Underfunded Pensions: A Tale of Two Counties

The state’s largest 100 municipalities owe more than $4.2 billion in unfunded pension benefits to their employees, and Michigan’s 83 counties add another $2.5 billion to the total. Wayne County’s experience shows how this underfunding arose, while Oakland County shows the way out.

Most Wayne County communities run a defined benefit pension plan for their employees, and most of them are significantly underfunded. Detroit was allowed to keep enrolling new employees in a smaller defined benefit plan after it left bankruptcy court and received a state bailout.

Foreseeing such problems, in 1994 Oakland County closed its defined benefit pensions to new hires, instead giving these workers contributions to their own retirement accounts. The legacy pension system that serves county employees hired before that date is well-funded. The pension systems of most cities in the county, meanwhile, are in much better shape than their counterparts in Wayne County.

At the end of 2015 fiscal year, Oakland County’s closed pension system held 98 percent of the assets it needed to pay retirees. It has only $13 million worth of unfunded promises. To put that in perspective, the county’s annual budget is more than $850 million.

Make that 100 percent now, says Laurie VanPelt, Oakland County's director of management and budget. She reports that thanks to good returns on its pension investments, the system is now fully funded.

It’s a different story south of the border in Wayne County, however. There, the employee pensions are only 49 percent funded. Employees have been promised $1.66 billion in pension benefits. But the county has just $815 million of what it should have to pay them, potentially leaving taxpayers on the hook for $845 million in unfunded liabilities.

And that’s just the county government. The 34 cities in the county are carrying another $2.4 billion in unfunded pension liabilities.

Due to its size, Detroit skews the numbers to the bad side, meaning the average city in the county is less underwater than the countywide average suggests. Without Detroit, Wayne County's cities carry $827 million in unfunded liabilities, with retirement systems that are 70 percent funded on average.

Better yet, the systems in Livonia, Gibraltar, Grosse Pointe, and Grosse Pointe Farms are fully funded. Six out of the county's 34 cities have closed their defined benefit plans to new hires. Another nine have closed parts of their defined benefit plan or switched to a system that generally pairs a smaller defined benefit plan with employer contributions to employees’ 401(k)-type accounts. Politicians often call the latter arrangement a hybrid system.

On the flip side, the city of Highland Park has set aside just 3 percent of what is needed to fund retiree pensions, leaving a $40 million hole to fill.

Once again, the situation is happier for taxpayers in cities on the north side of the Wayne-Oakland border. Oakland County has 29 cities, whose pensions are 95 percent funded on average. Altogether, they are carrying $114 million in unfunded liabilities.

The high points in the country are Troy at 115 percent funded and Pontiac at 142 percent funded.

In Oakland County, 19 cities never had a defined benefit plan or have closed ones that existed. They now offer a defined contribution plan.

But some other cities have a different story to tell. Hazel Park is just 55 percent funded and Walled Lake is only 36 percent funded. These two cities owe $27 million and $8 million, respectively, to their systems.

Troy is one city that closed its plan. City Manager Brian Kischnick said the switch to a defined contribution plan has created stability in how much it must contribute each year to fund its legacy system. That system was closed in the late 1990s but covers many workers still on the payroll.

“The real issue is to manage the funds that you put away,” Kischnick said. “We have a board that helps us to make sure our returns are good. We have low assumptions – a 6 percent assumed rate of return. We use smoothing, and financial advisors. You can’t play games when you want to be fiscally responsible.”

Kischnick said the fully funded pension plan allows the city government to have money to spend in other areas.

“We’re 100 percent funded and the contributions are lower, so we can put more into police, fire, and roads,” Kischnick said.

A similar pattern is seen at the township level. Oakland County has 21 townships but only seven offer employees a defined benefit plan. These townships are 93 percent funded on average. The other 14 townships have either closed their defined benefit plan or never had one and are now offering defined contribution benefits. Wayne County's townships are 67 percent funded on average and will have to pay $136 million to pay for benefits earned by employees and retirees.

If all the unfunded liabilities for county, city and township governments are added, the sum for Wayne County is $3.4 billion. The sum for Oakland County is $167 million.

The good news for taxpayers in these counties and communities is that many officials have seen the handwriting on the wall and taken steps to get ahead of the problem of underfunded pension systems. The bad news is that too many have not.

Wayne Co. is mostly Detroit, with only a few other communities. The “Defined Benefit” pensions are the ridiculous gold-plated stuff that the corrupt (black) city managers “negotiated” with the corrupt (black) city union employees.

Oakland Co. is the “suburbs” where all the White people driven out of Detroit by the black crime wave of the 1980s, 1990s, 2000s, and 2010s moved. They have a more typical “white style” government that actually does stuff like balances the budgets.

The “plan” in Wayne Co. has always been to ‘gibs’ as much as possible to everyone, and let YT pay the bill, through ethnic intimidation, cries of “racism” and other “black privilige” scenarios that are commonly used in these sorts of situations.

Sadly, the people of Michigan (of whom maybe 1 million are refugees from the destroyed city of Detroit) have more-or-less precluded this by electing hard right Republicans in the State Government.

Now all that is left is liberals moaning and tearing their clothes over the terrible injustice of it all.

No sympathy from me.

Many books have been written on this, it's not just my theory:

“Detroit is an extreme example of the fact that public-sector employment has become in effect a supplementary welfare state, with salaries and benefits – and above all, pensions – entirely disconnected from legitimate municipal purposes.” “What Doomed Detroit“ (pg. 2)

This one is just a great book, by a great reporter. It's like a detective novel, where, in party he tries to find out why fireman died at a house fire due to old equipment. As it turned out money was all embezzled by the (black) fire department heads.

And of course, Paul Kersey's no punches pulled book on the topic:

Because Wayne Co. has been run by criminals since Coleman Young took over. Here are two sections from the Wikipedia article on him, that detail the massive corruption of his long time associate and the police chief of the city.

Corruption[edit]
Young's political ally William L. Hart served for 15 years as Detroit Police Chief before being indicted and convicted for stealing $1.3 million from police undercover funds. Hart was sentenced to 10 years imprisonment and ordered to pay back the money.[21] Deputy Chief of Police Kenneth Weiner, also a close associate of Young, was charged and convicted in a separate case involving investment fraud and stealing an additional $1.3 million from the same fund. Young was never charged with any crime.[22][23][24]
Crime[edit]
Though there were no civil disturbances as serious as the race riots of 1863, 1943, and 1967 during Young's terms as mayor, he has been blamed for failing to stem crime in the city. Several violent gangs controlled the region's drug trade in the 1970s and 1980s. Major criminal gangs that were founded in Detroit and dominated the drug trade at various times included The Errol Flynns (east side), Nasty Flynns (later the NF Bangers) and Black Killers and the drug consortiums of the 1980s such as Young Boys Inc., Pony Down, Best Friends, Black Mafia Family and the Chambers Brothers.
In 1965, nine years before Young was elected mayor, Detroit experienced an upwards trajectory of its homicide rate. In 1974, the year Young took office, the homicide rate in Detroit was slightly above 50 homicides per 100,000. Throughout the rest of the 1970s, Detroit's homicide rate trended downward, going below 40 homicides per 100,000 in 1977 and 1979. In 1980, Detroit again saw a steep increase in its homicide rate, in which it peaked at 63.5 homicides per 100,000 in 1987. In 1994, the year Young retired from office, the homicide rate was roughly 54 homicides per 100,000.[25]

The burnishing going on over crime stats is laughable. Chicago had 498 homicides last year. At the 40/100,000 rate that Young "achieved" in Detroit in his best years - there would have to be 1,080 to equal that.

Clearly Detroit was a high-crime bandlands, even compared to other large urban centers in the USA during his tenure, and pretty much ever since.

The citizens of Detroit saw fit to elect another highly criminal black mayor a few years after Young's nearly 20 years in office mercifully ended: they elected Kwame Kirkpatrick. Here's the intro to his bio on Wikipeida, which hits the high points:

Kwame Malik Kilpatrick (born June 8, 1970) is a former Michigan state representative and Democratic mayor of Detroit. He resigned as mayor after being convicted on felony counts, including perjury and obstruction of justice. Kilpatrick was sentenced to four months in jail after pleading guilty, and was released on probation after serving 99 days. On May 25, 2010, he was sentenced to 18 months to 5 years in state prison for violating his probation,[4] and served time at the Oaks Correctional Facility in northwest Michigan.
On March 11, 2013, Kilpatrick was convicted on 24 federal felony counts, including mail fraud, wire fraud, and racketeering.[5] On October 10, 2013, Kilpatrick was sentenced to 28 years in federal prison.[6]

The black criminals chosen by the citizens to run Detroit have never had the least interest in good government, or paying pensions in the future. To "wonder" about why they don't act like L.Brooks Patterson is sort of like wondering why guys named Mohamed keep blowing things up.

Essentially, for this whole period the Detroit Police and other high officials, when not stealing directly from the people, were implicated in the drug trade. Here's a nice article from the LA Times circa 1991 reporting on how Coleman Young's niece was arrested along with 11 Detroit Police for protecting drug shipments.

DETROIT — Eleven Detroit-area police officers were arraigned Wednesday on charges of accepting money to guard several large shipments of cocaine and cash for undercover FBI agents who were posing as drug dealers.
Six civilians also were arrested Tuesday in the sting operation, among them Detroit Mayor Coleman Young's niece, Cathy Volsan Curry, and her father, Willie Volsan. Federal agents said Young was not linked to the investigation.
Over the course of the eight-month investigation, the paid-off police officers willingly cooperated with what they thought were drug dealers to ensure the safe delivery of cocaine from Miami to Detroit, federal investigators said.
Sometimes while on duty and in uniform, often using marked police cars, the officers sealed off sections of Detroit City Airport, helped unload what they believed to be drug shipments and chaperoned the drugs through Detroit and into the suburbs, the FBI said.

Wayne County is the county which Detroit lies in, and it dominates it. There are some shared services between the County and the City, but many more that are separate, like the Detroit School District and the Detroit Police Department, etc. Most big citiies have similar situations.

The Detroit pension shortfalls are not part of the Wayne Co. ones, they are separate. To some extent the Detroit pension problems have already been addressed in the bankruptcy of Detroit, which is now complete. Pension holders took a 4.5% haircut on benefits, and reduced COLA and Health Care premiums.

The only way Detroit was able to do that was by (essentially) holding the Detroit Institute of Arts hostage and threatening to sell all the art to pay the public employee pensions. This caused several large foundations and the State to kick in money to make a "grand compromise" happen. I think it was $800 million.

Most of Michigan doesn't feel inclined to send money to Detroit / Wayne Co. to pay for pensions that are ill gotten in the minds of many.

The massive, long term corruption in the city is well understood. It's like paying your neighbors parking tickets.

You are right that it was a much bigger number for Detroit alone (prior to bankruptcy). A lot of bond holders took major haircuts, too. (As well they should).

Beginning with the Detroit Riots of 1967 white people started moving out of Detroit. This was pretty rational of them, there was a real aura of hating YT in Detroit in the period around the riots. The rioters themselves looted and arsoned all retail establishments except those owned by "Soul Brothers" which was prominently spray painted on them at the start of the riots by owners.

That's not the sort of thing that makes you feel safe of welcome in a city. As the decline accelerated in the 1970s and 1980s first upper income and then middle class blacks also started leaving. These were people leaving absolutely gorgeous old houses in lovely garden neighborhoods.

And now, as one article puts it: "In Detroit, even the dead are sprawling, as families disinter bodies from urban cemeteries to rebury them in the suburbs. Is there any greater sign of both the physical and psychological abandonment of the city?  "

No, probably not. Some pictures of the ruins:

Implosion of Hudson's Department Store (the Macy's of Detroit) a couple years ago. It has been abandonded for a while and needed to go.

Ford Model T Plant

Studebaker plant.

Grande Ballroom, site of many famous concerts in the 1960s, now abandoned.

Great Lakes theatre.

Lee Plaza awaits demolition

Abandoned.

Northeastern High School

Of course the buildings are not the only thing abandoned in Detroit's school system: the students haven't done so well either.

HuffPost: Nearly Half Of Detroit’s Adults Are Functionally Illiterate, Report Finds

Detroit’s population fell by 25 percent in the last decade. And of those that stuck around, nearly half of them are functionally illiterate, a new report finds.
According to estimates by The National Institute for Literacy, roughly 47 percent of adults in Detroit, Michigan — 200,000 total — are “functionally illiterate,” meaning they have trouble with reading, speaking, writing and computational skills. Even more surprisingly, the Detroit Regional Workforce finds half of that illiterate population has obtained a high school degree.

So, how much do the taxpayers of Michigan owe to the people of Detroit? Our grandparents built the city, we were driven out of it by force, fire and intimidation. The remaining residents have turned a lovely city into a huge post-apocolyptic war zone. The city managers have stolen from the citizens, from the employees and even from the drug dealers.

My only sadness is that they had the Detroit Art Museum to hold hostage. Without the hostage maybe every single city employee could not have been given total pension wipe outs to match the total destruction of the city that was my families home for 4 generations.

Bitter much? Yeah, as a matter of fact.

People need to study this. It's what Obama's policies will do to the rest of America.

Jack, many thanks for your very informative post about finances in Wayne County and Detroit.

You did a lot of work on that, and I appreciate your effort.

I spent a lot of time in Michigan when I was growing up.

Family in Alpena. Several close friends in Port Huron. And my first encounter with a major “college town” in Ann Arbor.

For many years I had an elderly female neighbor who was the completely honest accountant for a lake front hotel in Benton Harbor that was owned and managed by Al Capone's Chicago mob.

Her stories about that hotel during the 1920’s and 1930’s were magnificent.

Very sad to see a formerly great state fall so far.

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