41st Place Among the States
You have probably read the Mackinac Center’s excellent works on Michigan’s government finances, much of which they release through Michigan Capitol Confidential. Top quality analyses, but parochial in the sense that they don’t place Michigan’s government finances in the context of the other American states. An Illinois 501(c)(3) organization, Institute for Truth in Accounting does, and has come up with a useful metric – taxpayer burden – by which you can rank Michigan financial status relative to the other states. No accounting degree necessary.
Suffice it to say, you will not be reading any of Truth in Accounting’s work in Michigan’s nitwit, cheerleading media.
The Institute for Truth in Accounting (352185292), released its report on the 2015 financial conditions of the states last month. Michigan placed 41st among the states with a net $ 18,200 taxpayer burden, the amount each Michigan taxpayer would have to pay the state’s treasury in order for the state to be genuinely debt free. The $ 18,200 2015 taxpayer burden of Michigan is $ 100 worse than 2014’s number, suggesting that the recent happy talk out of Lansing is whistling past a graveyard. At best, Michigan is now treading water financially.
The overarching issue in Michigan’s financial predicament is retiree benefits: pensions and retiree health benefits coverage (OPEBs). Mackinac Center correctly points out that Michigan and its local units of government have started to deal with these retiree benefits, but TIA’s report shows just how much these retiree benefits have damaged Michigan’s financial health.
They didn’t have to, Michigan’s politicians could have made provisions for their promises, but they didn’t. Now the taxpayers of Michigan face a bleak future, made all the worse by Flint, the Detroit Public Schools, Medicaid Expansion, and all the other financial millstones recognized over the past year.
Download the two page summary of Michigan’s financial position prepared by TIA. An easy read constructed from the numbers in the State of Michigan’s 2015 CAFR, along with the DTMB Office of Retirement Services 2015 CAFRs. TIA has cut through thousands of pages of accounting minutae to give you a good reference in only two pages.
Snyder Administration partisans will take exception to TIA’s analyses because they assign a lot of school districts’ retirement liabilities to the State of Michigan. But Governor Snyder cannot have it both ways. His presumption that school district liabilities would befall the state was the horror story which stampeded legislators into approving the iniquitous PA 192 – 197 DPS bailout. You cannot shill the DPS bailout on one hand and then claim AG Opinion 4422 is controlling when it comes time to judge Michigan’s finances.
The good news here is Michigan’s true financial position will probably not get much worse because new employees are generally not being enrolled in open ended, very expensive retiree benefits. The bad news here is that Michigan’s financial position will remain poor for quite some time into the future as ‘grandfathered’ employees collect on politician’s empty promises. You can forget about any future state tax cuts in Michigan, regardless of what happens to interest rates.
The really ugly news here? While GASB Statement 67 and Statement 68 have dramatically improved the truthfulness of Michigan Comprehensive Annual Financial Reports, there is still a major deceit in most of them: the assumed rate of return on investments. Most Michigan CAFR’s presume that funds set aside to pay retiree pensions and benefits will grow at rates around 8%. When was the last time your bank accounts or IRAs grew at an 8% annual rate? Safe investments for pension funds simply cannot exceed the Treasury rate by this amount for any period of time. Treasury rates may go up a little as Janet Yellen takes her foot off the throat of the economy, but they won’t go up much. Certainly not enough to permit a safe 8% rate of return. The next economic downturn will probably not be as severe as 2008’s, but you can rest assured that it will put paid to the 8% lie. Michigan’s taxpayer burden will rocket up.
Regardless, Truth in Accounting has provided Michigan taxpayers with a useful tool to judge the performance of Michigan’s politicians relative to other states’ politician’s. TIA also has reports for some of the major municipalities in Michigan, but they are a bit out of date. Given Michigan’s recent history, we really need current, comparable reports on Michigan’s counties, school districts, and municipalities.