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

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Experts To Rebut Claims of Opponents Protesting Detroit Pension Reform Plan

Reformers under pressure from unions, who prefer broken status quo system

Reforming Detroit's pension system remains a major issue in the city's effort to restructure, but to help sift through the mess, two national experts will be in Lansing Tuesday to rebut some of the claims made by opponents of a farsighted reform plan.

The pension proposal is possibly the most consequential provision of legislation adding conditions to a proposed $195 million partial Detroit bailout, introduced 10 days ago by a bipartisan group of reform minded legislators. It would prohibit Detroit from offering new employees retirement benefits that create new long-term taxpayer liabilities.

This would not impact current employees or retirees, yet unions and other special interest groups that benefit from continuing the current system are pressuring lawmakers to gut the bill. They claim the proposed change would require Detroit to pay more in up-front "transition costs" despite explicit language in the rules saying no up-front payments are required.

Stephen D. Eide, a senior fellow with the Center for State and Local Leadership at the Manhattan Institute in New York, and Richard Dreyfuss, a senior fellow with the Commonwealth Foundation in Pennsylvania, who authored a 2011 study estimating the savings Michigan realized from closing its defined benefit pensions to new employees in 1997, will explain why the claim about transition costs is a false reading of accounting rules. 

Alaska and Utah have seen their credit ratings improve after adopting the same pension reform measures that Michigan is considering, without making up-front payments.

Last week, Mackinac Center for Public Policy Senior Legislative Analyst Jack McHugh wrote that the pension measure "unconditionally puts the city on a glide path to eventually freeing itself from the dead weight of unfunded employee legacy costs."

Mackinac Center Executive Vice President Michael Reitz said, "(To approve a Detroit bailout) without closing the pension system and continuing to burden taxpayers with billions of dollars of unfunded liabilities would be political malpractice."

The chairman of a House committee created to consider the reforms says the committee could advance the proposal to the full House on Tuesday. 

The Tuesday event is sponsored by the Mackinac Center is free and will take place at noon at the Michigan Restaurant Association, at 225 W. Washtenaw St. in Lansing, one block from the Capitol building.

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