(Editor's note: This article was first published in the Oakland Press on Aug, 19, 2007.)
Michigan is generally viewed as a "good government" state.
With a few exceptions governments here are considered free of the outrageous
corruption that characterizes some municipalities and state governments
elsewhere. That said, very few units of government here or anywhere else have a
sterling record of prudent and transparent financial management.
One that does is the County of Oakland. Evidence of this is
its relatively low tax rate, the fact that the county has been proactive in
using cost-saving measures such as privatization to stretch taxpayers' dollars,
and perhaps most strikingly, its foresight in managing and limiting pension and
post-retirement health care benefits promised to county employees.
In the private sector, traditional "defined benefit" pension
systems are rapidly disappearing, with most employers going to 401(k)-type
defined contribution systems for employees. Post-retirement health care
benefits are very rare in private businesses — understandable when one looks at
how they are breaking the backs of the Big Three automakers. Considering that
the federal Medicare program already covers most retiree health care costs,
financed by a 2.9 percent payroll tax on every American
worker, employer-provided retiree health benefits are rightly
seen as obsolete.
Government, however, has marched to a different, less
fiscally prudent drummer, continuing to provide defined benefit pensions and
retiree health coverage in most cases. The accumulated liabilities are
staggering, and could eventually lead to the outright bankruptcy of some
municipalities and school districts (Detroit being a prime candidate in both
categories, for example). One well-documented example of these burdens is
Michigan's school retiree health care plan, which with school pensions is
expected to consume more than 30 percent of school payrolls by 2020 — an amount
widely recognized as unsustainable.
Oakland County is perhaps unique as one large local
government whose leaders have swum against this tide of red ink, refusing make
their jobs easier today by passing costs on to future taxpayers. For 20 years
the county has prefunded not just employee pensions — as required by the
Michigan Constitution — but also the health coverage promised to future
retirees, which is extremely unusual, if not unique in the state. Over the next
couple decades, taxpayers in practically every other jurisdiction can
expect either substantial tax hikes, service cuts or both to pay
for benefits promised by politicians years or decades earlier.
Moreover, 10 years ago Oakland wisely capped future pension
liabilities by placing new employees in a 401(k)-type pension plan, following
the practice of most private sector employers. Beginning in 2006 new hires also
participate in the health care equivalent of a defined contribution system, a
Retirement Health Savings Account.
As mentioned, Oakland has also kept taxes
low, maintaining the third lowest countywide property tax rate — just
4.65 mills — compared to a statewide average of 7.39 mills for counties. In
contrast, the countywide rate in Wayne is 8.03 mills. In part Oakland County
has been able to keep the rate down through innovative and well-managed
competitive contracting for county services. Most recently, the county entered
into a privatization agreement for its medical care nursing facility, saving
taxpayers roughly $2 million annually.
From time to time, Mackinac Center analysts have not
hesitated to criticize Oakland County (and the state) for economic
development and related programs that we believe are not part of
government's core mission. However, at the county level these minor peccadilloes
pale in comparison to the magnitude of Oakland's success in implementing the
far important management practices described here.
The achievement is all the greater given its
uniqueness. Oakland County's leaders have established a corporate culture of
prudent financial management that is a rarity in the public sector, where the
incentives all press in the opposite direction. Taxpayers in other
jurisdictions would be well advised to benchmark their own local government's
practices against the standard Oakland has set, and demand that
their public officials follow its example.