News Story

Whitmer pension grants are a $553M bailout for governments

Michigan municipalities that made promises they can’t keep get half-billion dollar bailout

The state of Michigan has extended a half-billion dollar bailout to local government pension funds in the 2024 budget. That’s not how Gov. Gretchen Whitmer describes it, depicting the bailout as putting money “back into Michigan seniors’ pockets.”

But that’s not how the governor’s plan works.

“Michiganders work hard and they deserve to retire with dignity,” Whitmer tweeted of the Protection MI Pension grants on Sept. 20, complete with an image of characters from the TV show “Golden Girls” jumping with glee. “Today, we're putting $553 MILLION back into Michigan seniors’ pockets through Protecting MI Pension grants in 123 communities across the state.”

“Communities,” in this case, means units of government.

Even when public pension plans use accurate actuarial assumptions, they are often underfunded, which many plans in Michigan are.

James Hohman, director of fiscal policy at the Mackinac Center for Public Policy, described how underfunding works in a 2016 blog post that drew on a movie called “The Blob.”

“It’s where this tiny piece of goo keeps growing, gobbling up everyone in sight. The horror reaches a climax as the blob becomes so large that nothing can stop it. A young Steve McQueen eventually figures out that it doesn’t like the cold, so the town freezes it and transports it to the Arctic,” Hohman wrote.

Hohman then turned to pensions. “It is state policy to prevent pension debts, per article IX, Sec. 24 of the state constitution,” he wrote.

Whitmer’s Protecting MI Pension plan shores up underfunded pension plans of various governments in Michigan. Contrary to the governor’s tweet, the plan does not add any new money to seniors’ pockets. It does, though, benefit various local governments, such as Flint.

Flint has had an underfunded pension system for years. Its pension system was only 29% funded as of June 2022. It has $391.6 million in unfunded obligations.

Michigan Capitol Confidential reported in 2021 that Flint had 29 cents for each dollar needed to cover its pension promises, extended to employees by current and former officials. Flint was $388 million short of the amount it should have had to cover the pension promises it has made to its employees.

That year, Flint’s total revenue was $100 million.

The city will receive $170 million from state taxpayers under Whitmer’s plan.

Charlotte had 57.7% of its pension liabilities funded in June 2022. Its plan will receive $1.2 million from state taxpayers. This will improve its pension funds to 60% of what they should be.

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.