No one questions that employers should pay the pensions that its employees earn. Yet in Michigan and across the country, government pensions systems have failed to set aside the money required to pay those pensions.

Michigan's recent discussion of education funding reiterates that there are few political incentives to ensure that pensions are properly funded.

The state has increased its support of government schools in Michigan. The school aid budget, which pays for government schools, increased by roughly $800 million from the budget passed before the Snyder administration to the most recently approved budget. Yet, some school administrators and union officials deny this by complaining that the money is not going into districts general coffers, but instead is going to pension funding.

The state runs the pension system and assesses the costs of the system on districts. Due to $24.3 billion in unfunded liabilities, these costs have been increasing and school officials have rightly complained about it. The complaints, however, are not about the long-term health of the plan, but about the contribution rates required by the state.

It's unclear exactly why so much emphasis is put on the annual contributions into the pension system. Perhaps the state's constitution, which makes the pensions earned by government employees a contractual obligation, provides apparent protection of pensioners. This would provide the contradictory effect of encouraging underfunding even though the intent of the provision is to adequately fund earned pensions.

Regardless, because the focus is on the short-term contributions into the pension system, there are few rewards or punishments for failing to properly fund pension benefits. There are some things that can be done to put off today's costs to the future.

Indeed, politicians have embraced attempts to manipulate the pension system to lower annual payments.

In 2007, the Legislature voted to mark their assets to market rates. This accounting gimmick allowed them to lower their annual payment into the pension system. Putting less money into the system has the obvious effect of leaving the system with less money. (Policymakers also marked the system's assets up to market rates in 1997.)

The state legislature approved an early retirement incentive for members in 2010. The idea was that it would save districts in their operating costs as employees on the higher end of the union salary schedules retire and are replaced with employees on the lower end. This gap doesn't account for the increased longer-term liabilities added to the pension system. State analysts expected $169 million to be saved on salaries, but the pension system added an additional $1 billion in unfunded liabilities to the pension system.

The new Legislature isn't immune to incentives to kick the can down the road. Normally, unfunded liabilities from early retirement incentives are paid off over five years. The 2012 reforms kicked those payments down the road by requiring them to be paid off in 10 years instead.

Another way policymakers can defer payments is by paying off unfunded liabilities over an extended period. If unfunded liabilities develop in a system, they don't have to be paid off all at once but can be paid off over a series of years. Policymakers chose 30 years for the school pension system, longer than the average working lives of the system's members.

Legislators face a different dynamic when the system is in the rare instance when it is overfunded. When the system is overfunded there is pressure to increase the benefits of retirees. This is politically appealing because an overfunded system requires no additional cash. They can score points with system beneficiaries without diverting funds from other priorities. Yet this decision costs plenty if markets drop later.

Indeed, while it's been a long time since the school pension system has been overfunded, legislators have increased benefits in the system. It happened from 1983 through 1986, and again in 1990. These were permanent increases in pension benefits not earned by service but delivered to pensioners anyway. Those actions have long-term effects since some of those increased liabilities remain part of the system today.

This "heads-I-win," "tails-you-lose" approach to pension funding is dangerous and Michigan is suffering the consequences.

A better approach would be to close the defined benefit system completely and switch to defined contribution retirement benefits, which do not put taxpayers and school districts on the hook tomorrow for political decisions made today.

House Bill 4808, End mandatory life for very serious offenses by minors: Passed 35 to 3 in the Senate

To revise Michigan's mandatory life sentence with no chance of parole for certain very serious crimes committed by minors. The bill is linked to Senate Bill 319, which would make life without parole no longer automatic in these cases, but prosecutors could request it. Otherwise, the minimum sentence would be 25 to 40 years, and the maximum at least 60 years. This and SB 319 respond to the U.S. Supreme Court's Miller v Alabama decision. The bills would not apply the new standard retroactively to the approximately 350 current prisoners in this category, but include a provision authorizing parole hearings for them if a future ruling requires this.

Who Voted "Yes" and Who Voted "No"

 

Senate Bill 719, Let troubled local governments renegotiate environmental/recreation debt: Passed 38 to 0 in the Senate

To allow local governments with financial problems negotiate more favorable terms on loans made to them by the state using money the state itself borrowed under the 1998 “Clean Michigan Initiative” ballot proposal, which authorized $675 million of new government debt (“bond sales”) for environmental cleanup and recreation projects.

Who Voted "Yes" and Who Voted "No"

 

Senate Bill 396, Restrict replacement-construction property tax hikes: Passed 82 to 27 in the House

To revise a provision restricting property tax assessment increases on construction that replaces parts of a structure damaged by accident or an Act of God. The bill would prohibit an assessment hike as long as the construction is of substantially the same materials and square footage. This restriction would also apply to improvements that do increase property value but are undertake to meet current health, sanitary, zoning, safety, fire, or building code requirements.

Who Voted "Yes" and Who Voted "No"

 

House Bill 4486, Authorize “involuntary assessment and stabilization” for substance abuse: Passed 102 to 8

To authorize relatives or other interested persons to petition a court to take an individual abusing drugs or alcohol into protective custody for involuntary assessment and stabilization, if there is reason to believe the individual is incapacitated, has lost the power of self-control, and is incapable of making a rational decision regarding treatment. The bill would also expand the authority police currently have to lock up ("stabilize") public drunks so it also includes people publically intoxicated on drugs.

Who Voted "Yes" and Who Voted "No"

 

House Bill 5274, Preempt local governments from restricting CO2 pipelines: Passed 99 to 11 in the House

To expand the law that gives the state Public Service Commission authority to regulate oil and gas pipelines so it also applies to pipelines carrying carbon dioxide used in hydrocarbon “enhanced recovery” operations. This law preempts local governments from restricting pipelines in their jurisdiction. This is related to House Bill 4885, which would cut the tax on oil and gas extracted using enhanced recovery.

Who Voted "Yes" and Who Voted "No"

 

House Bill 4885, Cut tax on oil and gas from "enhanced recovery": Passed 85 to 25 in the House

To reduce the “severance tax” or royalty paid to the state on oil and gas extracted from state land to 4 percent for hydrocarbons extracted using “enhanced recovery” technology, which injects carbon dioxide into wells to extract more product (this is different from hydraulic fracturing).

Who Voted "Yes" and Who Voted "No"

 

House Bill 5255, Authorize eminent domain for oil well CO2 pipelines: Passed 69 to 41 in the House

To extend the state law authorizing eminent domain takings for gas, oil and other pipeline easements, so it also includes pipelines carrying carbon dioxide used to produce hydrocarbons in secondary or “enhanced recovery.” operations.

Who Voted "Yes" and Who Voted "No"

SOURCE: MichiganVotes.org, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit https://www.michiganvotes.org.