Legislators celebrated a “victory” in September by passing a state employee early retirement scheme that generates upfront savings of just under $140 million (but at the expense of higher costs down the road). This will be used to fill in a gap between their desired 2011 government spending vs. expected revenue (aka “the deficit”). The measure lets politicians get back to the campaign trail, but in the long-term may cost taxpayers more overall, despite some “rosy scenario” projections that claim otherwise.

On the positive side, taxpayers can celebrate another part of the package that requires remaining state employees to kick in an additional 3 percent toward the cost of their future retirement benefits. But only for three years. So powerful are the government employee unions in Lansing that they forced lawmakers to place a 2013 “sunset” on these taxpayer savings.

Unless the next legislature makes the co-pays permanent, that is. Attention, tea partiers looking for accountability yardsticks for newly elected or re-elected candidates who swore on stacks of Constitutions that they are “fiscally conservative.”

The “early out” pension sweetener scheme will give as many as 6,400 state employees richer lifetime benefits if they retire in 2010. Supposedly, the state will only hire two-thirds of that number to replace them at lower starting salaries, thus the short-term savings. We’ll see — pension increases are forever, but politicians’ workforce reduction promises may have a shorter shelf-life.

Actually, these pension increases aren’t forever, but just 21 years on average: That’s the additional life expectancy for state employees eligible for the early-out “sweetener,” assuming they have an average age of 59. Thus the overall package “score” of 21 years of benefits for new state retirees versus just three years of savings for taxpayers.

Fiscal analysts presented optimistic workforce reductions figures suggesting that paying high-seniority state employees more to stop working won’t mean higher costs in the long-term but instead will generate net savings that average out between $19 million and $33 million over 10 years. Even if the higher figure is correct, it saves just $1 out of every $13,636 in the $45 billion annual state budget — practically a rounding error. To get this, taxpayers will have to give all those new government retirees — many in their 50s — a 6.7 percent increase in their monthly pension checks for the rest of their lives.

Most important to lawmakers, however, was the larger but temporary upfront savings that allows them to claim they “balanced” the budget for the new fiscal year that starts Oct. 1 (a claim that would never stand up under private-sector accounting standards.)

The 3 percent increase in retirement contributions from remaining employees really will save money, however — around $82 million each year.[*] For the next three years, anyway. Another provision makes small cuts in the future health benefits of newly hired employees (contrary to popular belief, these could have been trimmed for current retirees also), and a third closes a “double-dipping” scam that allows government workers to retire, start collecting a pension, and also collect a paycheck working for the state as a “contract” employee.

Incidentally, no one should become too exercised over the modest additional co-pay required of remaining state employees (for three years only). Since 2002, they have received across-the-board pay raises 10 times, in addition to regularly scheduled individual employee “longevity” boosts, “step” hikes, plus increases in the amount that taxpayers have been forced to kick in to pay for their health care and other benefits.

Can any other group of workers in this state say the same? Adding injury to insult, yet another 3 percent state employee pay hike went into effect October 1 (because lawmakers in the House and Senate failed to veto it earlier this year).

All told, state employees receive an average compensation package (benefits included) that costs taxpayers $93,039. State salaries surpass private levels in many job categories. And government employees at all levels in Michigan receive benefits that exceed private-sector averages by $5.7 billion annually.

[*]Even this provision’s value was compromised, however: The money will be used to pay retiree health benefits that are not an enforceable obligation, rather than to supplement underfunded pension commitments that really are enforceable.

The original version of this story was posted online on Sept. 29, 2010.  

China has become the political bogeyman during elections in Michigan.

Democratic candidate Virg Bernero as well as Congressman Mark Schauer both used the country as a dig at their opponents.

Yet, James Hohman of the Mackinac Center for Public Policy says what is being ignored is the good that trade with China has done for the state of Michigan.

According to Hohman’s research:

• The Chinese now buy more Michigan products than France and the United Kingdom combined. China is behind only Canada and Mexico as a market for Michigan goods.
• This has been a recent development. In 2000, China had only purchased $212 million in Michigan products. This grew to $1.3 billion in 2009. Michigan is on pace to export more than $2 billion this year.
• Michigan is surpassing national growth rates in trade to China. Total U.S. exports to China rose 35.7 percent for the first half of the year, and Michigan’s exports to China rose by 120 percent. Since 2000, total U.S. exports to China rose by 326 percent, while Michigan’s exports to China grew by 530 percent.

“How many other economic trends has Michigan beaten the national average? I can’t think of any,” wrote Hohman, a fiscal policy analyst, in an e-mail. “Politicians love playing on people’s fears that their jobs will disappear to low-wage China. But the exponential growth of exports to China shows that Michigan firms are able to compete and thrive in the world marketplace. Trade with China, in fact, has been one of the few things going right in the state economy.”

Yet, Schauer campaigned on the state of Michigan losing 67,800 jobs including 4,700 in the 7th Congressional district, due to unfair trade with China. Schauer was up against GOP candidate and former Congressman Tim Walberg.

“For years we have watched our country’s trade deficit with China grow due to unfair practices like currency manipulation, and this bill will force China to play by the rules,” said a Schauer press release announcing new trade regulation. “It’s time we stopped shipping our jobs overseas, and I’m committed to helping American businesses and manufacturers create jobs here at home for our workers, not workers in China. China has a long history of suppressing the value of its currency to make exports cheaper than they would be if it allowed its currency to be set by the market.”

Doug Bandow, senior fellow at the Cato Institute, specializes in foreign policy. He said that no one knows the “right” value of currency.

“It seems strange for a policymaker to argue that it would be better for Americans to pay more for everything they buy from China. I doubt many people would complain if OPEC was selling oil extra cheap. The fact that the Chinese government may be hurting its own people is no reason for the U.S. government to hurt American consumers. Our economy will grow faster and produce more jobs if we take advantage of the mistakes of other nations rather than let U.S. politicians arbitrarily intervene for their own electoral advantage. China long has been a major supplier of U.S. markets. As it grows in wealth, China is becoming an increasingly important market for U.S. products. Michigan is one of the beneficiaries of growing Chinese demand. In this way trade is demonstrating yet again that it is an important job-creator for Americans.”

While running for governor, Bernero tried to use his opponent Rick Snyder’s ties with China against him.

Bernero attacked Snyder for a company he invested in opening up an office in China.

“Who’s side is Rick Snyder on?” a Bernero press release stated.

Anthony Randazzo, director of economic research for the Reason Foundation, said in an e-mail that Michigan was built on exporting cars throughout the country and then the world and politics shouldn’t stand in the way of Michigan returning to the growth model.

“In an economy where housing will be slumping for the next several years and consumers are more focused on paying down debt than returning to their free spending ways of the past decade, the biggest bright spot is the potential of increased exports,” Randazzo said. “There is not a lot of investment in the U.S. economy today because banks and private equity are facing a mountain of new regulatory requirements and the threat of increased taxes. But investors are willing to open up their vaults to good ideas. The more Michigan businesses focus on expanding their exports, and are able to demonstrate growing foreign demand, the more cash will flow into the Wolverine State. Michigan is a state that was built on exporting cars across state lines throughout the country and then the world.”

The original version of this story was posted online on Oct. 15, 2010.