MARSP News & Announcements

This op-ed originally appeared in Detroit Free Press on September 1, 2019:

The author of this guest column is executive director of the Michigan Association of Retired School Personnel.

Lawmakers in Lansing deserve kudos for acknowledging that upgrading Michigan’s roads, bridges and other infrastructure is a pressing priority. However, they should tread carefully to ensure that any funding plan they devise doesn’t weaken the foundation of the public school employees retirement system — which is what some proposals floating around the Capitol have the potential to do.

The funding concepts being discussed would reverse the recent momentum that has put the state-administered pension fund for Michigan public school retirees on firmer ground.

Some background: During the past decade, the state has forged a solid plan to reduce the “unfunded liabilities” of the Michigan Public School Employees Retirement System (MPSERS) pension fund. Unfunded liabilities are the difference between what the pension fund holds in assets and what it owes to retirees.

Under the current, fiscally-responsible plan, MPSERS’ debt is on track to be paid off in 2038. We need to stay on that course, not veer off into road funding plans that are financially risky or inefficient, such as proposals under consideration now in Lansing.

One idea proposes the state borrow $10 billion by selling bonds to prefund the pension plan. The theory is that the state will invest the bond proceeds and use the earnings from those investments to make pension payments and repay the debt. At the same time, proponents contend, it would free up school tax dollars currently devoted to pay down MPSERS liabilities to help fund road improvements.

Sound complicated? It is, and it also rests on the assumption that everything goes according to plan, meaning there’s no economic contraction that causes the investment market or the state’s budget to crash.

This type of financial tool, known as a Pension Obligation Bond (POB), is risky, according the Government Finance Officers Association.

“In recent years,” the association’s website states, ‘local jurisdictions across the country have faced increased financial stress as a result of their reliance on POBs, demonstrating the significant risks associated with these instruments for both large and small governments.”

A second road-funding proposal that also would center on the pension fund is analogous to refinancing a home mortgage with only 20 years remaining to a new one with a 30-year term instead. It would extend the schedule for repaying MPSERS’ unfunded liabilities by five or 10 years. In the short term, it frees up cash flow, but over the long run, it leads to higher costs.

Delaying the MPSERS repayment schedule merely kicks the proverbial can down the road, which is one reason the existing pension debt accumulated in the first place.

To be sure, providing much-needed upgrades to Michigan’s roads and bridges is a serious and pressing matter. But it also requires serious funding solutions.

We urge lawmakers to resist relying on risky funding gimmicks that will take us off the fiscally-prudent course and potentially cost taxpayers more in the long run.

 

Royce Humm is executive director of Michigan Association of Retired School Personnel, which represents nearly 40,000 retired public school employees. 

Humm news release

Pension fund release 6.21.19