Chaos in Traverse City, as county government wrestles with pension debt

The seven-member Grand Traverse County Board of Commissioners may have a tough time selling the job of county administrator to potential applicants, despite the high pay.

TRAVERSE CITY—You’d think running a county government in the nation’s cherry capital would be like a bowl of cherries.

After all, Grand Traverse County is Michigan’s third-fastest growing county ‒ a destination for risk-taking entrepreneurs, well-heeled retirees and more than 3 million visitors annually. In 2016, Forbes magazine called Traverse City, the county seat, one of the nation’s top 25 places to retire, citing its lifestyle amenities. And as of October, a newcomer complaint ‒ “Where’s the Costco?” – was resolved. (It’s next to the airport.)

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But kudos have been less generous for Grand Traverse government. Since 2015, the county has seen an avalanche of firings and resignations, new get-tough fiscal policies followed by sharp reversals, and proclamations ranging from “all is well” to “bankruptcy is nigh.”

The latest flashpoint was the dramatic resignation in January of County Administrator Vicki Uppal after just four months on the job. She cited an unspecified family matter, before hightailing it back to Mississippi the next day. That forced Grand Traverse County commissioners to begin a search for their fourth county leader in just three years.

Vicki Uppal arrived in September as Grand Traverse County’s third administrator in three years. She lasted four months.

Driving the chaos has been the county’s sluggish response to a public  pension funding crisis that by at least one measure was the worst among  Michigan’s 83 counties. By the time Grand Traverse took steps to reduce the pension shortfall, a political storm had engulfed county government.  

The upheaval in picturesque Grand Traverse is sure to gain attention. But the crisis it faces on retiree benefits is hardly unique, and similar tensions are likely to play out in towns and counties across the state.  

A task force reported to Gov. Rick Snyder last summer that Michigan’s roughly 600 municipalities had incurred $7.6 billion in unfunded pension debt and over $10 billion in unfunded retiree health-care liability. In county governments, pensions are the bigger nut – accounting for $5 billion in unfunded liabilities.

These so-called legacy costs spurred efforts by the Legislature to take tighter control of how cities and counties tackle retirement shortfalls. In December, Snyder signed watered-down legislation that allows local governments to continue to control how to reduce benefit costs, but required them to be more transparent about their fiscal health through new public reporting requirements (See county map).

Ranking the fiscal health of Michigan’s 83 counties

A number of counties, including Grand Traverse, are struggling with public pension debt. But overall, northern Michigan counties tend to have better balance sheets, with less debt per capita and fewer long-term pension problems, according to financial data analyzed by the state treasury department. Several downstate counties, particularly in south-central Michigan, are not faring as well.Click on a county to see how it ranks in different categories.

Source: Michigan Department of Treasury

Several reasons are given for why retirement costs are difficult to manage, including: Government workers are living longer, which means they collect benefits for more years. Investment return estimates often proved too optimistic. And health-care costs were rising much faster than inflation.

Marty Dunham, who recently resigned as Grand Traverse County facilities director after 17 months, called the pension drama “the dark underbelly on the county’s glossy finish.”

A doomed effort

From 2009 through 2016, Grand Traverse funding for the defined pension plans it offered older workers (hired before 2000) and retirees shrank from 53 percent of assets needed to pay projected liabilities to just 45 percent ‒ the lowest ratio of any Michigan county, and the only county under 50 percent.

In late 2015, Grand Traverse commissioners hired Tom Menzel, whose work to bring fiscal stability to the National Cherry Festival and Bay Area Transportation Authority had won praise, as county administrator. His prime directive was to reduce the pension debt, which would soon grow to $54 million.

Tom Menzel took over as county administrator in November 2015 and took aggressive steps to rein in public pension retirement costs. That didn’t go over well with county workers and some commissioners.

Menzel entered firing. He convinced the state administrator of municipal pensions to give the county more time to close the gap on pension funding. In return, Grand Traverse agreed to double the $5 million-plus it paid into the pension system last year.

Menzel also announced tough cuts for county workers. Health care contributions increased from 6 to 20 percent for all employees. And workers not represented by bargaining units and eligible for the more generous defined benefit pensions were required to begin paying 10 percent of their salaries toward pensions. Until then, they had made no pension contribution.

That drew fire from workers, union and non-union, and countywide elected officials, along with a few commissioners, who accused Menzel of putting too much of the  burden on workers to stem the pension crisis.

Some communities facing similar challenges have raised property taxes to fund retiree benefits. Others have issued long-term bonds. But Menzel said that Grand Traverse County officials had never tightened their belts enough to earn the right to ask taxpayers to pay more.

Fallout was swift.

Anti-Menzel anger played out in November 2016 elections when two of Menzel’s supporters on the seven-member county commission were defeated by candidates more sympathetic to county workers.

A third commissioner, Carol Crawford, who had been part of the board majority that hired Menzel, changed allegiances, becoming head of a four-member majority opposing his policies. In a recent interview with Bridge Magazine and Interlochen Public Radio, Crawford could not even bring herself to mention Menzel’s name.

Carol Crawford, chairwoman of the Grand Traverse County Board of Commissioners, listens to discussion in a Jan. 31 board meeting about its search for a new county government administrator. (Bridge photo by Bob Campbell)

“I think that the methods used by that particular administration were a little heavy-handed,” said Crawford, one of six Republicans on the commission (the seventh is from the Green Party).

“We have pension debt, but I didn’t think that should be borne by the employees. I just thought there seemed to be the opinion from that administration that the employees should bear all the burden for paying back that debt.”

Menzel said he knew immediately after that election that he’d lost his mandate to change county government.  

“We were starting to turn the corner but then the election happened and they started to go back to their old way of doing things,” he said. “I had to fight all the time with the existing culture, which was trying to keep itself in place.”

Resignations and firings

Menzel announced plans in early 2017 to retire before year’s end and the county commissioners began looking for another leader. After the board’s first choice turned the job down, commissioners hired Uppal by a 4-3 vote last September.

Menzel’s departure plan prompted three members of a county pension advisory committee to resign. Chris Radu, a financial consultant, said he and the other two members hoped to draw attention to the pension crisis with their resignations.

“Obviously that didn’t happen. It was very frustrating” said Radu, who called Menzel the most capable administrator the county is likely to ever have.

If the current board remains in charge, he said, “it’s not a question whether the county will reach bankruptcy, it’s just a question of when.”

Enter Uppal, who arrived in northern Michigan after less than two years as administrator in Washington County, in the Mississippi Delta. Her mandate to reverse some of Menzel’s actions was clear from the start.

She reduced the pension contributions of the defined benefit employees from 10 percent to 6 percent. She reached out to county employee group representatives, including Bob Donick, the business agent for Teamsters Union Local 214.

Donick said he’d never talked to Menzel when he was administrator. Uppal, he said, was “like a breath of fresh air.”

Less than two months in, Uppal demanded the resignation of Jen DeHaan, the deputy administrator hired by Menzel. DeHaan refused and Uppal fired her. Days later, Jody Lundquist, the finance director Menzel hired, resigned, with others to follow.

As recently as early January, Uppal told commissioners she was confident she was reshaping Grand Traverse government into a workplace where employees still felt valued.

Less than two weeks later, she too quit.

I think she did an awesome job,” said Crawford, the county board chairwoman. “I think she was the exact right person for the job.”

Asked how the county was running now, Crawford said: “Actually, I think it’s going really well. We’re headed in a really good direction.”

That sentiment is not universal.  

The Traverse City Record Eagle editorial page blasted commissioners after Uppal’s resignation, writing: “The best leadership Grand Traverse County commissioners could provide as they face yet another administrator selection process is to acknowledge their mistakes, hire a strong leader with vision and get out of the way.”

Commissioner Dan Lathrop, a foot surgeon and self-described fiscal conservative, said he’s concerned the current board majority is putting the retirement needs of county workers ahead of taxpayers.

Commissioner Dan Lathrop supported the aggressive belt-tightening policies of departed administrator Tom Menzel. He said the county is now slipping back into some bad fiscal habits.

Lathrop represents part of Traverse City and the Old Mission Peninsula that divides East Bay from West Bay, a windswept mix of bay view roads, forests, orchards, vineyards, wineries and high-end homes. He is now part of the board’s three-member minority.

“All this board has done is reverse the good work that Menzel did,” Lathrop said. “They like to give away the farm and that’s what got us in this problem in the first place.”

That’s a perspective that Donick, the union official and the son of factory workers in Traverse City, hardly recognizes.

“I’ve been born and bred in unions and I truly believe in them,” he said. “My father, God rest his soul, told me unions always look out for the little guy. I believe that.”

Donick got a job after college with the sheriff’s department road patrol and worked there 28 years before retiring as a lieutenant to a full pension at age 48, taking an early buyout.

For 16 years, Donick, as business representative for Local 214, has represented the largest group of employees, about 175, among the 14 bargaining units in the county. Because of the pension crisis, his 175 members haven’t had a pay raise since 2015, he said.

What comes next?

When the county board met on Jan. 31 to discuss the search for a new administrator, commissioners said they needed to cast a wide net for qualified candidates.

Not a word was said about the elephant in the room: Why would a highly qualified administrator leave a secure job for Grand Traverse, where the balance of political power (and an administrator’s job security) seems to change with every election.

The board raised the maximum salary for the position from $135,000 to $145,000 to entice candidates.

“We need that consistent leader at the county who can find a long-term solution for the debt, for the employees, for the services,” said Kent Wood of the Traverse City Area Chamber of Commerce. “Right now, we’re not in a great position, politically.”

At this point, there’s no telling how county politics may shift by the time of the next election, this November. Different groups are recruiting candidates to run for the board, but it’s a tough sell, said Alisa Korn, who lost her seat in a Republican primary in 2016.

“We have to get new interesting people,” Korn said. “But we hear the same thing ‒ ‘It will ruin me.’”

Interlochen Public Radio interlochenpublicradio.org/ managing editor Aaron Selbig contributed to this report.

 

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Comments

Robert
Tue, 02/20/2018 - 8:45am

One small correction from a resident of Traverse City. Your headline should read: "Chaos in Grand Traverse County...". While the City of Traverse City also has unfunded pension liabilities it is relatively stable and without the revolving door in leadership experienced by the County.

David Zeman
Tue, 02/20/2018 - 11:39am

Hi Robert, we do say in the headline that the controversy wrests with county (not city) government. We used Traverse City because that's the county seat, but I see your point. 

Arjay
Tue, 02/20/2018 - 8:53am

Surprise, surprise, surprise. So many pension plans are put together with no regard to actuarial facts that it is inevitable they will fail. If you want to be safe, look at eliminating completely defined benefit plans and instead offer defined contribution plans. Every action that will have an effect on the pension plan must be thoroughly evaluated before it is taken. And don't fall for the rubbish that the plan is expected to grow 7 or 8% a year, when to be really safe, you should assume 4%. Giveaways such as letting people retire 5 years early and buy 5 years of pension do not work either, as investments at the end of a period do not enjoy the compounding that investments made at the start enjoy.

Too many decisions are made by politicians with no backup of facts to support their decision. A big allure lurking on the horizon is the Detroit grand bargain, which eliminated 10 years of payment being made into the plan in exchange for a balloon payment to be made 10 years after bankruptcy. Immediately after the bankruptcy and the bargain plans were put in place, the payment was upped by 20 - 30%. Failure is on the horizon.

Duane Beard
Tue, 02/20/2018 - 8:59am

Excellent article about the pension and leadership problems in Grand Traverse County. I would suggest a series of follow-up articles on topics such as: 1) how legislatively mandated structural changes in county level finance in Michigan have contributed to the problem; 2) how county government can be restructured/reformed to enhance fiscal stability; 3) how consistent, long-term civic education can help county voters make more informed and better choices.

Mortimer497
Tue, 02/20/2018 - 12:27pm

“We have pension debt, but I didn’t think that should be borne by the employees." Who should. It is not the fault of the taxpayer nor the employee that pension investment returns have not met the 8% expected returns. However, both are responsible for not paying off the shortfalls. Only the employee will benefit from having the pensions funds properly funded. It's time to eliminate defined benefit pension plans and replace such plans with 401K plans. That forces employees to take control of their own pensions.

Kevin Grand
Tue, 02/20/2018 - 1:36pm

“They like to give away the farm and that’s what got us in this problem in the first place.”

OPEB's.

Gotta love 'em!

This is also indicative of a problem that Michigan (along with the rest of America) is facing, politicians who have absolutely no vested financial interest in the decisions that they make. They just don't care when it's OPM they're spending.

Speaking of spending OPM, Arjay brings up a very good point above relating to another ticking time-bomb, the so-called "rescued" Detroit.

Instead of doing the responsible thing and socking away every last cent for when that deadline comes, it's now Christmastime (again)!

http://www.detroitnews.com/story/news/local/detroit-city/2018/01/16/detr...

Some of which was completely indefensible.

http://www.detroitnews.com/story/news/local/detroit-city/2017/12/07/jani...

And guess who'll be asked to pick up the tab when the bill comes due?

Eric Hines
Tue, 02/20/2018 - 11:56pm

A pretty poor job of providing context on this story. Tom Menzel was hired in 2015, yes. But how did that come about? Nothing to tell there that's relevant to the story? Or just nothing to tell that doesn't complicate the narrative you'd like to sell here?

And Radu resigned because Menzel planned to retire? Or did he resigned, as he stated at the time and as was widely reported, because other options for addressing the pension debt other than his most preferred one were being considered?

And who is Radu and the other resigned from that committee? What are their politics? Are they the sort of people who relish and cultivate exactly the sort of chaos you see here? Or is that just too pointed a question to ask of people who were obviously helpful sources?

Why doesn't the name Maxbauer crop up here? It's pretty much essential to any telling of this story.

Poor work.

Matt
Wed, 02/21/2018 - 10:04am

Funny how Mr. Donick is quoted as saying "I’ve been born and bred in unions and I truly believe in them,” he said. “My father, God rest his soul, told me unions always look out for the little guy. I believe that.” , yet somehow demanding that his member's pensions were regularly and fully funded doesn't come under that responsibility. Politicians seem always to find other more demanding uses for tax revenue and Public employee unions have been more than happy to help with this. To top it off it's mentioned that he retired at 48 with a full pension so the county can support him for the next 30 to 40 years! Yet somehow we're surprised it isn't working? Don't worry for these folks, as always this liability will be dumped on the state taxpayers!