Editorial

Michigan School Pension Debt Resembles Credit Card Junkie’s Fiscal Death Spiral

Michigan’s school pension system has a debt problem, and its managers’ response has resembled the behavior of an out-of-control credit card junkie just one step from bankruptcy. The amounts are so huge they are hard to comprehend, so translating them into household-scale numbers helps give perspective.

Imagine if this state’s public schools were a person named Mr. Mitten who earned $20,800 in 2009, and that year also owed $12,000 in credit card debt. Mitten clearly has a serious if not yet completely unmanageable problem.

Except, in the years since, he has not managed it. Mitten keeps racking up new debt, and for seven year in a row hasn’t even made the “minimum payment” on the bills. While Mitten’s income grew slightly to $21,100 in 2016, his credit card debt also rose to $29,100, or $8,000 more than his annual income.

Multiply those figures by one million and they are almost exactly how much the Michigan K-12 school public school system takes in and owes: Annual school revenue is now $21.1 billion, up from $20.8 billion in 2009 (when it was temporarily boosted by a huge infusion of federal “stimulus” money). Over the same period, the public school system’s unfunded pension debt has risen from $12.0 billion to $29.1 billion.

Note: This example slightly overstates the pension-debt to income ratio of Michigan’s K-12 school system. That’s because a small portion of the pension obligations are owed to state university and community college employees, whose benefits are covered by other revenue sources.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.