Capitol News

Michigan is increasingly widening the gap between the money put aside to pay public pensions for the school retirement program and the amount owed to the program, and the new coronavirus pandemic is only making it worse.

Many states are seeing an increase in the amount owed to public pensions -- not just school retirement programs -- and are not setting aside enough money to pay off these debts. With the novel coronavirus pandemic, the amount going towards these pension funds could be decreased since more people are becoming unemployed, according to The New York Times. 

"The people have no money," Maria Pappas, Cook County, Illinois, treasurer, told the The New York Times. "It's like a rubber band that's been stretched too thin. What I'm telling you is, the rubber band is about to break."

Pension funds are supposed to be funded by administrators during an individual's career. This would ensure that the costs of these pensions aren't funded by taxpayers later. It would also guarantee that these programs have enough money to pay the earned pensions to individuals, according to Michigan Capitol Confidential.  

Since administrators aren't funding pensions as they should be, it pushes the responsibility of funding these pensions onto taxpayers. 

But many individuals can't pay taxes right now due to unemployment caused by the pandemic, which means less money is going towards these programs. State and local governments might have to reduce or slow the growth of these benefit programs, according to The New York Times. 

In Michigan, Rep. Thomas Albert (R-Lowell) is asking state administrators to consider how much money is going into the school employee retirement fund, arguing that better assumptions will help pay off the debt at a quicker pace. But lawmakers still tend to put funds towards other projects instead of the pension system.

In order to help catch up to the pension debt, taxpayers would have to put more of their money towards these pension programs, according to Michigan Capitol Confidential. 

But Albert is asking administrators to lower their assumptions that the state will see an increase in payroll quickly, because it's these assumptions that determine how fast the state pays off its pension debts. 

Michigan payroll hasn't seen much growth since 2004. The value of paychecks in the state has fallen to $8.3 billion in 2018 from $10.4 billion in 2004, which means it might be wise for administrators not to assume payroll is going to increase anytime soon, according to Michigan Capitol Confidential. 

In Illinois, lawmakers decided to raise taxes to help fund pension programs. It was either that or reduce the amount of benefits in the pension program. Michigan may soon be facing the same dilemma as the COVID-19 crisis continues, leaving residents unemployed and unable to pay taxes. 

“Illinois is literally now taxing you for everything,” Adan Villafranca, a former Chicago resident who moved his family to Indiana, where taxes are lower, told The New York Times. “You go to the store and they tax you for a bag. What are they going to tax you for next, the air that you breathe?”