News Story

Lansing’s $402M pension problem could become ours

City’s unfunded pension debt continues to grow, even with state help

The city of Lansing pays pensions to 1,790 former employees, but it lacks a fully funded pension system. If the city fails to fully fund its pension obligations, the burden will fall upon future taxpayers, says James Hohman, budget director at the Mackinac Center.

Lansing’s net pension liability was $402,497,602 as of June 30, 2023, according to the city’s latest annual report. That’s the gap between what the city owes the members of its workforce and what it has available (and expects to have available) to pay out. There are $238 million in unfunded liabilities for the fire and police department pension system and $164 million in unfunded liabilities for general city employee pensions.

Lansing saw an increase in its unfunded liability from 2022, even with an $11 million pension grant from state taxpayers. The city had $371,959,895 in net pension liability back then.

“City officials ought to be concerned about the rules that employees use to vest in pensions,” Hohman told Michigan Capitol Confidential.

State and local governments in Michigan have in the past allowed employees to use what is called double-dipping. This happens when someone can collect a pension while still working in some capacity for the same employer.

The city received $25 million in American Rescue Plan Funds during the COVID-19 pandemic. The federal government did not allow local governments to use the funds to pay down pension liabilities. But they were free to use the grants in ways that freed up other monies to pay down pension liabilities.

Hohman wrote in a blog post April 7, 2021, about the way local governments could use COVID relief funds to improve the status of their pension systems:

It may be tough to pay down pension debts with the stimulus checks, however, because Congress prohibited it. Further federal guidance may highlight ways local officials are allowed to use their stimulus checks to free up extra cash, which can then pay down pension debt. This would protect retirees and save taxpayers money in the long term, and help local governments get out of the pandemic stronger.

It is unclear if Lansing used the tactic Hohman describes. City officials did not respond to a request for comment.

Lansing’s shrinking population may present future challenges for the city’s pension systems. There were 126,932 people living in Lansing in 1990, according to the U.S. Census. That number now stands at 112,684.

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.