On January 22, 2014, Governor Rick Snyder proposed spending tobacco settlement money to shore up Detroit’s two city employee pension funds.
These pension funds are currently underfunded by $3.5 billion, according to Kevyn Orr, the city's emergency manager.
Last week, an 11-bill package was introduced that would give Detroit’s pensions a one-time $194.8 million infusion from the state’s rainy-day fund, create an oversight commission and switch Detroit from a defined benefit pension system to a defined contribution plan, among other reforms.
While I support many of the reform proposals, I will vote no on spending $194.8 million to bail out Detroit’s pension funds. I will vote no for the following reasons.
It’s not fair to local taxpayers.
It’s not fair to force Northern Michigan taxpayers to – again – pay for Lansing projects that don’t benefit our communities or our region. On a whole variety of issues, our tax dollars flow to Lansing only to be spent in southeast or west Michigan.
Our local governments receive less in state revenue sharing, our local infrastructure is underfunded, and our per-pupil school funding is less than in other parts of the state.
The time has come for the legislature to stop using Northern Michigan as its piggy bank.
It’s not fair to local governments.
Fitch Ratings, an independent Wall Street credit rating agency, has indicated that the governor’s priority of bailing out Detroit’s pension funds could make it more difficult and more expensive for other Michigan municipalities to issue bonds and borrow money.
Northern Michigan’s local governments are run well. And to think this bailout could result in them incurring higher borrowing costs because of another city’s mismanagement, and subsequent state bailout, is unacceptable.
It creates a bad precedent.
No Michigan municipality has ever received a bailout similar to that being proposed for Detroit.
The unfunded liabilities of just the third of all the municipalities that belong to the Michigan Municipal Employees Retirement System consortium are nearly $3 billion.
While I have great sympathy for Detroit’s public-employee retirees, whose retirements are jeopardized by that city’s fiscal mismanagement, the fact remains: If Detroit is bailed out, how can any of these other municipalities be denied a bailout?
The governor’s plan creates an implicit contract that Michigan taxpayers will be the funders of last resort for any mismanaged public pension fund. And these amounts could run into the billions.
Detroit already receives special treatment from Lansing.
Historically, Detroit has received generous support from state government.
The state has decreed that Detroit is the only city in Michigan that can assess its own utility tax. It’s the only city that can assess a wagering tax. It has the highest city tax in the state. The state has helped Detroit borrow $610 million between 2005 and 2011 alone. The list of special considerations goes on and on.
But perhaps the most egregious example of how Detroit is treated better than other municipalities is in state revenue sharing payments.
In 2013 the state budget included $236 million in optional revenue sharing payments to cities, villages and townships. That’s funding that helps to pay for local fire, police and a host of other local government services.
Detroit alone took 58 percent of these payments. Michigan’s other 1,240 townships, 275 cities, and 257 villages split the rest.
Far from the claim that the state has been neglecting Detroit, the state has been propping up Detroit for years. And what have Michigan taxpayers received for their generosity? Epic corruption and fiscal mismanagement.
There are better uses for $194.8 million.
According to the Michigan Department of Transportation it costs $20 to fill a pothole. $194.8 million is enough to fill 9.74 million potholes, which would benefit all Michigan residents.
Detroit has the ability to bail out the pension funds on its own.
According to the Mackinac Center for Public Policy, Christie’s auction appraised the painting portfolio of the city-owned Detroit Institute of Arts.
Just one painting in its $1 billion collection – “The Wedding Dance” by Pieter Bruegel – would sell for as much as $200 million if put up for auction.
I believe the city has turned a corner under the guidance of emergency manager Kevyn Orr. And I’m willing to consider options to reduce legal risk and limit liabilities by dismissing a lawsuit with prejudice. But I see the $194.8 million going beyond the lawsuit and helping to pay off creditors too, which I cannot support.
The rest of the state, and in particular, Northern Michigan has needs too. We can no longer continue to give Detroit preferential treatment that other communities do not receive, and this is especially true when the city has its own assets that it can use to bailout these pension funds.