News Story

Michigan Teacher Pension System Liabilities Increase Again

System underfunding up to $25.8 billion

Public school administrators have called the costs for the teachers' pension fund a budget breaker. They won't be happy to learn the costs are increasing.

The Michigan Public School Employees Retirement System (MPSERS) saw its unfunded liability increase to $25.8 billion in 2013 from $24.3 billion in 2012, according to the annual actuarial valuation report from the accounting firm, Gabriel Roeder Smith & Company. The pension liability in 2009 was about $12 billion.

James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy, said the additional unfunded liability is from the low rate of returns during the Great Recession that are still being factored in due to several years of “smoothing” where pension funds blend several years of returns and get an average rate. Hohman said it's possible the returns could be higher than the projected 8 percent in the future, but there are no assurances.

"That's hopeful thinking, which is inappropriate for policy makers to engage in," Hohman said. "They need to acknowledge the problems of optimistic assumptions, which have harmed state and school finances."

In 2012, Michigan legislators enacted reforms to deal with MPSERS’ unfunded liability. Those included increasing employee contributions to the plan, limiting some benefits and giving new employees the option of joining a 401(k)-type plan.

"This is why tweaks don't matter," Hohman said. "You have to stop the system from developing these unfunded liabilities. This plan is still a major danger to state finances."

Ari Adler, press secretary for House Speaker Jase Bolger, R-Marshall, said the reforms have worked. Adler included the MPSERS health care unfunded liability in his response, which changes the valuations.

"According to the House Fiscal Agency, unfunded actuarial accrued liability was at $45.26 billion back in Fiscal Year 2010 and increased to $48.28 billion in Fiscal Year 2011. After the Republicans pushed through MPSERS reform, we saw that trend turn around dramatically," he said. "For Fiscal Year 2013, that level was $38.29 billion. (This includes $25.8 billion in pension and $12.49 billion in health care.) Because of our reforms, the unfunded liabilities will continue to drop overall, even if there are fluctuations when comparing year-to-year totals. So, your premise that the unfunded liabilities 'are growing' is incorrect. Fluctuations can be caused by many factors, including the number of people in the system, the number of people drawing a pension and healthcare, etc.”

Dave Murray, spokesman for Gov. Rick Snyder, also included the MPSERS health care unfunded liability in his response.

"MPSERS was on an unsustainable path and needed to be reformed," Murray said. "Gov. Snyder was adamant that the long-term, unfunded liabilities were placing an extreme burden on school budgets, draining resources from the classroom. Those liabilities were about $45 billion before the reforms and have been reduced by about $20 billion. The reforms protect the employees, making sure they have the needed and promised benefits when they retire, and they make sure school districts have resources to use on improving academics. When coupled with the other educational reforms the administration has set in place, Michigan schools will be stronger and better able to prepare students with in-demand skills, building a foundation for long-term success for both the children and the state as a whole."

The Michigan State Employees Retirement System (MSERS) was closed to new state employees in 1997. Teachers were excluded from that reform. Now, the state automatically puts in 4 percent of state employees' salary into 401(k)-type plans and could put in an additional optional 3 percent. Teachers still get traditional pensions.

Shifting state employees has saved taxpayers an estimated $2.3 to $4.3 billion.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.

News Story

Legislature Considering More Transparency For Asset Forfeiture

Some police agencies oppose the bills, which would require more accountability when property is taken

A package of bills that would provide more transparency in asset forfeiture cases in Michigan is being considered by the Legislature.

House Bills 5250, 5251, 5252 and 5081 would require law enforcement agencies to disclose the number of criminal asset forfeiture proceedings, the alleged violation of the law and whether a person was charged or convicted, the date the property was seized, a description and value of the property, and a few other details.

Michigan has had numerous problems with asset forfeiture in the past, with money and property being seized by police from innocent people. The state has taken at least $250 million since 2000 and receives a "D-" from the Institute for Justice, a libertarian law firm that represents people pro bono who have been harmed by such practices.

According to the group, "[L]aw enforcement receives all proceeds of civil forfeiture to enhance law enforcement efforts, creating an incentive to pursue forfeiture more vigorously than combating other criminal activity."

One of the supporters of the legislation, Rep. Tom McMillin, R-Rochester Hills, said part of the reason for the bills is to help change these perverse incentives.

"It's just good transparency legislation," Rep. McMillin said. "It would show the ones who are using this tool correctly and the ones who aren't. That will be helpful."

The legislation passed the House Oversight Committee and could be taken up by the full House as soon as today. But opposition from law enforcement agencies could kill the proposed laws.

The Michigan State Police did not respond to a request for comment, but in testimony before a House Committee, Sgt. Amy Dehner, legislative liaison for the MSP, said the agency opposed the bills as written because some parts are "procedurally not possible." While generally supporting more transparency, she said it would require more employees to keep up with the new reports and she worried about privacy.

"Some of the reporting requirements, we feel, could either put an informant in jeopardy or a person who may not even have been charged yet has their assets published online and are now hanging out there and can be tracked back," Dehner said in her testimony. "And potentially could compromise a witness or an open investigation."

Lee McGrath, legislative counsel for the Institute for Justice criticized current forfeiture proceedings and disputed the fears.

"Forfeiture is the one of the biggest threats to property rights of the residents of Michigan," he said. "This bill is carefully crafted to give the governor and state legislators the information about what property law enforcement has seized and forfeited.

"The bills require reporting on only closed cases in which the investigations and court actions have ended," McGrath added. "Objections about compromising witnesses are pretext for some members of law enforcement not wanting legislators to know exactly what property is being seized and how law enforcement is spending forfeiture proceeds."

The Michigan Sheriffs' Association did not respond to a request for comment.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.