No pensions for new City employees
April 14, 2013

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According to the Report of the Lansing Financial Health Team (page 41), the City of Lansing has an unfunded long-term liability of nearly $650 million. $218 million of it is for pensions and $431 is for "other post-employment benefits" - primarily, health insurance. The total may be less today due to recent stock market gains, but it is still a lot of money - money Lansing does not have. According to the Lansing City Pulse (3/27/2013), former mayor and Financial Health Team member David Hollister believes that if left unaddressed, these unfunded long-term liabilities could lead to bankruptcy or appointment of a emergency financial manager, and it could happen in 3-5 years.

The first thing we need to do is put an end to all post-employment benefits for new employees. No pensions, no health insurance - nothing. That will require two pay scales, one for new employees and one for those on the job when the switch takes place. New employees will likely have to be paid higher salaries to make up for the loss of benefits, but for these employees, the City will have no financial obligation after they leave. No further "long-term liability" will be incurred.

That won't reduce our current $650 million liability, but it will stop its growth.

For current employees and retirees, pensions cannot be taken away or reduced. Article 9, Section 24 of the state Constitution says

The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.

Whether that applies only to the pension or to other post-employment benefits is unclear, since Article 9, Section 24 also says

Financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities.

No one questions that the above applies to pensions, but health insurance is almost never pre-funded. So does that mean the Constitution would allow a municipality to cut retiree health insurance? I don't know.

The City can't cut pensions and may not be able to cut retiree health insurance. But there is nothing stopping us from cutting salaries. If we have to pay new employees higher salaries to make up for the lack of pensions and other post-employment benefits, we can reduce salaries of current employees to even things out. For new employees, we will pay the market rate - the minimum necessary to attract qualified employees, which we must assume is higher than current salaries. Current employees will be paid the same amount minus the current value of their pension and post-employment benefits. That way, both groups will be compensated equally.

This system will stop the growth of our long-term liability and may also reduce current employee costs.

Pensions and other post-employment benefits are a wonderful way to conceal excessive compensation. Over the last two years, I've collected a lot of information on the City's pension systems:

Overview

Actual pensions:

     Police and Firefighters Retirement System
     Employees Retirement System

Opinion:

     A Collective Bargaining Triumph - June 14, 2012

     City supplements $103,000 salary with $73,000 pension - March 23, 2012

     A Counter-productive Pension System - December 23, 2011

     Do we pay police and firefighters too much? - October 26, 2011

     Hefty Pensions for City of Lansing Retirees - October 6, 2011

     Police and Fire Pensions Exceed Salaries - September 29, 2011

Mayor Bernero acknowledges that the City has been far too generous with employee compensation. This is what he says in an April 14 Lansing State Journal article:

Dave Hollister, when he was mayor, was overgenerous. Me, when I was mayor, was overgenerous. (Tony) Benavides, probably, was overgenerous with our employees. Letís be honest, mayors all over the state, and city councils, gave away too much at the bargaining table. And thatís where it has to be fixed ó at the bargaining table.

And if it isn't fixed at the bargaining table, Lansing taxpayers will pay for it.