James M. Hohman, Mackinac Center for Public Policy
The new state budget underfunds pensions and hands out pork. It reduces contributions into the pension system by $670 million and spends at least $702 million on district grants. Neither benefits the public.
Elected officials accidentally made school employees the state’s largest creditors. Lawmakers required teachers to participate in a state retirement system, but they didn’t set aside enough money to pay for their pensions. That’s unfair to teachers and taxpayers alike. It’s not like school workers volunteered to lend the state money. The state now owes teachers $29.9 billion more than has been saved. That’s more than the state owes the bondholders who willingly lent the state money.
Over the past few years, lawmakers had been catching up on what they need to prefund retirees’ medical insurance costs. This year they decided to take the money that they had been spending to prefund those benefits and spend it on their other priorities. That $670 million could have taken a bite out of what is owed.
It’s being spent elsewhere instead, and lawmakers are letting school districts pocket some of the underfunding. Pension contributions are split between the state and school employers, and legislators will ask less from school districts next year. And lawmakers will also stop asking for current employees to put up 3% to prefund their retiree healthcare benefits and have taxpayers cover that cost instead. This transfers the cash freed up by underfunding the pension system to school districts and school workers.
It’s a short-sighted ploy. Pension debts grow like any other unpaid liability. It might make sense to defer if there were a pressing need. There wasn’t one in this case. It was a request from the teachers union whose members will get some extra cash over the short term and, apparently, ignore the longer-term costs.
Another major priority for lawmakers was to take taxpayer revenue and redistribute it to projects in legislators’ districts. The budget contains at least 415 earmarks that spend $702 million.
District grants are wasteful because they deliver money to advance a legislator’s interests rather than the interest of the state as a whole. The state government is supposed to spend the public purse in a way that best serves the public, and legislators are given broad discretion to figure that out.
While there is a perennial demand from legislators to bring money home to their districts, legislators don’t have to give in to their base desires. Previous budgets didn’t contain so much pork. The explosion in district grants didn’t start until three years ago.
Lawmakers know that they’re being naughty. Otherwise, district grants would be part of the executive budget and the budgets initially passed by the House and Senate, instead of being a last-minute addition.
There are supposed to be protections against district grants. The state constitution requires two-thirds approval from legislators to give money to local and private interests. This combats the provincial interest that lawmakers have to look out for their direct constituents more than the general public.
Lawmakers have a loophole to get around that requirement, however. They don’t state the beneficiary directly but use population requirements that apply to only one entity. Consider how lawmakers devoted money to the Berston Fieldhouse in Flint. The money “shall be awarded to a city with a population between 81,000 and 82,000 in a county with a population between 400,000 and 500,000 according to the most recent decennial census to support infrastructure improvements at a fieldhouse.” No other city in Michigan had a census population in that range except Flint. No other county in Michigan had a census population in that range except Genesee County.
Perhaps the project might have been the top project in the state if lawmakers set up a grant program to fund community centers. Or perhaps not.
It is idealistic to want lawmakers to budget for the public interest. But the constitution is an idealistic document. People should want their lawmakers to live up to high standards. They should want the state to catch up on what it owes pensioners, and they should want them to spend the public purse to benefit the public.
Lawmakers have fallen short of ideals with their latest budget.
—————
James M. Hohman is the director of fiscal policy at the Mackinac Center for Public Policy.
Elected officials accidentally made school employees the state’s largest creditors. Lawmakers required teachers to participate in a state retirement system, but they didn’t set aside enough money to pay for their pensions. That’s unfair to teachers and taxpayers alike. It’s not like school workers volunteered to lend the state money. The state now owes teachers $29.9 billion more than has been saved. That’s more than the state owes the bondholders who willingly lent the state money.
Over the past few years, lawmakers had been catching up on what they need to prefund retirees’ medical insurance costs. This year they decided to take the money that they had been spending to prefund those benefits and spend it on their other priorities. That $670 million could have taken a bite out of what is owed.
It’s being spent elsewhere instead, and lawmakers are letting school districts pocket some of the underfunding. Pension contributions are split between the state and school employers, and legislators will ask less from school districts next year. And lawmakers will also stop asking for current employees to put up 3% to prefund their retiree healthcare benefits and have taxpayers cover that cost instead. This transfers the cash freed up by underfunding the pension system to school districts and school workers.
It’s a short-sighted ploy. Pension debts grow like any other unpaid liability. It might make sense to defer if there were a pressing need. There wasn’t one in this case. It was a request from the teachers union whose members will get some extra cash over the short term and, apparently, ignore the longer-term costs.
Another major priority for lawmakers was to take taxpayer revenue and redistribute it to projects in legislators’ districts. The budget contains at least 415 earmarks that spend $702 million.
District grants are wasteful because they deliver money to advance a legislator’s interests rather than the interest of the state as a whole. The state government is supposed to spend the public purse in a way that best serves the public, and legislators are given broad discretion to figure that out.
While there is a perennial demand from legislators to bring money home to their districts, legislators don’t have to give in to their base desires. Previous budgets didn’t contain so much pork. The explosion in district grants didn’t start until three years ago.
Lawmakers know that they’re being naughty. Otherwise, district grants would be part of the executive budget and the budgets initially passed by the House and Senate, instead of being a last-minute addition.
There are supposed to be protections against district grants. The state constitution requires two-thirds approval from legislators to give money to local and private interests. This combats the provincial interest that lawmakers have to look out for their direct constituents more than the general public.
Lawmakers have a loophole to get around that requirement, however. They don’t state the beneficiary directly but use population requirements that apply to only one entity. Consider how lawmakers devoted money to the Berston Fieldhouse in Flint. The money “shall be awarded to a city with a population between 81,000 and 82,000 in a county with a population between 400,000 and 500,000 according to the most recent decennial census to support infrastructure improvements at a fieldhouse.” No other city in Michigan had a census population in that range except Flint. No other county in Michigan had a census population in that range except Genesee County.
Perhaps the project might have been the top project in the state if lawmakers set up a grant program to fund community centers. Or perhaps not.
It is idealistic to want lawmakers to budget for the public interest. But the constitution is an idealistic document. People should want their lawmakers to live up to high standards. They should want the state to catch up on what it owes pensioners, and they should want them to spend the public purse to benefit the public.
Lawmakers have fallen short of ideals with their latest budget.
—————
James M. Hohman is the director of fiscal policy at the Mackinac Center for Public Policy.
