Detroit Bailout Bill Leaves Taxpayers On The Hook For New Pension Underfunding

Committee version guts original pension reform bill; full House could vote today

By Jarrett Skorup | May 22, 2014

A Michigan House committee on Wednesday approved a package of bills that gives a partial bailout to Detroit and continues to allow the city the ability to rack up unfunded retiree liabilities.

An 11-bill package was recently proposed to deal with the Detroit bankruptcy situation. The focal point was an allocation of $195 million to the city, while the other legislation mostly dealt with protecting state taxpayers, citizens and public workers to prevent the fiscal situation from happening in the future. The bills were taken up by the “Detroit's Recovery and Michigan's Future" committee.

Initially, one of the bills, House Bill 5568, would have ended Detroit's defined benefit pension system and shifted new employees to a defined contribution, 401(k)-type plan. The city had been using overly optimistic assumptions and funding practices that contributed to the bankruptcy.

Because of the underfunding, retiree benefits were gobbling up 40 percent of Detroit's general fund budget and were projected to be 70 percent in 2023. Defined contribution plans cannot rack up unfunded liabilities.

But the bill was changed by the committee. The legislation that passed out of committee allows the city to leave open its pension plan and rack up liabilities in the future.

"The city may offer any retirement plan it wants," Committee Chairman Rep. John Walsh, R-Livonia, told The Detroit News.

House Bill 5568 now allows the city's Plan of Adjustment to set the terms until 2023. There have been several plans. The latest backs off Emergency Manager Kevyn Orr's initial push to close the defined benefit system. The plan also calls for more conservative funding assumptions and requires employees to shoulder some of the burden if the plan becomes underfunded.

While these terms limit some of the exposure to unfunded liabilities, the city retains the ability to continue to develop gaps between what officials set aside to pay for retirement and what employees are offered.

Rep. Greg MacMaster, R-Kewadin, said this "is not something I favor at all."

"The city is supposed to switch from a defined benefit to a defined contribution but [now] they have the ability to go back," Rep. MacMaster said. "For me, it opens the door for them to go back in the opposite direction which is kind of what got them to where they are now. ... I'm surprised that our leadership was even willing to consider moving in that direction."

Ari Adler, communications director for Michigan House Speaker Jase Bolger, R-Marshall, said the bills will help turn the city around financially.

"Detroit will have a better balance sheet because of these reforms than it has in at least 50 years, and we have removed uncertainty for taxpayers," Adler said. "In addition, the financial review commission will have final approval authority on any collectively bargained retirement plan for the city of Detroit."

James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy, said the state should not leave worker retirement money in the hands of politicians by not closing the system.

"Detroit is in bankruptcy court asking for concessions from pensioners because the city underfunded the pensions it promised its employees," Hohman said. "Are legislators going to prevent the city from being in this situation again or not? This bill says they will not."

The allocation of the money from state taxpayers without preventing Detroit from racking up more unfunded liabilities was passed by Rep. John Walsh, R-Livonia; Rep. Earl Poleski, R-Jackson; and Rep. Michael McCready, R-Bloomfield Hills. The Democrats on the committee, Rep. Thomas Stallworth III, D-Detroit and Rep. Harvey Santana, D-Detroit, abstained.

The bill now heads to the Michigan House for a full vote, which is scheduled to happen today.

Members of the House committee did not respond to requests for comment.

(Correction: The vote out of committee was reported Wednesday night as being unanimous. The Democrats on the committee abstained from voting. The story has been edited to properly reflect the vote.)

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.

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False Fears About Fracking

Bridge Magazine cites dishonest 'Gasland' scene

By Jarrett Skorup | May 21, 2014

Bridge Magazine, a publication of The Center for Michigan, had a recent series of articles on hydraulic fracturing ("fracking"), and while the author provides some value, including good interviews with residents and a look at the externalities of drilling, the pieces make some errors — one in particular is egregious enough that it should be corrected.

The author cites the anti-fracking film, "Gasland," and references an infamous scene in the movie where a man is shown lighting methane coming out of his faucet on fire. This has become a defining scene for the anti-gas left.

In the piece, author Jacob Wheeler says, "These movies boast facts and evidence that appeal to the viewer's critical thinking, but like many motion pictures, they also offer an emotional punch to the gut."

He adds, "[Gasland's] most memorable scene features Weld County, Colo., landowner Mike Markham igniting gas from a well water faucet in his home with a cigarette lighter, and which the film's director attributed to natural gas exploration in the area." The scene and movie is cited favorably elsewhere.

But the evidence shows that incident has nothing to do with gas drilling and it certainly has nothing to do with fracking.

According to the Colorado Department of Natural Resources, an extensive investigation showed that the gas in Markham's water supply "was not related to oil and gas activity." The report goes on to note that it has been well known for decades that the water aquifer in the area is contaminated with naturally occurring methane.

The director of "Gasland," Josh Fox, was questioned about this, and admitted he knew people were lighting water on fire unrelated to fracking, and stated "it's not relevant." On a related note, the Michigan Department of Public Health was putting out pamphlets as far back at least as 1965 warning about flammable methane coming out of faucets — totally disconnected from the issue of gas drilling or fracking.

Wheeler did not respond to a request for comment.

Last year, Michigan Capitol Confidential featured a series of stories on the issue of hydraulic fracturing by talking with a series of experts (including one who was featured in "Gasland"). Here is what they said when asked about the film scene:

Terry Engelder, a professor of geosciences at Penn State University, said that "all reasonably objective reporters regard the film as misinformation."
Anthony Ingraffea, a professor of engineering at Cornell University, said, "In the strict sense of the word, that [lighting water on fire] has nothing to do with the word [fracking]."

Donald Siegel, a professor of earth sciences at Syracuse University, noted that while "gas migration to home water supplies looked spectacular when lit up like a candle … study after study has shown that many homes have groundwater naturally with methane in it, and many with methane sufficient to set on fire."

If people believe the risk and damage from gas drilling is not worth the economic productivity, they should try and prove it. But that should be done with real proof — not unrelated propaganda masquerading as evidence.