A news service for the people of Michigan from the Mackinac Center for Public Policy

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Constitutional Convention Delegates Wanted State Worker Pensions To Be Fully Funded

Notes from the 1962 constitutional convention show true intent of what voters passed

Retiree pensions in Detroit were underfunded. Politicians fretted about the city's inability to pay the obligations and state officials debated what to do about the problem.

Sound familiar?

That was 1961 and retiree pensions were underfunded to the tune of $1.2 billion, when adjusted for inflation. Politicians foresaw a government that promised state workers retirement benefits it couldn't afford so they attempted to protect those pensions in a new constitution — the fourth in the history of Michigan. It was completed in 1962 and approved by voters a year later.

Today, Detroit's Emergency Manager Kevyn Orr projects the city's pension liability at $3.5 billion and wants to cut the pension debt. In two recent editorials, the Detroit Free Press said the pensions should be untouched during the city's bankruptcy.

"The City of Detroit made promises to its workers, promises it can no longer keep. And in 1963, the residents of Michigan chose to approve a constitution that protected pensions," a Dec. 5 editorial read.

In an Aug. 1 editorial, the Free Press stated Michigan has, "an ironclad constitutional protection …" on pensions.

But the comments from the convention delegates more than 50 years ago show two components of constitutional protection for government pensions had to be in place.

In the words of one delegate:

… one, that the retirement that was promised any employee which he has lived long enough to earn shall not be impaired or diminished; and two, that from now on all retirement funds that are promised by employers shall be funded properly.

In other words, they should put enough money in there so when they retire the money is there. And there was a very specific purpose for this. … I wanted employers, legislative bodies and city councils to be very aware of what they were spending when they gave a person, a public employee, a retirement program. In other words, how much did it cost per year? … But from now on any governmental body cannot avoid paying for a retirement fund that they promise an employee. They've got to make those payments annually, on time.

Eric Lupher, director of local affairs for the public affairs research group Citizens Research Council of Michigan, pointed out in a recent column that the plan was to have government fund whatever benefits they promised.

"The committee deliberately did not require public employers to fully fund benefits accrued during prior years of service as they anticipated it would be an overwhelming financial burden," Lupher wrote. "However, they wanted to ensure that going forward, the financial burdens for funding pension benefits were not passed onto future generations."

Patrick Wright, senior legal analyst at the Mackinac Center for Public Policy, said public pensions are dangerous because they allow politicians to promise benefits now and have their successors pay later.

"The constitutional provision was meant to have the proper money set aside each and every year," Wright said.

Stephen Henderson, editorial page editor at the Detroit Free Press, didn’t respond to a request for comment.

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See also:

More Money, Higher Taxes Not the Solution For Detroit

Is the Problem In Detroit Really a Lack Of Revenue?

Analysis: Incorrect Population Figures Means State Has Overpaid Detroit For Past Decade

National Commentary Wrong About Detroit's Failure

Detroit Bankruptcy: Why the Emergency Manager Powers Were Insufficient

Former State Treasurer Diverts Blame For Detroit's Problems

Detroit's Fiscal Emergency Cannot Wait; Manager Needs To Fix Administration

Detroit Exhausts Its Options

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