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Topic: CapitalConfidential-Flint pension crisis looms

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El Supremo

Contaminated Water Dominates Flint Headlines, But Pension Earthquake Looms

Pension payments increase 50 percent in five years

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By TOM GANTERT | May 13, 2016 | Twitter Follow Tom Gantert on Twitter

Contaminated drinking water has dominated daily headlines in Flint, but a looming crisis of a different kind casts a pall over the citys financial future: A $285 million unfunded pension liability is consuming ever more of the citys budget.

In 2015, Flint paid $20.4 million to cover retirement system costs. To put the burden of pension obligations into perspective, that amount is 42 percent of the city's general fund budget.

The financial stress has been growing: In 2010 Flint paid just $13.4 million into this system. The general fund represents just one part of the citys budget (the water and sewer system are separate), but through it flows most of the money the city uses to cover a good part of its day-to-day operations.

This shows the risks to traditional pensions, even for a government body like Flint, said Andrew Biggs, a resident scholar at the American Enterprise Institute. The government has promised benefits years and decades in the future when it has no clear idea of its capacity to pay the benefits. If the stock market doesnt do well or if tax revenues flatten, the city is in a mess of trouble. Flint is like cities and states around the country that face a day of reckoning on public employee pensions plans.

The city of Flint offers its employees four different pension systems. By far the most popular is the Municipal Employees Retirement System (MERS), to which the city made that $20.4 million payment.

The city has 481 full-time positions, and 349 employees are enrolled in MERS.

As of December 2014, Flint has funded 48 cents of every dollar in pension benefits it has promised to its employees in the MERS defined-benefit plan. As of last June, its unfunded pension liabilities totaled $285 million.

Many Michigan municipalities have dug even deeper holes. For example, the city of Benton Harbor has funded just 43 cents for every dollar in pension benefits it has promised its employees in the MERS plan.

Cities need to get serious about properly funding pension systems or they need to stop offering pension benefits, said James Hohman, the assistant director of fiscal policy for the Mackinac Center for Public Policy. The massive underfunding in Flint is unfair to employees and residents alike.

Kristin Moore, the public relations director for the city of Flint, didn't return an email seeking comment. City Administrator Sylvester Jones referred comment to Jody Lundquist, the city's chief financial officer. Lundquist didn't immediately return an email seeking comment.
Post Fri Nov 11, 2016 1:54 pm 
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El Supremo

interesting comment on the pension story

Redd Hede AKA Sam Brown
Yesterday at 8:07am
Conflict of Interest for Flint City Council & MERS?
Flint has Municipal Employees Retirement System (MERS) for retirement funding. MERS has stock in Republic. Council (except 1st Ward Councilman Eric Mays who abstained) voted for Republic. Flint was forced into MERS by Emergency Management. EM then sold the trucks to Republic. Did the EM belong to MERS & did MERS own Republic stock then? Please note that in June 2016 MERS sold Waste Management Stock & bought a bunch of Republic stock. MERS has over 800 municipalities & is worth over $9 billion.
Diplomat & GM were given big tax breaks by Flint & MERS owns stock in those too.
Is AG Bill Schuette vested in MERS? If so is that why he refuses to shut down Enbridge Line 5 because MERS holds stock with Enbridge?
Will the City of Flint Council not demand or file law suit for lower water rates because they need it to fund retirement?
All stock held by Municipal Employees Retirement System of Michigan MERS
Please note MERS holds stock in several big polluters who are being sued in class actions suits. How can we ever expect our government to go after the polluters when the government retirement fund holds so much stock in polluters such as GM, 3M, DUPONT, DOW etc?
This is from the City of Flint Charter
A. An elective officer, appointee or employee who has a conflict between a personal interest and the public interest as defined by law, this Charter or ordinance shall fully disclose to the Chief Legal Officer the nature of the conflict.
B. Except as provided by law, no elective officer, appointee or employee of the City may participate in, vote upon or act upon any matter if a conflict exists.
(Adopted by the electorate, 11-5-1974)
Post Fri Nov 11, 2016 2:03 pm 
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El Supremo

Michigan Capitol Confidential

Unfunded State Employee Pension Liabilities Remain at $6.2 Billion

By JAMES M. HOHMAN | May 27, 2015

Michigans closed state employee pension system got some good news this year: unfunded liabilities did not increase. But taxpayers are still on the hook for the $6.2 billion promised to retirees that the state has failed to save enough for.

A new valuation shows the systems liabilities grew roughly $500 million since the last report but so did the value of assets set aside to cover those liabilities. The state carries $16.2 billion in pension liabilities, and $10.0 billion of investments. Some of the systems previous assumptions have been updated to reflect actual experience, which added $400 million to the projected liabilities.

Retirement system managers adjust for variations in the market value of pension fund investments using a five-year average. This smoothing of reported numbers in turn keeps contribution rates from having large year-to-year fluctuations. Recent investment gains exceeded the 8 percent annual return the system assumes, so the (unsmoothed) market value of the pension funds current assets exceed their (smoothed) actuarial values by roughly $1 billion.

The not-bad news is a change from recent years. Unfunded liabilities increased from $1.8 billion in 2007 to $6.2 billion in 2012. They have remained at $6.2 billion since then.

Thankfully, nearly 20 years ago the pension system was closed to state employees hired on or after March 31, 1997. These employees are granted generous contributions to individual retirement savings plans that generate no long-term taxpayer liabilities. This has saved taxpayers from even larger unfunded liabilities, but the risk will not be fully extinguished until the last pension check is sent to the last surviving pre-1997 employee, many decades in the future.

Michigan's Pension Crisis Means Tax Hikes and Cutting Cops

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited. Permission to reprint any comments below is granted only for those comments written by Mackinac Center policy staff.

Last edited by untanglingwebs on Fri Nov 11, 2016 2:23 pm; edited 1 time in total
Post Fri Nov 11, 2016 2:19 pm 
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El Supremo

Michigan Capitol Confidential

State Government Up to Its Eyeballs in Pension Debt

Unfunded pension liabilities dwarf states other borrowing

By JAMES M. HOHMAN | June 20, 2016

Unlike Washington D.C., Michigans state government is constitutionally prohibited from spending more than it takes in each year and borrowing to make up the difference. Yet state taxpayers are still liable for large amounts of state debt, for purposes both practical and problematic.

The debts of greatest concern to residents are general obligation bonds, backed by general taxpayer dollars. Payments come right out of the annual general fund tax revenue the state uses to support the rest of what it does.

Michigans recently passed budget includes $137 million to make payments on this debt, paid from states general fund (largely composed of money from the state income tax).

There is other debt that gets paid by taxpayer dollars without being general obligation debt. Some $3.1 billion borrowed to build or improve state offices and college buildings is also of concern because it will take another $247 million from the new budget more money that wont be available for other uses.

But other portions of the states $26.6 billion official debt are less of a concern to taxpayers. The Michigan State Housing Development Authority, for instance, borrowed $2.0 billion and then lent it in turn to housing developers. Taxpayers will not be liable as long as developers make their payments.

That level of debt is worrisome, but it is the semi-off-the-books debt that poses the major threat to taxpayers, not only in Michigan but all around the country and pensions are exhibit No. 1.

Michigan state and local governments have promised their employees far more in pension benefits than can be supported by the amount set aside for that purpose. There may be no official mortgage or bond offering for this debt, but every taxpayer is on the hook for it nonetheless.

The state-run school pension system is largest pension system in Michigan. Lawmakers have promised teachers and school employees $67.7 billion in pension benefits, but set aside and invested only enough to cover $41.0 billion. Taxpayers carry the burden for the $26.7 billion difference, and it is a heavy lift: $2 billion of the amount paid in state and local school taxes goes to fill this hole.

And even these numbers are less firm than they appear. The underfunding came about two ways. As auditors have noted, state officials and lawmakers made overly optimistic assumptions about future returns from pension fund investments and payroll gains. The actual debt owed to retirees in this system may actually be higher than $26.7 billion.

And then, even after basing annual pension contribution amounts on imprudent predictions, officials still havent made full payments.

Moreover, the pension figures ignore billions of quasi-liabilities represented by health insurance benefits that have been promised to school and government retirees. Unlike its treatment of pensions, Michigans constitution does not prohibit trimming those insurance benefits, or even eliminating them altogether.

Because the pension underfunding has gone on for decades, more money is owed to government employees and retirees than any other class of creditor. That is a bad situation for those workers and for taxpayers alike. To prevent the problem from getting worse, governments should stop providing pension benefits that can and have been underfunded and instead offer employees defined contribution benefits.
Post Fri Nov 11, 2016 2:22 pm 
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El Supremo

Study: Michigans unfunded pension liabilities increase
Chad Livengood, Detroit News Lansing Bureau 3:12 p.m. EDT July 14, 2015
Lansing Michigans unfunded state pension liabilities increased during Gov. Rick Snyders first term as the state did not pay the amount needed annually to mathematically keep up with the ballooning long-term costs, according to a study released Tuesday.

The Pew Charitable Trusts national study of state pension plans found that Michigans six state-run pension plans had a combined funded level of 60 percent in 2013, a decrease from 65 percent in 2011.

During the same period, the states payments toward the pension plans fell from 87 percent in 2011 to 77 percent by 2013 of what financial experts set as the required minimum payment to keep the funds fiscally sound.

The 2013 actuarially required contribution was $2.61 billion for the pension funds of 416,000 active and retired state workers, school employees, judges, state police troopers, military members and former legislators elected before 1997.

State officials dispute Pews analysis of Michigans pension financial data, arguing that the study doesnt account for adjustments made to the required annual contribution amounts.

Those amounts are initially set two years in advance and then changed based on investment gains and other factors, said Phil Stoddard, director of the states Office of Retirement Services, which manages five of the states six pension funds

Were paying 100 percent, Stoddard said Tuesday. Your (actuarially required contribution) is never the exact amount, its the target.

In 2013, state governments nationwide contributed $74 billion toward pensions, $18 billion short of what was needed to meet the long-term demands of the retirement funds, according to Pew.

The 238 pension funds in all 50 states are short $968 billion of what is owed to retirees in the long run. In Michigan, the unfunded liability topped $32.7 billion in 2013, the Pew study shows.

States cannot count on investment returns over the long term to pay down these liabilities, said David Draine, a senior researcher of public sector pensions at Pew.

Like most pension funds across the country, Michigans asset values plummeted after the stock market tanked in 2008 and 2009.

The states combined pension fund assets, which also are feeling pressure from a growing number of retirees drawing pensions, fell from a high point of $58.8 billion in 2008 to $48.9 billion in 2013. During the same period, Michigans unfunded liability nearly tripled from $11.4 billion in 2008 to $32.7 billion by 2013, according to Pew.

Stoddard said the Pew study also doesnt account for the fact Michigans pension payments are higher than most states because the state has set a goal of paying off the remaining unfunded liability by 2038.

Like a shorter mortgage loan on a home, the 23-year payment causes the states annual payments to be higher than they would be if had been spread over 30, 40 or 50 years, he said.

Some states use a rolling amortization period of years that never decreases, unlike Michigan, which adopted a gradually decreasing pension payoff in the late 1990s, Stoddard said.

This is an example where all of these numbers are not equal, he said about the Pew study. We hold ourselves to a higher standard that says at the end of 23 years the debt will all be paid off.

Snyder, an accountant by trade, routinely talks about 2038 as a good year to run for governor when the state will have a mortgage burning party.

In 2012, Snyder and lawmakers imposed changes to the Michigan Public School Employees Retirement System to tackle the pension funds growing unfunded liability. They required higher contributions from school employees to their pensions and committed to pouring more state funding into the pension and retiree health care fund.

The 2016 school aid budget Snyder signed last month contains $893.5 million in state funding for MPSERS, a $216.5 million increase over the 2015 fiscal year.

The school employee pension was 66 percent funded in 2014, an increase from 60 percent in the prior year, according to state data compiled by Pew.

Not many of the other systems are as aggressive of the pay down as we have been, Stoddard said.



Michigan pension funding

Heres a look at the combined funding level of the State of Michigans six pension plans:

2003: 87%

2004: 84%

2005: 80%

2006: 87%

2007: 88%

2008: 84%

2009: 79%

2010: 72%

2011: 65%

2012: 61%

2013: 60%

Source: Pew Charitable Trusts; comprehensive annual financial reports for state pension plans
Post Tue Nov 15, 2016 6:31 am 
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El Supremo

Pension showdown possible in lame duck
Justin A. Hinkley , Lansing State Journal 9 a.m. EST November 17, 2016

LANSING Dozens of cities, villages, townships and counties across Michigan are drifting into a perfect storm of flat income and big bills for retiree costs, but some are worried the Legislature could rush reforms this year that end up hurting more than they help.

Statewide, local governments are carrying some $4 billion in unfunded pension debt and $11 billion in unfunded retiree health care costs, according to the Michigan Treasury. That's putting the squeeze on many local governments whose revenues from property taxes and the state are relatively flat.

This year, when the Municipal Employees' Retirement System of Michigan (MERS) which manages eight in 10 local government pension programs asked municipalities to pay more to catch up, it put many governments in a serious bind.

Communities "are panicked about this issue across the state," said Port Huron City Manager James Freed, who convened nearly 70 communities in Lansing this fall to discuss the MERS changes. He called it "a clear and present danger" to government services.

Freed said many of the communities represented at that meeting are "on a financial trajectory in the next 3 to 5 years to become insolvent.

That predicament, coupled with calls this year from major Republican donors to end municipal pensions for new employees, has many local leaders, Democrats and union officials expecting and some fearing that the GOP-controlled Legislature will push a pension overhaul in the lame-duck session that begins in earnest on Nov. 29.

State Rep. Andy Schor, D-Lansing, a former lobbyist for the Michigan Municipal League, said he'd heard rumors that dozens of bills could be dropped before New Year's Eve. Some could force local governments into 401(k) plans, in which retiree benefits are not guaranteed and which have become the norm in the private sector. There are also rumors of a plan to require any new revenue sharing from the state to go toward retiree debt.

"I wouldn't be surprised," Schor said. "Anything's possible in lame duck."

Republican leaders would not say pension reforms are on the lame-duck agenda, but also did not rule it out. The Associated Press reported this week that reforms to public school teachers' retirements are a priority for legislative leaders. Reforms to health care for municipal retirees perhaps providing retirees with a stipend and moving them off municipal health plans and onto the federal health care exchange have been discussed, but nothing's been finalized, the AP reported.

Related: Lansing-area communities face looming legacy costs
In an interview last month with the State Journal, Michigan Treasurer Nick Khouri said he was in talks with lawmakers but refused to say whether reforms were imminent. He said it was his preference to take advantage of the relatively stable economy to address legacy costs, efficiency of services and income simultaneously.

"We've got enough time to address the whole three big buckets of fiscal sustainability," Khouri said. "Where you run into problems is when you try to pull one of the three buckets out and try to address that (alone) You really have to look at the big picture."

Some had expected Democrats to pick up seats or even reclaim control of the state House in this month's election, which could have prompted Republicans to move quickly. Since the GOP maintained its majority on Nov. 8, Republicans have at least two more years to push their agenda.

"The desire, on my part, is to still try and do something in lame duck, if we can, even we can just nibble something off the edges," said state Rep. Earl Poleski, a Republican who will leave office at year's end because of term limits. "I'm afraid that there's a little less urgency."

'The political will'

Reform advocates concede there may not be enough time to push a holistic solution in 2016. However, some said municipalities are in enough trouble that it could be worthwhile to get something done quickly and address other issues later.

"If there were a way to do it in my last few weeks, I would try to do that," Poleski said. "Now, is that practical? I don't know I think there's enough information out there. The question is if there's the political will to get it done."

Lame-duck action could elicit a strong reaction from public employees, thousands of whom clogged the Capitol with other union workers to protest right-to-work legislation during the lame-duck session in 2012.

Eric Weber, president of the Lansing firefighters union, noted that he already pays a tenth of his paycheck toward retirement and said unions are cognizant of their employers' constraints. But he said governments should be mindful of workers' constraints, too, and lawmakers should remember that employees' and retirees' incomes pay taxes and fuel local economies.

"I respect the unfunded liability and we always work at the bargaining table to get to an amicable resolution that works for both parties," he said. "Why do they always want to come after the pensions of these public servants? We're not going to be able to afford things to keep the economy going."

Few deny, however, that the retiree costs coming due in the near future are a problem.

Post Thu Nov 17, 2016 5:34 pm 
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El Supremo

How will Lansing-area communities pay looming pension costs?
Beth LeBlanc , Lansing State Journal 5:15 p.m. EST November 17, 2016
lansing city hall 3Buy Photo
(Photo: Rod Sanford | Lansing State Jour, Lansing State Journal file photo)
LANSING - As ballooning legacy costs threaten communities throughout the state, mid-Michigan municipalities are scrambling to address escalating payments.

Lansing is in the midst of a comprehensive study of its legacy costs, East Lansing has appointed a Financial Health Review Team that is examining an income tax, and Ingham County is exploring how to pay for core services when its pension payments begin to accelerate next year.

Local governments across Michigan have paid for about 78% of their current long-term pension costs, close to the industry standard of 80%, according to the state treasury.

But individual communities in Greater Lansing differ, with some falling below that 80% funded level and others exceeding it.

Lansing, which manages its own pension funds, has about 65% of its $719 million pension liability funded in 2015. The city had nearly 14% of its $442 million retiree health care funded in 2013, ranking as one of the highest in the state for unfunded retiree health care liabilities, according to Lansing finance director Angela Bennett.

Further complicating the citys position is the fact that the city has about twice as many retirees as active employees, about 851 full-time workers and 1,637 retirees.

"We have made significant changes," Bennett said, regarding negotiations between the city and its union on benefit changes. While those changes may lower future costs, they don't take away the liabilities that have already been accumulated.

"You combine the revenue constraints and cuts that weve experienced with the (legacy) costs and that absolutely is a concern," Bennett said. "We want to do something now before it becomes a crisis.

In addition to a five-year experience study that evaluates its actuarial assumptions, the city has undertaken a comprehensive study by Segal Group to examine rate of return, possible changes to employee benefits and ways to make good on promises to retirees, employees and residents.

Ingham County's funding levels are similar.

About 66% of Ingham Countys $447.9 million pension liability is funded, while 14% of the countys $91.1 million retire health care obligation is funded.

Ingham County is among the governments that use the Municipal Employees Retirement System of Michigan to manage its pension funds. When MERS accelerated the amortization timeline for paying pension liabilities, the county was told it should contribute an extra $2 million each of the next five years, ramping up its payments from $13.6 million in 2017 to about $25.6 million in 2021.

After several years at the 2021 funding level, the countys pension could be fully funded. But the effect those accelerated payments could have on core services has Tim Dolehanty, the county's controller-administrator, worried.

"The pendulum has swung completely in one direction and now it needs to come back and land somewhere a little more reasonable," Dolehanty said.

East Lansing had about 55% of its $182 million pension liability funded as of 2015 and 24% of its $54.1 million retiree health care liability funded as of 2014.

In February, the city appointed a Financial Health Review Team to study those costs and figure out ways to address them.

Mike Moquin, chairman of East Lansing's financial health team and former MERS director, said the new MERS calculation increased East Lansings total pension liability by $8.2 million.

This declining amortization schedule is significant, Moquin said.

Despite the ballooning costs, East Lansing Mayor Mark Meadows said the citys pension and health care obligations are not an immediate threat to services.

Were not broke by a long shot, Meadows said. But in order to have a healthy city, we need to address this issue.

Meadows said he understands the risk the citys legacy costs could pose to bond ratings, borrowing rates, and general fund expenditures in the future.

I think we want to accelerate our payments and how we do that is just one of the big issues, Meadows said. Its a complicated issue.

Not all communities in mid-Michigan are feeling the same pressure from the MERS changes, however.

Clinton Countys funding level is relatively high compared to other mid-Michigan communities.

The countys $9.5 million retiree health care liability is about 113% funded, while its $54.3 million pension liability is 93% funded.

Craig Longnecker, the countys deputy county administrator, said the county realized the burden of its health care and pension liabilities about 15 years ago.

Though MERS shortened amortization period may put a pinch on the county, Longnecker and Clinton County administrator Ryan Wood believe the county can weather the storm.

Were probably in as good of shape as you could possibly be to handle this, Longnecker said. Our goal is to contribute enough to keep it in that 90% to 100% funded range.

Other communities wont have the same luxury, however, Wood said, and its not necessarily the fault of current leadership.

A lot of these problems came about from decades of decisions that have sort of settled on the people of today, Wood said. These issues were decades in the making Now, they have to take some pretty strong medicine.

Contact Beth LeBlanc at (517) 377-1167, eleblanc@gannett.com, or on Twitter @LSJBethLeBlanc.
Post Thu Nov 17, 2016 5:41 pm 
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El Supremo

The warning was out there but many ignored.
Post Fri Feb 03, 2017 9:25 am 
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