In today's Wall Street Journal, former mayor of Los Angeles
Richard Riordan and investment adviser Alexander Rubalcava describe
the looming bankruptcy hanging over Los Angeles, caused by the same process of "Detroitification" that plagues
Michigan: A political class progressively hollowing out the private economy to
prop up the perks and privileges of an unsustainable government establishment.
The specifics described in that article mirror many of this
state's creaking institutions, first and foremost our public school
establishment. The authors offer a set of recommendations for the City of
Angels that Michigan's schools also would do well to follow; these four
bullet points are quoted from their article:
- Defined benefit pensions
must be replaced with 401(k) accounts for new employees.
- Current employees must
pay much more than 6% (or 9% in the case of public safety employees) of
their salaries for their pension benefits. At a time when the city is
contributing over 25% of payroll to the pension funds, this is only fair.
- Increase the retirement
age to 65.
- Eliminate the $300
million spent on costly retiree health-care benefits. City workers who
retire before they are eligible for Medicare enjoy health insurance
subsidies up to $1,200 a month, courtesy of Los Angeles. We can no longer
afford to subsidize these Cadillac plans.
The exact same dysfunctions and prudent reforms apply just
as much to Michigan's public school retirement system:
- While state employees
hired since 1997 have 401(k) accounts instead of defined benefits pension — a gift from former Gov. John Engler that keeps
on giving — the political power of the Michigan Education Association union enabled Michigan
school employees to wriggle out from that reform and retain their outmoded
traditional pension plan.
- In Michigan, current
school employees pay between zero and 6.4 percent of their salary toward
their pensions. Next year, school districts will be paying an amount equal
to 19.41 percent of total payroll into the retirement system.
- In Michigan, school
employees can begin collecting a pension at age 55, younger if
they have 30 years on the job.
- Michigan school retirees
get full health insurance benefits, also starting at age 55 or after 30
years on the job.
Earlier this year, Gov. Jennifer Granholm proposed reforms along the
lines described above for Los Angeles, but far more modest. The governor wants
to increase employee pension contributions by three percent, raise the
retirement age for new employees to age 60 and eliminate post-retirement
vision and dental coverage for future retirees. The measure was watered down first by Senate Republicans,
who left the current retiree vision and dental benefits in place, and was all
but gutted by House Democrats.
These prudent recommendations for L.A. are exactly the
medicine Michigan's public school retirement system needs. The contrast between
them and what Gov. Granholm proposed demonstrates what timid half-measures the
latter really were. The measures passed by the Senate and House demonstrate the
extent to which this state's bipartisan political class is in hock to
government employee unions, just like their counterparts in L.A. In both
places, the politicians are serving the system, not the people.
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