Rising Pension Costs Bury Michigan Schools Despite Past Tweaks to System
Tuesday's big Wayne County school tax hike proposal would only pay half of recent pension cost increases
The Livonia public school district is like many around the state suffering the double whammy of declining student enrollment and skyrocketing pension costs.
Since 2011, a reduced enrollment has cost Livonia $13 million in state funding, while its pension expenses have more than doubled, from $12.2 million in 2011 to $26.3 million in 2016. Combined, the double-hit represents a $25 million reduction in annual cash flow. The district’s total state revenue has remained level over that six-year period at $106 million despite the drop in enrollment.
If an $80 million annual countywide school property tax increase is approved by voters Tuesday, Livonia is expected to get a $5.6 million annual funding bump. That will cover half the recent pension cost increases.
But Livonia Superintendent Randy Liepa said that looking at only state aid dollars and retirement costs does not provide a full picture of school finances.
“You have to look at all components to tell the correct story,” Liepa said in an email. “Enrollment decline is a significant factor in loss of funding.”
Liepa is hopeful that changes made in 2012 to the state-run school pension system may help going forward.
“While the retirement system may still have its challenges,” he said, “the reforms implemented in 2012 helped to address what would have been a much more dire situation for local districts as it relates to funding the required payments from the system.”
The Legislature made tweaks to the system in 2008, 2010 and 2012, but those haven’t come close to halting increases in the state-run system’s unfunded liabilities. They have grown from $8.9 billion in 2008 — when the first round of revisions was enacted — to $26.7 billion in 2015. Over the same period, the system has gone from having enough reserves to cover 83.6 percent of its obligations to just 60.5 percent today.
“There is no lack of money going to school districts — the state is spending more and more each year. But the extra dollars are going toward an underfunded pension system,” said James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy. “School district officials should instead ask to close the system, stop the underfunding, and then the dollars will go where they would like it.”
Hohman says the only way to contain and gradually reduce the unfunded liabilities is to close the system to new employees, who would instead get employer contributions to their own 401(k)-type accounts.
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.