Whitmer, Republicans remain at odds over using pension bonds to fix roads

By: - July 11, 2019 5:00 am
Potholes in East Lansing

East Lansing potholes | Susan J. Demas

As the state’s top Republicans consider a recent proposal to sell teacher pension bonds as part of their alternative to the road funding plan proposed by Gov. Gretchen Whitmer, the governor hasn’t been shy about her staunch opposition — which is shared, in part, by liberals and conservatives alike.

Groups from across the political spectrum have warned against the idea from the conservative business group the West Michigan Policy Forum, which proposed a similar plan to one reportedly rejected by former Gov. Rick Snyder during his tenure in office. 

Former Snyder Chief of Staff Dennis Muchmore told Crain’s Detroit that such a plan was “pretty quickly dismissed” by the Republican former governor.

Whitmer more colorfully characterized the plan as “retrieved out of Gov. Rick Snyder’s trash can.” 

Patrick Anderson, founder and CEO of the Anderson Economic Group consulting firm and budget official in the administration of Republican former Gov. John Engler, told the Detroit News the plan is “fiscally unwise.” 

A spokesperson for the Michigan Education Association told the Advance unequivocally that they “firmly oppose this idea,” with MEA Director of Public Affairs Doug Pratt calling it in a statement “something cooked up in a Las Vegas casino.”

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Still, despite those warnings, GOP caucus leaders have confirmed that the proposal, if not set in stone, is under consideration as negotiations continue over road repair funding and the state’s budget.

Speaking to Crain’s Monday, state Senate Majority Leader Mike Shirkey (R-Clarklake) said the proposal could “properly deploy the finite capital” at the state’s disposal.

Senate Majority Leader Mike Shirkey, May 30, 2019 | Andrew Roth

Under the plan proposed by the West Michigan business group in June, the state would issue a bond for $10 billion repayable over 30 years that would be used to pay the state teacher pension system’s debts, freeing up money in the state’s Student Aid Fund for other purposes. The pension system would then invest the cash and use the forthcoming revenue to make bond and interest payments.

The Government Finance Officers Association, a nonpartisan group that advocates for best practices in state budgeting, says such maneuvers carry “considerable risk.” The risk is associated with the ability of the state’s pension system to invest the new cash wisely enough to pay both the debt itself and its associated interest payments, along with the inherent unpredictability of markets.

According to Eric Lupher, president of the nonpartisan Citizens Research Council, navigating those waters skillfully is key to the success or failure of such a bond.

“It’s been done successfully in some places and less so in others, Detroit being the poster child for that,” Lupher said, referring to the city’s bankruptcy and numerous defaults of the past decade. “It takes sound financial judgment, including on the part of the investors, to end up on the good end of this.”

He added, however, that state and municipal governments usually issue such bonds in times of crisis, and not when their finances are relatively stable, as Michigan’s have been in recent years after a long recession.

“Normally you do this … when you’re trying to navigate some difficulty with cash. In Michigan right now, [the need for cash is] more manmade,” Lupher said, remarking that “it’s something legislative Republicans are considering to come up with extra money without raising taxes.”

Although Shirkey told Crain’s that such a proposal is “going to be part of what we propose to the governor,” his spokeswoman, Amber McCann, said Tuesday, “The Majority Leader is supportive of the concept outlined in the report [from the West Michigan Policy Forum that contained the plan], but he is focused on other means to generate dollars for roads.” 

McCann did not immediately respond to a request for comment on whether Shirkey still plans on proposing it to the governor’s office.

Gideon D’Assandro, spokesman for state House Majority Leader Lee Chatfield (R-Levering), said Tuesday, “The speaker believes all options should be on the table. … Protecting funding for students and ensuring teacher pensions are fully funded so schools continue to come out ahead after every dollar at the pump is sent to roads are important priorities for him,” taking a shot at Whitmer’s proposed gas tax hike.

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Whitmer’s main proposal for raising what her administration says is the $2.5 billion needed for road repair is a 45-cent increase in the state’s gasoline tax. As the Detroit News reported earlier this month, several other states have recently raised their gas taxes, although by far more modest amounts than the governor’s proposed hike.

Discussing the state’s need for new revenue at the most recent Consensus Revenue Estimating Conference, a presentation of Michigan’s finances in May, state Budget Director Chris Kolb lamented, “If the General Fund just kept up with inflation over the last 20 years, we’d have about 5.5 more billion dollars. … It’s tough to look at 20 years ago, how we had the exact same amount of money in the General Fund as we have today.”

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Bond issues are frequently used by Michigan’s municipalities to pay public costs, to varying degrees of success. In December of last year, the city of Dearborn issued a $35 million bond as part of an effort to pay health care costs for retired workers. 

Crain’s reported in May that Detroit Public Schools continues to borrow tens of millions of dollars per year from the state’s School Loan Revolving Fund to pay its significant bond debts.

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Derek Robertson
Derek Robertson

Derek Robertson is a former reporter for the Advance. Previously, he wrote for Politico Magazine in Washington. He is a Genesee County native and graduate of both Wayne State University, where he studied history, and the Medill School of Journalism at Northwestern University.