Contaminated Water Dominates Flint Headlines, But Pension Earthquake Looms

Contaminated drinking water has dominated daily headlines in Flint, but a looming crisis of a different kind casts a pall over the city’s financial future: A $285 million unfunded pension liability is consuming ever more of the city’s budget.

In 2015, Flint paid $20.4 million to cover retirement system costs. To put the burden of pension obligations into perspective, that amount is 42 percent of the city's general fund budget.

The financial stress has been growing: In 2010 Flint paid just $13.4 million into this system. The general fund represents just one part of the city’s budget (the water and sewer system are separate), but through it flows most of the money the city uses to cover a good part of its day-to-day operations.

“This shows the risks to traditional pensions, even for a government body like Flint,” said Andrew Biggs, a resident scholar at the American Enterprise Institute. “The government has promised benefits years and decades in the future when it has no clear idea of its capacity to pay the benefits. If the stock market doesn’t do well or if tax revenues flatten, the city is in a mess of trouble. Flint is like cities and states around the country that face a day of reckoning on public employee pensions plans.”

The city of Flint offers its employees four different pension systems. By far the most popular is the Municipal Employees’ Retirement System (MERS), to which the city made that $20.4 million payment.

The city has 481 full-time positions, and 349 employees are enrolled in MERS.

As of December 2014, Flint has funded 48 cents of every dollar in pension benefits it has promised to its employees in the MERS defined-benefit plan. As of last June, its unfunded pension liabilities totaled $285 million.

Many Michigan municipalities have dug even deeper holes. For example, the city of Benton Harbor has funded just 43 cents for every dollar in pension benefits it has promised its employees in the MERS plan.

“Cities need to get serious about properly funding pension systems or they need to stop offering pension benefits,” said James Hohman, the assistant director of fiscal policy for the Mackinac Center for Public Policy. “The massive underfunding in Flint is unfair to employees and residents alike.”

Kristin Moore, the public relations director for the city of Flint, didn't return an email seeking comment. City Administrator Sylvester Jones referred comment to Jody Lundquist, the city's chief financial officer. Lundquist didn't immediately return an email seeking comment.