News Story

Pension Funding: Why Your Town is Going Broke

Not because you don't pay enough taxes

Just 13 percent of the local governments whose retirement systems are administered by a statewide entity have set aside enough money to pay the pensions promised to their workers.

The Municipal Employees’ Retirement System (MERS) administers pension systems for 728 local cities, villages, townships, agencies and more. But only 97 of those systems have adequately funded their pension obligations, according to the operation’s most recent report that covers up to Dec. 31, 2014.

Local government employees covered by MERS are owed some $12 billion worth of retirement benefits — but their employers have not set aside enough to cover the full amount. Taxpayers in those communities on the hook for $3.5 billion worth of unfunded liabilities.

MERS administers benefits for just over 29,000 municipal retirees, who receive $53.4 million a month in pension payments. The broadly defined term “municipalities” include not just cities, villages, and townships but also district courts, senior centers, regional medical centers, district libraries, local fire departments and more.

Underfunding at some of its largest members is much worse than the average.

Battle Creek (66.6 percent funded), Holland (66.0 percent), Calhoun County (63.5 percent), Port Huron (62.7 percent), Midland (60.2 percent), East Lansing (58.1 percent) and Flint (48 percent) are some of the larger government employers that have not set aside enough to cover their pension promises.

"This is pretty typical of (government) pension systems, and sadly this is in better shape than a lot of pension systems," said Chris Douglas, the chair of the economics department at the University of Michigan-Flint. “MERS looks to be about 70 percent funded. Illinois' state pension system, on the other hand, is only 40 percent funded with $111 billion in unfunded pension liabilities."

Douglas said the Chicago pension system alone is $20 billion in the hole.

"Pensions are going to be a huge issue nationally," he said. "Unfunded pension liabilities are estimated to be as high as $4 trillion. In 2015, the Treasury Department collected $1.5 trillion in income taxes. Thus, to close the pension funding gap, you would have to divert all income taxes toward pensions for nearly three years straight. I don't know how we'll solve this problem."

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.

Commentary

New Study Shows Positive Effects of Ridesharing

Introduction of Uber decreases crash rates and DUIs

Uber has long suggested that the introduction of its service correlates with a decrease in drunk driving arrests. In Seattle, for example, DUI arrests dropped by 10 percent after Uber launched. But the company acknowledged that a more detailed analysis would be necessary to show causation.

That analysis has arrived in the form of a recently published paper by Angela Dills of Providence College and Sean Mulholland of Stonehill College, who conducted a broad study of Uber in over 150 cities. “Ride-Sharing, Fatal Crashes, and Crime” addresses not just incidences of drunk driving, but also crash rates and certain other types of crime.

The study found that fatal crash rates were reduced by six percent on average after the introduction of Uber in a city. Nighttime fatal crashes also dropped by 18 percent. Overall, the authors find that for each year Uber is operational in a city, auto fatalities decline by 16.6 percent.

The decline in fatal crash rates alone presents a compelling argument for expanding ridesharing services to a broader audience, but the drunk driving statistics are even more impressive:

[W]e find a large and robust decline in the arrest rate for DUIs. Depending upon specification, DUIs are 15 to 62 percent lower after the entry of Uber. The average annual rate of decline after the introduction of Uber is 51.3 percent per year for DUIs.

These numbers back up the anecdotal evidence Uber drivers have told through their stories. This new evidence suggests that allowing ridesharing to grow and expand in Michigan wouldn’t just benefit drivers and passengers, it would benefit everyone else on the road by cutting back on fatal traffic accidents, drunk driving and other related crimes.

The Michigan Legislature is currently considering a package of bills that would create a statewide regulatory framework for ridesharing and allow more Michiganders to drive for the likes of Uber and Lyft. Ridesharing is great for the Michigan economy, but this new research suggests that passing those bills would improve the safety of the state’s roads, as well.

For more information, read the full study or visit mackinac.org/ridesharing.

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.