(The Center Square) – Michigan taxpayers will spend up to $750 million to help subsidize underfunded pension systems of local governments.
There are 145 municipalities set to receive up to $750 million from state pension program. The list of approved expenditures is expected to be released this week.
Michigan municipalities with pensions funded at a ratio of 60% or less could apply for a grant that would see each qualifying government receive no more than $170 million to go toward their existing pension systems. This comes after years of pensions being underfunded throughout the state.
For example, Saginaw was eligible for the state pension relief program. Saginaw’s pension system was funded at 49.1% in 2021. The city had a net pension liability of $180.1 million that year.
“Local government officials can offer whatever pension benefits they like, subject to collective bargaining where their employees are unionized,” James Hohman, of the Mackinac Center for Public Policy, told The Center Square. “Despite constitutional requirements to prefund pensions, most local government officials put less in than they needed and accidentally made their own employees and retirees some of the government’s largest creditors.”
Hohman said the practice of underfunding hurts everyone involved.
“This is bad for municipal workers, retirees and the government’s taxpayers,” he said. “Last year lawmakers recognized this and offered extra payments to local governments that are in bad positions in exchange for offering better pension practices and work to stop the underfunding from increasing. State taxpayers already have a stake in these governments – there is a lot of state taxpayer dollars distributed to these governments already. And both the state, the local governments, employees, pensioners and taxpayers will be better off if we pay down pension debts and prevent future pension underfunding.”
As of 2021, the cities of Flint and Lincoln Park had some of the most severely underfunded pension system of all Michigan municipalities, according to the latest report from the Municipal Employees’ Retirement System.
There are currently 101 municipalities covered by MERS with 100% of their pensions funded out of a total of 744 municipalities. This is a 7% increase of the 53 pension systems covered in 2020.
