Legacy Costs Facing Michigan Municipalities

An update to the 2013 Report: Funding the Legacy -- The Cost of Municipal Workers' Retirement Benefits to Michigan Communities.

Executive Summary

Recovering from the Great Recession of 2008-09, Michigan local governments face many fiscal challenges. The largest of these challenges is legacy costs – the cost burden of pensions and retiree health care. In the 2013 Michigan State University Extension report Funding the Legacy: The Cost of Municipal Workers’ Retirement Benefits to Michigan Communities, authors Dr. Eric Scorsone and Nicolette Bateson (Scorsone & Bateson, 2013) stated that Michigan cities, villages and townships owed over $13 billion in unfunded legacy costs related to retiree health care and $2.5 billion in unfunded pension costs. These two costs were documented as the largest liabilities facing Michigan local governments.

Since that report, the City of Detroit has undergone the largest municipal bankruptcy in U.S. history, and the City of Flint was forced into a state takeover. Both of these city governments managed to reduce their retiree health costs significantly. Even with these exceptional circumstances, the majority of Michigan local governments still owe a large unfunded liability related to health care at over $7 billion. Several policy solutions are being proposed including retiree health care bonding and unilateral changes to employee benefits. These ideas are assessed in this paper. Additionally, this report contains information on Michigan county governments not available in the 2013 report Funding the Legacy.

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