Over the last three years, many of the Grand Traverse County’s top officials have resigned or been fired, and the county is now looking for its fourth administrator since 2015.
Much of the turmoil stems from the county’s pension debt – the amount of money the county has promised to retired employees. Right now, Grand Traverse County doesn’t have enough money to cover the pension debt.
In July of 2016, the county took a step toward solving its pension debt problem. That’s when Administrator Tom Menzel drove down to Lansing to meet with MERS, the state agency that manages and invests pension funds for local governments all over Michigan.
“I was the first entity that ever made a presentation to their board of directors,” says Menzel. “The first one. So we did a lot of precedent setting and paradigm shifting.”
Menzel was there to buy time. He wanted MERS to extend the amount of time Grand Traverse County had to catch up on its pension debt – from 12 to 16 years.
In exchange, Menzel promised the county would get serious about addressing the pension shortfall, which had grown to about $50 million.
The county would agree to pay $5.9 million a year to MERS. It would make its employees pay more into their pension plans. And it would establish a pension advisory board to keep tabs on the finances and make sure everything was going alright.
“It’s a good plan but it requires ongoing work,” says Menzel.
Menzel says county commissioners have stopped doing that work.
He resigned last year. Since then, commissioners lowered the employee contribution into the pension fund. They stopped paying into a special trust fund set up to aid the pension problem. And they disbanded the pension advisory board.
Making 'mortgage' payments
County Commission Chair Carol Crawford thinks things are going pretty well now. Crawford disagreed with parts of Menzel’s plan to stabilize the pension debt; she thought too much burden was placed in county employees.
But she says everything will be fine as long as Grand Traverse County continues to make the $5.9 million-dollar payments to MERS.
“So it’s just like a mortgage,” says Crawford. “Not every decision you make for your family is colored by the fact that you have a mortgage.”
Chris Radu disagrees. Radu used to be on the pension advisory board – the one that was disbanded.
“It is a gross misrepresentation and gross oversimplification to say that it’s anything like a mortgage,” says Radu.
Radu says a typical 30-year, fixed rate home mortgage is pretty stable and predictable … your monthly payment stays the same.
But he says a pension debt is not like that. Too many factors can change from year to year, like the number of retirees collecting pension benefits, and the rate of return the county gets from MERS investing its pension money.
Radu says he’s certain that Grand Traverse County’s $5.9 million-dollar annual payment will go up.
“We are still in the mode of we don’t really want to admit that there’s this problem, and we want to talk about how it’s just going to fix itself without anybody having to pay,” says Radu. “The longer we do that, the more we’re insuring that the pain is going to be that much worse.”
New taxes or bond issue?
Radu says the only honest way to address the pension debt is with a millage – a new tax.
Before it was disbanded, the pension advisory board pushed for a millage, but the county commission rejected the idea.
County officials like Menzel and Crawford think voters are unlikely to approve a tax dedicated to the pension debt.
Another common way that other governments have dealt with the problem is with a bond issue. That’s basically a loan that would have to be paid back, with interest.
The county commission discussed the possibility of bonding a couple of years ago but those discussions didn’t gain much traction.
In fact, one thing Tom Menzel, Carol Crawford and Chris Radu all agree on is that bonding is basically playing the stock market with borrowed money. They say it’s too risky.
“I’ve yet to meet a person who got out of debt by borrowing more money,” says Radu. “That’s what pension bonds are. You’re borrowing more money. So how do you expect to ever solve the problem?”
Grand Traverse is not the only Michigan county dealing with this pension problem. A state report to Governor Rick Snyder says Michigan’s counties, townships and villages owe a collective $17.6 billion to their pension funds.
But by some measures, Grand Traverse County is further in the hole than any county in Michigan.
County leaders are eagerly awaiting a new report from MERS that will show how well the county’s payment plan is working. The report is expected in June.