The Problem

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Summary Findings from the Responsible Retirement Reform for Local Government Task Force

“Without intervention and a collaborative solution, [the unfunded pension and retiree health care liabilities of local governments] problem may continue to grow – jeopardizing the quality of life and delivery of essential services in those communities experiencing stress while creating instability for the retirees and employees who depend on these benefits.

“The severity of this problem varies widely and some communities have already taken proactive steps to address their situations. Of the approximately 1,800 local general purpose governments in Michigan, roughly one third provide post-retirement benefits. Due to a multitude of factors, many communities are now facing challenges funding the benefits to retirees.

“The total unfunded pension liability is estimated to be around $7.46 billion. The total unfunded liability for retiree health care is estimated at $10.13 billion. It is estimated that, for many Michigan cities, roughly 20 cents on the dollar goes to pay pension and OPEB costs. In some communities, this number is growing faster and continues to be a bigger share of local budgets over time…

“In an effort to develop a comprehensive set of recommendations, the Task Force agreed on the following key understandings and concepts which were used as a filter during deliberations of final recommendations:

  • As local units across the state are unique and at different stages in dealing with this problem, there is not a one-size-fits-all solution – we must be flexible in our approach.
  • Attention should focus on the local units experiencing the greatest fiscal stress as it relates to pension and OPEB liabilities.
  • In communities where a serious problem exists, something must be done immediately to begin to fix it for the benefit of employees/retirees, our communities and the state. This problem was created over many decades and will take many more to correct.
  • Solutions must ensure that this problem does not continue to grow in the future.
  • It is understood that there are local units that simply cannot raise taxes or reduce costs enough to address their unfunded liabilities.
  • The broader solution to fiscal stability must include balancing efficient use of revenues and control of long-term liabilities, provision of current services, and local government revenue constraints, while assuring retirement security for employees in order to attract and retain the qualified workforce necessary to provide essential services.”

For a full copy of the Task Force report, including recommendations and points of debate, visit: http://www.michigan.gov/documents/snyder/R3_Task_Force_Report_579101_7.pdf

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