Common Sense Action is a bipartisan political action group here at the University that is part of a national movement calling for generational fairness, fiscal responsibility in government, investment in millennial mobility and the renewal of prudent politics. The State of Michigan can encourage these qualities by reducing spending and increasing government efficiency.
One of the ways the Michigan government can promote fiscal responsibility is by supporting a change from a defined benefit to defined contribution pension system for state employees. A defined benefit pension program guarantees workers a pre-negotiated set of benefits, which are funded by a withheld portion of the employee’s salary that the government matches. The amount of these benefits is based on a defined percentage of the employee’s salary, which is then apportioned to the employee on a monthly basis for the rest of his or her life after retirement. The government and salary money from a defined benefit is placed in a public investment fund from which the pension is paid out.
The problem with defined benefit pensions plans is that they require actuarial accounting, which is essentially an estimate of the total cost of each of the employee’s pension plans based on how long they live and an estimate of how the public fund will do in the market. Because actuarial accounting is often inaccurate, the discrepancy between the estimate and the actual pension costs can be alarmingly significant, which has led to Michigan touting one of the highest debt totals in the United States. Michigan has a total state debt of more than $142 billion, or $14,435 per capita. A large portion of this debt, well more than half, is created by liabilities derived from unfunded pensions.
CSA opposes the culture of spending and passing the bills onto taxpayers in the future. We believe that this method of fiscal accounting is not only irresponsible but also unsustainable. This issue is important for millennials to understand because our current debt will be passed on to us in the future. We are calling for the current generation of politicians to act more prudently and to work together to solve our current problems rather than leaving them for our generation to bear. To do this, we need to increase our political involvement to persuade politicians that we matter and deserve to be represented.
We believe the solution to the pension problem is the conversion of the government’s pension system to a defined contribution pension system, which completely eliminates the need for actuarial accounting. In a defined contribution system, each employee is provided an entirely separate Investment Retirement Account into which the government and the employee agree to contribute a certain amount for later access. Implementing this debt-solvent program is important because it eliminates the need for actuarial estimates; thus millennials will not be responsible to pay for the difference between today’s estimates and the future’s realities. This means fewer tax dollars for our generation to pay after we enter the workforce.
Reducing excess pension costs of state employees is not the only action we propose the legislature should take to decrease the burden of unsustainable debt in Michigan. Common Sense Action supports the reduction of prison costs by reforming and reducing sentencing, probation and parole terms. The idea is to reduce prison sentences and costs while keeping offenders under the supervision of the state to ensure a smooth reintegration into society. While we believe the prison system is vital to keeping crime rates down, CSA supports reforming prison sentences to significantly reduce the total cost of the prison system to taxpayers. If Michigan doesn’t take this action now, millennials will end up paying for it in the future.
In recent years, though the prison population has decreased significantly, the costs of operating Michigan’s Department of Corrections have increased because of outstanding debt from defined benefit pension programs that were guaranteed by previous generations and are born by taxpayers today. From fiscal year 2007 to fiscal year 2015, the number of employed full-time corrections officers has decreased by nearly 20 percent, yet prison costs have continued to rise because of unfunded liabilities. CSA believes that this mistake should not be repeated today at millennials’ cost in the future.
Common Sense Action also supports a change in the philosophy of our state government’s policy implementation and spending initiatives through priority-based budgeting. Priority-based budgeting is the idea that lawmakers and bureaucrats work together as one entity to focus on the outcomes of policy rather than implementing idealistic yet ineffective and inefficient legislation. Priority-based budgeting can reduce spending and debt while still accomplishing the most essential and beneficial functions of state government.
Another facet of priority-based budgeting that CSA supports is performance evaluation. Through evaluating what works and what doesn’t in our bureaucratic functions, Michigan can make its governmental programs more efficient and less costly to Michigan taxpayers. As millennials, we need to encourage our government to operate in a fiscally responsible way so we can change our current culture of ineffective, exorbitant spending.
While CSA values the functions of our state government, we believe that it is imperative that we reduce our state debt to a more sustainable, efficient level that will not be a burden to our wallets in the future.
Jordan Sandman is an LSA freshman.