Saturday, May 8, 2010

How Greek’s Debt Crisis Can Inform Michigan’s Pension Debate

Michigan’s teacher pension fund (MPSERS) is underfunded by nearly $61 billion. This massive debt is split between an unfunded pension liability of $35 billion (supported by Manhattan Institute study) and an unfunded health care promise, known as OPEB, of $26 billion (from MPSERS financial statement). Michigan's total budget is $43 billion (seehere, slide 19). MPSERS unfunded liability equals 142% of Michigan's total budget.

The Greek debt crisis is fueled by debt levels that will exceed 120% of Greek’s gross domestic product. While not an apples to apples comparison the message is clear, spending more than you make is not sustainable.

The debate regarding proposals to mandate new MPSERS entitlements for health care is irresponsible. MPSERS funding requirements are crippling school budgets with a tax on districts approaching nearly 20% on every salary dollar. The proposed amendment to enshrine health care in SB 1227 will add to that burden for generations. Greece, along with the rest of Europe, is paying for its history of financial malfeasance. Unless legislators wake up, Michigan faces a similar fate. Making good on the pension promise will be challenging enough, adding to that burden with a guaranteed health care mandate will make it impossible.

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