Lansing's next mayor Andy Schor will inherit over $680 million in unfunded legacy costs

LANSING — When Mayor-Elect Andy Schor raises his right hand on Jan. 1, he will agree to take on a new political office.

He will also inherit a multi-million dollar problem.

The city is grappling with more than $680 million in estimated unfunded liabilities to be paid over the next 30 years.

The shortfall is projected because the city has not yet invested enough money to eventually pay the pensions and retiree health benefits of current and former city employees.

Mayor Virg Bernero, who announced in February that he would not seek another term, convened a Financial Health Team in 2012 to study the problem.

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The task force met this week with an eye toward easing the mayoral transition. It sent a letter to Bernero and Schor, which highlights recommendations from a report released earlier this year.

Those recommendations include:

• Asking voters to approve a special police or fire tax to fund pensions. At the close of 2016, the city's estimated unfunded liability for police and fire was $130 million.
• Consider eliminating Medicare Part B health insurance reimbursements, which represent 10% of the city's unfunded liability.
• Consider eliminating subsidized dental and vision coverage to reduce the city's unfunded liability by about 5%.
• Review city-owned assets, such as the Lansing Board of Water & Light, and consider sale, bonding or transfer of those assets

On Wednesday, Schor said he could not yet commit to a decision on whether to pursue those recommendations.

He has promised to continue meetings of the Financial Health Team, but said he would need to consult further with residents, City Council and the finance director before agreeing to an option, such as a special tax or changes to health benefits.

"Right now, the one thing that I 100 percent agree with is that doing nothing is a mistake," Schor said.

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Several factors have made it more difficult for the city to fund post-retirement benefits. The team has cited rising costs for health care, an under-performing stock market, extended life expectancies and state cuts to revenue sharing for local government.

Additionally, the city slashed staff during the Great Recession — a decision that the task force called "responsible, necessary and prudent" — which means there are fewer workers paying into the pension system. There are now 2.3 retirees for every one active city employee.

"This isn't a bill that comes to you all at once," said Randy Hannan, Bernero's executive assistant, referring to the unfunded liabilites. "It's not like a balloon payment where we have to come up with $680 million all in one shot. It's a bit more like a 30-year rolling mortgage with payment escalating over time."

As those payments escalate, they will cut into the money the city has available to fund immediate services, such as roads and trash. 

"There are no easy answers," said Ben Bakken, chair of the Financial Health Team and a vice president of commercial banking at Mercantile Bank of Michigan. "Part of the problem with this issue is there isn't a due date on it."

Contact Sarah Lehr at (517) 377-1056 or slehr@lsj.com. Follow her on Twitter @SarahGLehr.