Michigan Radio reports that the City of Kalamazoo saved $7 million by offering an early retirement incentive to workers in 2012. The figure is fictitious.

The city simply shifted costs from current operations to its pension fund, and not at a savings, either.

Early retirement incentives boost employee's future pension payments in exchange for leaving the city's workforce prematurely. Employees near retirement age tend to have the longevity and experience that make them cost more than their younger colleagues. As these costlier employees are replaced by cheaper, younger workers the city's operating funds save some cash.

This calculation, however, ignores the long-term cost of increasing future pension payouts. According to its annual actuarial report, Kalamazoo's incentive actually cost taxpayers $27 million in long-term liabilities.

Kalamazoo is rare among municipalities in having an "overfunded" pension system (excluding optional retiree health care benefits). The city has not had to make pension contributions since 1997. But six years in which actuarial returns on pension fund investments failed to meet projections have depleted that margin. The total liabilities of the system have increased by roughly $80 million in that time, while pension assets have gone sideways.

Defined benefit pension funding is an inherently risky business, and early retirement stacks the odds a little more against future taxpayers. When city managers boast about short-term savings, taxpayers should remind themselves there's no free lunch and take the claims with a grain of salt.

Some unionized state workers are marching in protest over contract negotiations, but taxpayers are the ones who should actually be upset.

“[S]tate government employees argued that they've already made enough concessions over the last decade and don't want any more cuts,” reported MLive.

But, as the article notes, state taxpayers are spending an extra $160 million this year on employees — mostly going toward the rising costs of pensions and health care. As Michigan Capitol Confidential reported earlier this year, the average Michigan government employee’s compensation now exceeds six-figures for the first time, with costs increasing from $97,889 in 2010-11 to $104,067 in 2011-12 per average employee.

The union representing most of the workers, UAW Local 6000, says on its website that it is protesting because "state workers are under the gun" and health care costs will "literally bankrupt" some union members.

But state employees are actually making 31 percent more than in fiscal year 1998-99, with benefit costs 75 percent higher, both adjusted for inflation. Perhaps the union should have some sympathy for Michigan taxpayers, who saw their median household income fall 19.2 percent over that time period.

These tough negotiations are not limited to state government. Re-aligning the benefits packages more toward private-sector averages would save a lot of money, and help head off the fiscal problems Michigan is heading toward as retirement pension and health care benefits continually are underfunded.

A study by James Hohman, assistant director of fiscal policy, shows that benchmarking all state and local government employee benefits in Michigan to the private-sector average would save $5.8 billion annually.

It's not fun to hold down anyone's pay or benefits, but taking an increasing amount over the past decade from a shrinking private sector to fund government benefits has led to fiscal problems. The state simply cannot continue to see an increase in public employee costs relative to private workers.

(Editor's note: This story has been slightly edited since its original posting.)