Local legislators talk about unfunded pension liabilities

By Cory Smith • Last Updated 2:00 pm on Thursday, April 27, 2017

Rep. Jim Lower, R-Cedar Lake and Sen. Judy Emmons, R-Sheridan, speak about the state’s 2017-2018 fiscal year budget during Monday’s Legislative Update meeting at Montcalm Community College. — Daily News/Cory Smith

SIDNEY TOWNSHIP — In making their trips to Lansing in recent weeks, Rep. Jim Lower and Sen. Judy Emmons have found their time occupied by the looming state budget.

During Monday’s Legislative Update meeting at Montcalm Community College, Lower, R-Cedar Lake, and Emmons, R-Sheridan, discussed their focus on the 2017-2018 fiscal year budget, with a goal to have it passed through the Legislature by Gov. Rick Snyder’s deadline of June 1.

The fiscal year doesn’t begin until Oct. 1, but since Snyder took office, he established an unofficial deadline to avoid potential possibilities of a government shutdown in the event of a disagreement in attempting to pass the budget.

“The state budget is the main thing we are working on right now, we’re hoping to have that done by June 1, as has been the case for the last six years in a row,” Lower said. “We’d like to make that seven.”

Snyder proposed his fiscal year 2017-2018 budget in February, which comes in at $56.3 billion with specific focuses on tackling retirement liabilities, education, infrastructure and the Flint water crisis.

In briefly reviewing the budget thus far, Lower said he is placing the majority of his own focus on the retirement liability issue.

“We can’t borrow money to balance the budget, but there is once exception to that, and it’s been done over the last 100 years,” he said. “That exception is promised benefits in terms of retirement and health care to people, without setting enough money aside to pay for it. While we do have a balanced budget, there’s nothing from stopping us to promise ‘x’ amount of benefits, and it’s become a huge problem.”

The unfunded pension liabilities of the four state retirement systems as of Sept. 30, 2015, (the latest available date) were $33.2 billion, according to the Michigan State Office of Budget.

The state’s largest public plan, the $43.2 billion Michigan Public School Employees Retirement System (MPSERS), faced an unfunded liability of $26.7 billion. Two of the state’s three pension plans were frozen — the $10.9 billion Michigan State Employees Retirement System had an unfunded liability of $5.8 billion, and the $255 million Michigan Judges Retirement System, with an unfunded liability of $8 million. The $1.3 billion Michigan State Police Retirement System, which was not frozen, had an unfunded liability of $654 million.

In an attempt to combat the issue, Snyder proposed lowering the state’s estimated rate of investment returns for statewide retirement systems from 8 percent to 7.5 percent. That change would be effective immediately, with the exception of MPSERS, which would have the rate lowered over two years.

According to the state budget office, that change is estimated to cost the state an extra $10 million this year in retirement contributions, though costs would climb to an estimated $350 million annually for all state retirement systems beginning in the 2019 fiscal year.

Besides teachers, the state administers retirement plans for general state employees, state police, judges and Michigan National Guard members.

“I’m not saying we shouldn’t have good retirements for people, but it’s time to have a serious conversation about it,” Lower said. “That’s something that I’m looking to accomplish during the time I have in office.”

Lower said he’d like to see that accomplished either through more revenue sources or, “at a minimum,” stop promising benefits without paying for them.

“In the long run, I’d like to see a constitutional amendment that wouldn’t allow the legislature to do that,” he said. “I think that’s wrong, I think that runs counter to the purpose of having a balanced budget. If you can balance the budget with the money that you are bringing in and taking out, but you can promise benefits without paying for them, that’s wrong, and clearly, it’s created a problem for the state.”

Lower said he’s not on any specific committee that deals with the state budget, but desires to keep a close eye on it regardless, citing his previous experience as the village manager of Edmore and being a former Ionia County commissioner.

“I’m scrutinizing it more than average for someone who isn’t on the committee, just to make sure we’ve got our priorities from here in Montcalm County in there,” he said.

In looking at the budget from the Senate’s perspective, Emmons said she hasn’t had an opportunity to peruse through specific details of the budget.

“We have not in the Senate seen the real details of each individual budget yet,” she said. “If not this week, hopefully, the next week, we will (have those details).”

Emmons said she will keep her focuses on “critical” items in regards to the budget.

“Right now it’s about a balance,” she said. “It’s making sure that the most critical things that you expect to be provided by your tax dollars — safety, education, corrections — all of those are probably at the forefront of what our state budget should prioritize,” she said.

In approaching the June 1 deadline, Emmons said she doesn’t anticipate any major issues preventing the House and Senate from reaching an agreement to present to Snyder.

“Categorical funding for the teacher retirement fund, that is something that could become an issue … I’m not sure if the Senate and House (are on the same page) with that, but I think we’ll be OK.”

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