macomb, with 8,000 residents, $46 million in unfunded health care and $7 million in unfunded pensions
- Taylor, in Wayne, with 63,000 residents, owing $209 million in unfunded health care and nearly $70 million in unfunded pensions.
“It doesn't really surprise me,” said Mitch Bean of Great Lakes Economic Consulting, and a former director of the Michigan House Fiscal Agency.
“These are communities that offered benefits and didn't pre-fund them.”
Southeast Michigan – which also includes Lapeer, Lenawee, Livingston, Monroe, St. Clair and Washtenaw counties – had higher annual costs per retiree than other regions, the study found. It shelled out nearly $12,000 per retiree, compared with $9,186 in the northern Lower Peninsula, $7,587 in southwest Michigan, $6,993 in the Upper Peninsula, $5,948 in west central, and $4,263 in east central Michigan.
“That would almost certainly be due to (differences in) benefit levels,” Bean said.
The high cost of retiree health care in southeast Michigan is a blow to a region already hit by a steep loss in property values that came with a collapse of the housing bubble.
According to the Southeast Michigan Council of Governments, the region accounted for eight of the top 10 counties in the state for loss in taxable property value from 2007 to 2012.
Another analysis, released this year by Munetrix, an Auburn Hills-based consulting firm, found that eight of 23 municipalities with the worst fiscal scores in Michigan were in Wayne County.
One such community is Ecorse, a Detroit suburb of less than 10,000 residents that was placed under emergency management in 2009 amid municipal corruption charges and a $14.6 million cumulative deficit.
While the city emerged from emergency management in May, it had $40 million in retiree health care debt in 2011, none of it funded.
Two other Wayne County cities – Hamtramck, with a population of about 22,000, and Allen Park, with about 28,000 – face an array of budget pressures. Hamtramck had $47 million in unfunded retiree health care debt and nearly $40 million in unfunded pension liability. Allen Park had $120 million in unfunded retiree health care debt and $24 million in unfunded pension liability.
The issue even crops up in Grosse Pointe Woods, an affluent community of about 16,000 northeast of Detroit. It had $57 million in unfunded health care and another $7 million in unfunded pension debt. Its overall unfunded legacy costs amounted to 52 percent of its general fund revenue.
Grosse Pointe Woods Treasurer Dee Ann Irby said city officials take this debt seriously.
“Obviously it is a great concern,” she said.
Irby noted the city has taken measures to get its budget in line with revenues, including cutting its work force from 105 employees in 2007 to 85 today. The city closed its long-time retiree health care plan in 2008 to new employees. New employees are now required to contribute 2 percent to retiree health care and must work 25 years to receive that benefit, compared with 10 years previously.
But Irby also noted that many retirees are former public safety employees, who are not paid Social Security and are not covered under Medicare. Under their contracts, the city remains their primary health care insurer – costs that grow increasingly expensive as they age.
“Think of the city of Detroit,” Irby said. “They are in the same boat.”
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