CAPCON|Tax Watchdog Highlights the Millions Some Receive in Pension Benefits

Taxpayers United of America’s executive director, Rae Ann McNeilly, was quoted by CAPCON about the workshop series: Fighting Government Pensions

It began as an idea to drive home for regular people the high cost of government pensions. It has become an ongoing project in a growing number of communities.
Five years ago, the taxpayer advocacy group Taxpayers United of America set out to find out how much former government employees are collecting in pension benefits, and publish both the amounts and the names of who’s getting these checks. The group also estimates the lifetime payouts from those pensions.
“It really rings home for the average citizen,” said TUA’s executive director, Rae Ann McNeilly.
“When people can see that this could be their next door neighbor collecting this money while they are still working (and) only dreaming of retirement, it makes them think twice about where their tax dollars are really going,” said McNeilly.
For example, TUA exposed a scheme whereby former Michigan Education Association President Iris Salters would be collecting a total pension payout of $3.8 million. It also broke the news of the payout due Grand Rapids City Attorney Philip Balkema, a total of $3.2 million.
TUA, based in Chicago, Illinois, collects pension data in a number of states, including Michigan, and publishes lists of the highest amounts collected by former school, city, county and state employees.
“It was not easy collecting that data,” said McNeilly. Government bodies were reluctant to release the data, she said, even with laws like Michigan’s Freedom of Information Act that require them to do so. But the group was not deterred.
“What we wanted to show was that government workers are not held to the same standards as private sector workers. Not only do government workers retire about ten years before private employees, they collect checks that increase in value year after year based on cost-of-living increases. The lifetime payouts can be outstanding,” said McNeilly.
TUA wants to maintain the momentum it has gathered by getting more people involved. The organization has sponsored workshops in Oklahoma and Nevada, and will hold its first event in Michigan on Nov. 12, 9:00-10:30 a.m. at the Radisson Hotel in Lansing. Workshop leaders will share best ways to use FOIA and methods of overcoming delays, denials and excessive costs. Pre-sale tickets are $5 until Nov. 9. The cost rises to $10 after that. | Issues that brought Detroit to bankruptcy haunt other Michigan cities

Findings from TUA’s pension project on Grand Rapids, Michigan are featured in the following article at
mliveAs headlines mount for the largest U.S. city to file for bankruptcy, Detroit is now the undisputed punching bag for all that can go wrong in a community.
But just how immune is the rest of Michigan to Detroit’s biggest liability – the pressing weight of unfunded pension and retiree health care debt?
In a sobering analysis, a Michigan State University study finds that cities across Michigan face a mountain of so-called legacy debt that will burden them for years.
The MSU report, co-authored by Eric Scorsone, an expert on state and local government and former chief economist for the state Senate Fiscal Agency, found for example that legacy debt is equal to 30 percent of the general revenue brought in each year by the city of Ann Arbor. It’s equal to 25 percent of revenue in Grand Rapids, 38 percent in Lansing and a staggering 85 percent in Saginaw.
“It’s not just Detroit,” Scorsone said of the findings, based largely on municipal fiscal data from 2011. “You will find this structural problem in a lot of cities in Michigan.”
Excluding Detroit, unfunded legacy debt in Michigan municipalities exceeded $10 billion in 2011, with nearly 80 percent of this debt tied to retiree health care.
As in Detroit, where unfunded health-care, pension and other legacy costs are pegged at nearly $10 billion, rising debt means less money to spend on everything that makes a place livable: police and fire protection, upkeep on streets, lighting, parks and recreation, or even to cut weeds in vacant lots. Compounding the pain, communities have faced drops in property tax revenue, manufacturing jobs and population along with a $5 billion plunge in state revenue sharing over the past decade.
Which may mean that cities across Michigan could soon face the same heartbreaking choice confronting Detroit: whether to sharply reduce benefits to retired municipal employees earned from a lifetime of labor, or continue to stick residents and businesses with the bill.
In cities like Flint and Detroit, these decisions pitting retirees against taxpayers are no longer being made (or ignored) by elected representatives; emergency managers or bankruptcy officials are calling the shots.
In the absence of bold action, the greatest cost may be to the future of these hardest-hit communities. As cities and towns cut services and raise taxes to pay down this debt and offset falling revenues, they end up driving away the very residents and businesses vital to their recovery.
Who wants to pay more and get fewer services in return?

Largest legacy cost burdens in Michigan
Legacy costs are commitments paid in the past that will be paid by future generations. The two biggest legacy costs are pensions and health care insurance for retired public workers. The 10 local governments with the highest legacy costs in Michigan:

Detroit $5,586,937,313
Flint $1,112,098,934
Lansing $502,405,000
Warren $414,548,667
Grand Rapids $325,040,512
Saginaw $311,646,267
Taylor $276,925,086
Westland $228,793,659
Ann Arbor $227,233,000
Southfield $206,168,452

Source: Eric Scorsone / MSU Extension.

Consider: The owner of a $200,000 home in Ann Arbor would have to pay $491 a year to fund that city’s annual pension, retiree health care and other legacy costs. It would take $540 in Grand Rapids and $1,731 in Lansing. In Saginaw, where the median household income is about $28,000, that homeowner would pay $4,693 a year.

At the high end of Grand Rapids’ pension scale, retired Fire Chief Robert VanSolkema collected an annual pension of $97,125 in 2011, according to data obtained under the Freedom of Information Act by Taxpayers United of America, a Chicago-based anti-tax group. More than 50 Grand Rapids retirees received pensions of more than $60,000 a year. Average pensions were more modest, $30,000 or below, according to a 2009 report by the Grand Rapids Press.
All the same, longtime Grand Rapids residents like Cathy Mulder note the burden the city’s finances have taken on their neighborhoods.
Mulder, 63, and her husband, Ray, have lived in the same West Side house for 37 years. They have seen the city close a nearby pool where their children used to swim and watched maintenance dwindle at a city park a few blocks away. Streets deteriorated. The city closed the last five of its wading pools this year.
A 2011 audit found that Grand Rapids spends less than $20 per resident on parks and recreation (compared with $49 nationally), and called for $30 million in new funding. Another report found that 60 percent of the city’s roads have fallen into poor condition.
And so city officials asked voters to pay more in taxes to make up some of the difference. On Nov. 5, voters approved a .98-mill tax to pay for park maintenance.
“If you don’t maintain a city, it will look like trash,” Mulder said. “If it keeps going that way, we’re going to have less and less.”

Largest legacy costs per person
Ten Michigan cities with the largest legacy costs per city resident. This is each individual’s share of the currently unfunded bill for pensions and health care and other benefits for retired city workers.

River Rouge 7,903 $88,923,694 $11,252
Flint 102,434 $1,112,098,934 $10,857
Detroit 713,777 $5,586,937,313 $7,827
Melvindale 10,715 $79,462,584 $7,416
Center Line 8,257 $54,045,925 $6,545
Ecorse 9,512 $60,794,028 $6,391
Saginaw 51,508 $311,646,267 $6,050
Bloomfield Hills 3,869 $23,301,774 $6,023
Fraser 14,480 $78,449,068 $5,418
Allen Park 28,210 $144,225,807 $5,113

Source: Eric Scorsone / MSU Extension.

To be fair, with the possible exception of Flint, Detroit’s precipitous fall has few parallels in Michigan. Its population today, at about 700,000, is barely a third what it was in the late 1950s. The median value of a home earlier this year was $11,000. In Flint, population dropped from nearly 200,000 in 1960 to about 100,000 today. Both cities face an enormous debt burden – more than 50 mills per taxpayer – with far fewer residents to pay for it.

Anthony Minghine, chief operations officer for the Michigan Municipal League, warns that many other Michigan communities may see a sharp reduction in city services.
“It’s a simple math problem,” Minghine said. “If you play the numbers out far enough, you will have certain communities where all they will do is hold elections and pay pensions.”
The true dimension of municipal retiree health care costs was not apparent in the United States until 2007, when new government accounting standards required communities to calculate this cost in their annual budgets. The U.S. economic crash that followed – marked by plunging home values and declining property tax revenues – deepened the debt hole.
But the bill for retiree health care was accumulating long before that, as many communities in Michigan and across the nation applied a “pay-as-you-go” formula to fund it. That was sufficient in many cases, before health care costs began to spiral upward. Adjusted for inflation, the yearly cost of U.S. per-person health care skyrocketed from just over $1,000 in 1960 to more than $8,000 in 2010.
Scorsone’s analysis cites 311 cities, villages and townships in Michigan that provided some kind of retirement health care benefits at the end of fiscal 2011, with a total liability of $13.5 billion. Just 6 percent of that was funded, leaving a net unfunded liability of $12.7 billion.

The potential hit on homeowners
The 10 cities with the highest potential homeowner tax burden. Many cities are not fully paying for the legacy costs to come. The “Potential Homeowner Tax Burden” listed below is the annual additional property tax that an owner of a $100,000 home would have to pay to fully cover the coming legacy cost burden in each community.

Mount Clemens $47,276,893 $4,608
Flint $1,112,098,934 $2,840
Detroit $5,586,937,313 $2,512
Saginaw $311,646,267 $2,346
Hazel Park $81,160,555 $1,225
River Rouge $88,923,694 $1,183
Melvindale $79,462,584 $1,149
Highland Park $39,562,184 $1,109
Hamtramck $86,259,760 $1,105
Bay City $144,172,802 $1,033

Source: Bridge calculation based on Eric Scorsone/MSU Extension data.

According to his report, Grand Rapids had not funded any of its 2011 retiree health-care debt of more than $223 million. Kalamazoo had a debt of $263 million, none of it funded. Bay City had funded 4 percent of its $105 million debt and Lansing just 10 percent of a debt of more than $376 million.

Cities like Kentwood and Portage in Kalamazoo County were notable exceptions, with their retiree health care debt fully funded.
Communities with large, unfunded health-care or pension commitments have generally turned to three options: raising taxes, cutting benefits or slashing spending. Each has its limitations.
After a decade of job losses and stagnant wages, Michigan taxpayers are understandably reluctant to fork over more money to government – especially when they suspect the money has been misspent.
That is especially true in place like Wayne County’s Allen Park, where voters rejected millages three times in the past two years to recoup $31 million in bond debt tied to a failed movie studio venture; millages city officials said were critical to balancing city finances. In October 2012, Gov. Rick Snyder announced appointment of an emergency financial manager, noting that Allen Park’s fund balance had dropped by more than 90 percent in two years.
In a letter to the city, Snyder wrote that Allen Park had unfunded retiree health-care liabilities of $120 million and $24 million in unfunded pension liabilities. In August, voters finally approved a 3.25-mill millage to maintain police and fire services.
Voters in Benton Harbor on Nov. 5 turned down an income tax hike its emergency manager said should be used to pay down legacy costs that consume nearly one fourth of revenues.
Michigan’s Constitution says state and local government pensions “shall not be diminished or impaired,” so clawing back those benefits from existing retirees seems unlikely outside of bankruptcy. Short of bankruptcy or emergency management, cities have generally been constrained from breaking contracted retiree health care benefits as well.
Detroit emergency manager Kevyn Orr moved in October to strip health-care benefits for nearly 20,000 retired workers effective Jan. 1. The matter is being fought in federal bankruptcy court.
In Pontiac, Emergency Manager Lou Schimmel seeks to cut health care benefits for some 1,200 retirees, a move calculated to save the city $6 million year. That issue remains tied up in court as well.
Stripping retirees of health care – or, at the least, forcing them to contribute to their coverage –could be a template for other financially strapped communities, said Mitch Bean, former director of the state House Fiscal Agency. Bean said cities could move to curtail existing retiree health care benefits through contract negotiations.
“Retiree health care could be eliminated, quite frankly. But politically, I don’t know how you do it. It would take a great deal of political will.”
Jay Krupin, a Washington D.C.-based lawyer and expert on labor law, agrees. He noted the UAW gave up retiree health-care benefits for existing retirees in bargaining to save the auto industry.
“It’s a matter of collective bargaining,” Krupin said. “You can make any decision they (unions) agree to. If you don’t have the money, it has to come from some place.”
State legislation passed in 2012 allows municipalities to issue bonds to pay for legacy debt, but thus far just two entities – Oakland County and Bloomfield Township – have taken that step.
That leaves spending cuts, a strategy all too familiar in Detroit.
Minghine of the Municipal League said that spending cuts – if they are severe enough – can lead to a municipal “death spiral” in which basic services are so reduced that property values decline and residents begin to leave.
“To the extent that the fixes to balance the books diminish the things that make a community a great place to live, everyone leaves,” he said.
“It’s akin to a turnaround expert saying ‘I balanced the books on your business. I did it by closing all your factories.’”
In Saginaw, officials announced earlier this year they would no longer mow most of the city’s estimated 5,000 vacant lots. The city already made deep cuts to its police and fire department.
South of downtown, lifetime Saginaw resident Christina Jones, 78, owns a nicely-kept two-story, 1,400-square-foot home, fronted by an immaculately maintained yard. She can look down the street and see overgrown empty lots in either direction. An abandoned home sits across the street.
Her home has a market value of $20,000 – on paper. But property records indicate nearby homes are selling for closer to $6,000. For this, Jones paid $466 in property taxes last year.
She isn’t about to budge. She can’t afford to.
“I could think about selling my house, but what would I get for it?” she asks. “I’m staying here, if I have to build a moat and put alligators in it.”

Grand Rapids Business Journal | Group labels city, county pensions ‘gold plated’

Findings from TUA’s pension project on Grand Rapids, Michigan are featured in the following Grand Rapid Business Journal article.
By Business Journal Staff
Published: December 12, 2011
A group called Taxpayers United of America made a visit here last week to announce that retired Grand Rapids and Kent County government employees are receiving “lavish, gold-plated pensions,” and that some of the retirees will become “pension millionaires.”
TUA called the report an exposé.
The comments came from TUA Vice President Christina Tobin, who revealed the results of a new pension-payment report that listed the top 25 highest yearly pension payments made to non-police and fire Grand Rapids retirees, to city police and fire retirees, and to retired county employees.
According to the report, the highest annual pension payments made to former city employees ranged from $67,305 to $96,175, and from $63,249 to $97,125 for retired city police and fire personnel. The lowest annual payment made to a former county worker was $60,363 and the highest of the top 25 was $76,497. Tobin said those payments are higher than the average annual wage here, which TUA reported as $45,000.
But, then, the average worker here hasn’t been employed for at least 20 years with the same employer as the retirees in the study have. One Kent County employee retired a few years ago after 55 years on the job.
In addition, basing the report on the highest 25 pension payments skews the results and doesn’t represent the average payment, which would be a better comparison for the average wage.
TUA also reported the 25 highest estimated pension payouts over a retiree’s lifespan for the three groups. For the city’s non-police and fire retirees, the estimates ranged from $2.35 million to $3.45 million. For the city’s police and fire retirees, the estimates ranged from $2 million to $3.39 million. And for retired county workers, the estimates ranged from $2 million to $2.5 million.
“Grand Rapids and Kent County pension systems are making millionaires out of public employees at taxpayer expense,” said Tobin, who is based in Chicago. When the Business Journal asked Tobin how TUA arrived at the lifetime payouts, she said, “They assume retirement at age 55 and IRS life expectancy of 85.”
But not all employees retire at 55, and the Centers for Disease Control and Prevention reports the average American life expectancy is 77.9 years, so using a 30-year payout period may lead to an inflated lifetime payment estimate.
Kent County Administrator and Controller Daryl Delabbio said the county’s retirement plan is managed very well and funded appropriately. He noted the county has taken steps to modify the system, and employees have agreed to raise their contribution levels in 10 of its 13 bargaining units.
“We will be able to make the same changes in the pension system to the other bargaining units that we are currently in negotiations with,” he said. “In addition, Kent County does not offer retiree health care. In lieu of that, we offer a monthly stipend of up to $350, depending on the length of service of a retiree,” he said.
“The report is accurate in that the figures are correct. What the report does not show is what employees contribute, the funding status of the pension plans, and the years of service that retirees work in order to obtain the level of benefit received,” said Delabbio.
“I could editorialize about the motives of this group, and the fact that its report is far from complete and lumps every public sector employer in the same pot, but I won’t.”
Grand Rapids City Manager Greg Sundstrom said most retired city employees don’t live long enough to collect pension payments for the period TUA calculated. “City employees, on average, do not live longer than the population as a whole, which is something near 80 years of age,” he said.
Like Delabbio, Sundstrom pointed out the report didn’t include employee contributions to the pension plan and said leaving that out makes the story more sensational.
“Soon, most city employees will pay for approximately one-half of the cost for their pension benefits, with some employees contributing up to 11 percent of their wages. The size of an employee’s benefit is not as relevant if the employee is footing a large portion of the bill,” he said, adding that the city has been working hard to control its costs.
“It is our very difficult economic times that I believe has caused groups like the Taxpayers United for America to object to public sector defined-benefit pension plans. I understand this. I have understood this for several years. The city has worked hard to lower the cost of retiree benefits. We have had significant success,” he said.
The complete TUA report is at It also includes pension payments for retired public school teachers and the names of the top 25 retirees in each group.