Don’t risk teacher pensions to grow government

Spend now, pay later was Michigan’s longtime operating strategy. The state ignored its mounting future obligations in favor of adding new programs and projects.

Former Gov. Rick Snyder put an end to the practice with an ambitious plan to pay down the state’s unfunded retiree pension and health care debt, a step that assured the solvency of the benefits while also providing more money for classrooms.

The measures Snyder and a Republican Legislature put in place have greatly reduced the unfunded liability and kept the state on track to wipe it out entirely by 2038.

In her new budget, Gov. Gretchen Whitmer is abandoning that disciplined approach. She wants to dip into teacher pension payments to reclaim $670 million for growing the size of government.

The governor claims the Michigan Public School Employees’ Retirement System is now 99% percent funded, so socking away so much additional money is unnecessary.

She isn’t telling the whole story. Combined, the teacher pension and health care funds are indeed in much better shape than they were when Snyder began the accelerated paydown schedule.

But the future obligation still totals roughly $35 billion. And while the governor boasts she has reduced state debt by $18 billion since taking office, that, too, is inaccurate. The $18 billion is the amount Michigan made in payments, but the debt total decreased by just $2.4 billion, according to the Senate Fiscal Agency. Anyone with a mortgage understands the math — not every dollar of the monthly payment reduces the principle.

It may be that Michigan will knock down its unfunded retiree obligations to zero before 2038, but it’s too early to declare the mission accomplished.

“We’re making progress, but it’s not the time to back off,” says Jase Bolger, who was the Republican House speaker when the first of the debt reduction policies were put in place. “It really is a raiding of the teacher’s pension fund.”

Putting retiree pensions at greater risk might be justified in a time of emergency. That’s not the case this year. Michigan just spent down a $9 billion surplus provided mostly by federal COVID relief funds. It used the bonus cash to fund a host of new spending programs.

Now Whitmer is on the hunt to find more sources of revenue to keep the spree going. She’s already engineered a $700 million tax hike by clawing back last year’s income tax rate reduction.

The $670 million from the pension payments will be used in part to extend to all Michigan households, even the wealthiest, the state’s free pre-school program, which already covers low- and middle-income families.

The governor also proposes ending means testing for community college scholarships and making them universal as well.

Whitmer’s agenda returns the state to its undisciplined budgeting past. It is reckless to ditch a law that promises to protect teacher retiree benefits and frees school districts of crushing pension payments while such a sizeable debt still exists.

The health of pension systems depends on more than just the amount of money paid into them. They are also impacted by interest rates, the stock market, investment decisions and inflation. Should any of those factors turn in the wrong direction, the condition of Michigan’s systems would be less robust.

Michigan is better positioned for the future thanks to Snyder’s responsible foresight. Reverting to the bad fiscal habits of the past risks undoing a decade of hard work.

— The Detroit News


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