I am frequently asked if I have any experience serving in government, and the answer to that is, no. I spent my entire engineering career in the private sector. Would no experience be a hindrance? Or have I seen things happen in the private sector that haven’t yet happened in the city government, and perhaps a viewpoint from the outside would be an asset, not a hindrance? With that lead in, I’ll talk about the subject at hand: public employee pension and health care defined benefit plans.
Over my long career in the private sector, I saw first hand the dramatic changes in retirement plans. At the start of my career, there was an overwhelming prevalence of defined benefit plans. But as time passed, and conditions changed, the shift started from defined benefit plans to defined contribution plans. At the end of my career, defined contribution plans had pretty much taken over. Here are some companies that have changed their plans; the list of companies in this example starts in 2006. What have our city leaders, and those running for mayor promising “strong leadership”, been doing about this problem in the last decade? And if elected, will they continue to offer the same “solutions” in the future? This article explains very well the problems Grand Rapids faces. A few excerpts:
- There are potholes Grand Rapids city officials fail to mention in their attempt to turn a temporary income tax increase into a more permanent one — the $153.9 million hole to meet pension liabilities and the $163 million bill for retiree health care.
- How did the city get into this mess? The answer is simple: City officials promised benefits they couldn’t afford and then failed to a fund a system to adequately pay them.
- It is a story repeating in city after city because unlike private industry, where markets dictate the sustainability of pay and benefit packages, politicians and public sector unions have assumed they get a blank check from taxpayers. Rather than being honest with the public (and the government workers who depend on this money), politicians push the costs into the future. Eventually the bills come due and when they do, they come at the expense of essential government services — like patching potholes.
Grand Rapids has taken a step in the right direction by providing new hires defined contribution plans. But there is a fiscal cliff still waiting to occur, which will occur if the stock market does a repeat of 2008 and drops substantially. The defined benefit plan has a chance if the markets go up forever, but will have major problems when the markets tumble. And I said when, not if, because markets don’t go in one direction eternally. Does anyone know when a change in market direction will occur? No. Can Grand Rapids do something proactive to help ensure its fiscal stability? Yes.
There are many ways the city could proceed in transitioning current employees defined benefit plans to defined contribution plans. When my administration begins, I will work with the city commission to propose changes. Moving forward, we will work with benefit experts to determine a fair and equitable alternative to the current plan.
Is Grand Rapids going to some day be the second largest city in Michigan to file bankruptcy (see this article about Detroit’s bankruptcy)? Or can we take steps now to lessen the blow which will likely occur in our future, or eliminate it completely? A proposal such as this will be seen as unpopular by city workers, as it was unpopular with my private industry co-workers. But do we have to fall over the fiscal cliff before changes are finally made, or can we face the inevitable now?
This unfunded liability is not the only problem Grand Rapids is having with budget issues – it’s a much bigger problem than that. It’s a one billion dollar problem. But there is no other candidate that has recommended cutting anything, or has campaigned for a smaller, leaner, less costly government. Or has even breathed the words ‘tax cut’.
There are candidates in this race that are or have been in government. Have they provided “strong leadership” in this extremely important area? As candidate for mayor, all I can do is put issues before the electorate and let them have a voice in the direction Grand Rapids will take.
From the grpundit.com article:
- It’s easy to spend and make promises when the times are good. But now the residents (and taxed non-residents) of Grand Rapids are being asked to pay for the politicians’ and bureaucrats’ inability to think ahead and act in their fiduciary capacity as representatives of the citizenry. Who do they work for? The city’s unions or the city’s citizens?
And finally, from the michigancapitolconfidential.com article:
- Before going to taxpayers again, perhaps Grand Rapids should start making some repairs on its fiscal policies. Making reforms to its pension and retiree health benefits programs could go a long way in filling potholes.