Tue December 3, 2013
WestSouthwest: Bridge Magazine looks at "Michigan's Broken Legacy"
Unfunded debt to pay for pensions and retiree health care costs is one of the major contributors to Detroit's bankruptcy filing. Other cities in Michigan could face similar problems.
Bridge Magazine, the online news service of The Center for Michigan, looks at the problems cities throughout the state may be facing. The series, Michigan's Broken Legacy, examines the unfunded liabilities for cities of all sizes in Michigan.
Bridge Contributor Ted Roelofs told WMUK's Gordon Evans that Detroit is "an extreme example" of what can go wrong. But he says many other communities are dealing with the same issues of unfunded retiree pension and health care costs.
Governor Rick Snyder has said Detroit's bankruptcy filing was "60 years in the making." Roelofs says that would apply to other cities in the state as well. He says the rise of the auto industry in Michigan and the changes that followed played a big part in the legacy costs that many cities now face.
One story in the series looks at Portage's efforts in the mid-1980's to change its retirement system. Roelofs says Portage was ahead of the curve in moving to a retirement system that was more like a 401K. He says the city made the changes at the same time as the private sector. Roelofs says the financing of municipal retiree costs did not become a major issue until the mid-2000's. In contrast, Roelofs says Kalamazoo has been reducing legacy costs, but still has more work to do. Roelofs says Kalamazoo is similar to other cities. He says Portage is one of the few cities in Michigan that has no unfunded retirement liabilities on its balance sheet.
Unfunded legacy costs are not only found in larger cities. Some smaller towns are also facing long-term debt to pay for retiree pensions and health care costs. Roelofs says the amount owed is not as large, but it may be a large portion of a smaller budget.
The retirees are concerned about the possible loss of pension and health care benefits. But Roelofs says the cities face tough choices. Raising taxes is never popular, but cutting services can only go so far. Roelofs says some cities may also consider bonding to pay off the debts from retiree pension and health care debt.
Roelofs says another municipal bankruptcy in Michigan doesn't seem likely right now. But he there is still a high level of financial stress in many communities. Roelofs says it will "take many years for this to be sorted out."
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