Rip Van Winkle problem-solving style won’t help Michigan

Jun 18, 2012 by

Michigan has a pension and health-care legacy cost crisis. The governor and Legislature must fix it.

The state of Michigan, municipalities and school districts have made financial promises that they are finding difficult, if not impossible, to meet. The problem can only be solved by increased revenue, decreased expenditures, modifying the programs for future employees or a combination of all of the above.

There is no appetite to increase revenue to fund what many believe are benefits that are extremely generous with taxpayers’ money.

Like many problems in Michigan, policymakers have been kicking the can down the road and pretending and spending. They are running out of both can and road.

Nearly a decade ago, I wrote a report that detailed just how unsustainable these costs were. It was ignored by policymakers from both parties.

The report, “Structural Issues Surrounding Michigan School Funding in the 21st Century” (available at www.michigan.gov/documents/michiganschoolfunding_110803_7.pdf) called for action. What we got was a collective case of Rip Van Winkle ignoring the problem.

Pretending to fix a hole in your roof will not keep the rain out. Yet, this is what far too many local, state and federal governments have been doing — avoiding the tough decisions to fix the unsustainable health-care and pension crisis — for far too long. Reality has a way of catching up with you. Governments can’t outrun their financial obligations forever.

The Institute for Truth in Accounting released a comprehensive study of the assets and liabilities of all

50 states, including pension and retirement health-care obligations. The frightening results: Only four U.S. states have sufficient assets to pay their debt and obligations related to pension and retirees’ health care.

No, Michigan is not one of them.

How can this happen? The Michigan Constitution mandates that the governor and Legislature balance the budget. Yet, these “off-book” financial obligations have been hidden from the taxpayers.

“If governors and legislatures had truly balanced each state’s budget, no taxpayer’s financial burden would exist,” said Sheila Weinberg, founder and CEO of the institute.

“Though 49 of the 50 states have constitutional or legal requirements to balance budgets, most states employ a variety of financial maneuvers to circumvent this requirement,” said Roger Nelson, chairman of the institute and a former vice chairman of Ernst & Young. “The largest of these maneuvers is related to employee compensation.”

The report details how employee compensation packages and retirement benefits have risen without the corresponding savings or investments to pay for these promised obligations. Instead, most states handle these future benefits on a “pay-as-you-go” basis. This obligates future taxpayers to cover these past costs — without receiving any benefits or services.

This has allowed governments at all levels to expand public employees’ pay or services today — pushing the bill off to the future. Yet, as we all know from our personal lives — the future does arrive. It is here.

Michigan cannot be “reinvented” by ignoring fiscal reality. It is past time for the governor and Legislature to get serious and fix this problem with a “dog-year” focus.

Tom Watkins served the citizens of Michigan as state mental health director and state superintendent of schools. He is the former CEO of the economic council of Palm Beach County, Fla. Currently, he is a U.S.-Chinese business and educational consultant and can be reached at tdwatkins88@gmail.com.

Tom Watkins guest column: Rip Van Winkle problem-solving style won’t help Michigan | Livingston Daily | livingstondaily.com.

Print Friendly, PDF & Email

Related Posts

Tags

Share This

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.