School Budgets, Senate Pension Reforms Under Attack From Pension System

The Michigan Senate Appropriations Committee has advanced a bill to reform the state-run school pension system by giving future employees 401(k) contributions instead of lifetime pensions. Years of persistent underfunding by state officials has led to the system having a current unfunded liability of $26.7 billion.

Defenders of the status quo system, including its managers and teachers unions, are fighting back with claims of “transition costs.” Some say the bill is “a solution in search of a problem.”

Michigan’s public school districts are where the growing burden of pension costs is most visible. Birmingham Public Schools is one example out of hundreds. The district’s share of the pension system’s costs has risen 60 percent in just the past two years.

In 2014, Birmingham’s pension payment to the state was $11.0 million. Just two years later, the district must pay $17.6 million. Most of that increase represents the cost of catching up on past underfunding. If this is not corrected then eventually there will not be enough money in the system to pay people's pensions. While the catch-up payments pass through many government accounts, the money all comes from the same place — state taxpayers.

The general fund operating budget for Birmingham Public Schools was $117.1 million in 2016.