Traverse City Record-Eagle


November 14, 2013

Phil Power: Look hard at legacy costs

I think it was around six years ago when I first heard faint rumblings about a coming financial tidal wave that was going to break over our cities, townships and villages, bringing with it the risk of a new civil war between retirees and taxpayers.

The phrases were dire — “Enormous unfunded liabilities.” “Retiree pensions threatened.” “Retiree health care in doubt.”

Still, Armageddon still looked a long way off.

Then came the Great Recession. Soon, with the revelations about Detroit’s disastrous financial condition, the rumblings roosted onto one city. Decades of mismanagement had led to close to $20 billion in unfunded pension and health care obligations.

Before long, all this had spawned the Motor City’s petitioning to be allowed to go through what looks certain to be the biggest municipal bankruptcy in American history.

Today, there are those who likely still feel as if Detroit were the only place in Michigan where unfunded retiree debt represented a problem. But sadly, that’s not so … not by a long shot.

Bridge Magazine, an online publication of the nonprofit, nonpartisan Center for Michigan, broke in last Thursday’s edition a report triggered by Michigan State Universty economics professor Eric Scorsone’s study of municipal legacy debt in 311 Michigan cities, townships and villages.

The result is sobering. Scorsone, a former chief economist for the state senate fiscal agency, found that total municipal debt in Michigan in places outside Detroit adds up to $13.5 billion.

How much of that is fully funded? Only 6 percent.

That leaves a mind-numbing total of $12.7 billion in unfunded municipal legacy debt, nearly 80 percent of which is tied to health care.

That’s substantially more than Detroit’s total unfunded debt. And it represents nothing less than a crisis in (temporarily) slow motion for many Michigan communities: For Ann Arbor, unfunded debt equals 30 percent of total annual general revenue. For Grand Rapids, it’s 25 percent. In Saginaw, it’s an eye-popping 85 percent.

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