News Story

Rising Pension Costs Bury Michigan Schools Despite Past Tweaks to System

Tuesday's big Wayne County school tax hike proposal would only pay half of recent pension cost increases

The Livonia public school district is like many around the state suffering the double whammy of declining student enrollment and skyrocketing pension costs.

Since 2011, a reduced enrollment has cost Livonia $13 million in state funding, while its pension expenses have more than doubled, from $12.2 million in 2011 to $26.3 million in 2016. Combined, the double-hit represents a $25 million reduction in annual cash flow. The district’s total state revenue has remained level over that six-year period at $106 million despite the drop in enrollment.

If an $80 million annual countywide school property tax increase is approved by voters Tuesday, Livonia is expected to get a $5.6 million annual funding bump. That will cover half the recent pension cost increases.

But Livonia Superintendent Randy Liepa said that looking at only state aid dollars and retirement costs does not provide a full picture of school finances.

“You have to look at all components to tell the correct story,” Liepa said in an email. “Enrollment decline is a significant factor in loss of funding.”

Liepa is hopeful that changes made in 2012 to the state-run school pension system may help going forward.

“While the retirement system may still have its challenges,” he said, “the reforms implemented in 2012 helped to address what would have been a much more dire situation for local districts as it relates to funding the required payments from the system.”

The Legislature made tweaks to the system in 2008, 2010 and 2012, but those haven’t come close to halting increases in the state-run system’s unfunded liabilities. They have grown from $8.9 billion in 2008 — when the first round of revisions was enacted — to $26.7 billion in 2015. Over the same period, the system has gone from having enough reserves to cover 83.6 percent of its obligations to just 60.5 percent today.

“There is no lack of money going to school districts — the state is spending more and more each year. But the extra dollars are going toward an underfunded pension system,” said James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy. “School district officials should instead ask to close the system, stop the underfunding, and then the dollars will go where they would like it.”

Hohman says the only way to contain and gradually reduce the unfunded liabilities is to close the system to new employees, who would instead get employer contributions to their own 401(k)-type accounts.

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

Key Criminal Justice Bills Working Their Way Through the Legislature

Proposed reforms to juvenile sentencing, prisoner parole time and judicial power

In 2003, Michigan made national headlines by passing several dramatic criminal justice reforms, including repealing mandatory minimum sentences for drug offenses. Thirteen years later, three significant measures are before the current Legislature, and they have re-ignited the debate about corrections practices.

The Michigan House passed bills relating to juvenile sentencing, the parole of prisoners and the power of judges. The bills have been pending before Senate committees for months.

Juvenile Sentencing

The juvenile justice package (House Bill 4947 et seq) would raise the age of criminal responsibility to 18, meaning that 17-year-olds, the current minimum age for trying someone as an adult, would no longer be automatically tried, sentenced and housed as adults. Although prosecutors would still be able to charge them as adults in cases of serious crimes, such as rape or armed robbery, most 17-year-olds would have their cases adjudicated in the juvenile system.

Juveniles are tried in the family court division of circuit court, so passing the bills would mean transferring those cases from district court to circuit courts. Last year, district courts handled the cases of more than 17,500 17-year-olds. The House Fiscal Agency estimates the average circuit court caseload would increase by about 26 percent, although it projects that more than a dozen counties will see increases in excess of 40 percent.

The bills would also mean that 17-year-old offenders become wards of the state rather than inmates, and the costs of their housing and treatment would be borne by the Department of Health and Human Services, rather than the Department of Corrections. While this would represent a savings to Michigan’s massive corrections budget, costs at the county level would increase because 17-year-old offenders would become eligible for services and treatments reserved for juveniles.

Michigan is one of seven states where the criminal age of majority is younger than 18.

Presumptive Parole

House Bill 4138 would authorize a measure known as “presumptive parole,” or “safe and smart parole.” The bill would require that parole be granted to prisoners who have served their minimum time and have no worse than an average re-offending risk profile. In other words, the parole board would have to show a “substantial and compelling” reason to deny parole to prisoners who have served their minimum sentence. The measure passed the House in October 2015 with backing from some civil liberty groups and over the objections of some prosecutors.

The House Fiscal Agency and Senate Fiscal Agency project that the measure would result in a cost savings to the state. The bill would not apply to inmates presently serving time, but the Department of Corrections estimates that it would eventually reduce the prison population by 3,600 and save the state $82 million.

The current average annual cost of imprisoning an offender is $35,000. The cost of supervising a parolee is $5,260, not including the costs of re-entry services. The bill does not impact minimum sentence lengths imposed by judges.

Successor judge veto

Under current law, a parole-eligible prisoner serving a long sentence who files for review by the parole board may have his request vetoed by the judge who sentenced him or the successor of this sentencing judge. A veto means that the prisoner’s parole will be denied for another five years. House Bill 5273 would change the process so that only the original sentencing judge may veto a parole review (although successor judges would still be allowed to weigh in on the case).

The measure would offer limited cost savings to local governments and an indeterminate one to the state. If the bill results in more inmates being paroled, the savings to the Department of Corrections would be about $3,764 per offender per year.

The House bills represent a more focused effort than the wide-ranging 21-bill criminal justice package the Senate passed in May. But both efforts could mean big changes to Michigan’s criminal justice system. These proposals draw much-needed attention to Michigan’s very expensive corrections system.

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.