Michigan Pension System $50 Billion In The Hole, Healthcare Liablity Only 1.9% Funded. Detroit Free Press Finds Silver Lining: "On the bright side, it's worse elsewhere"

I kid you not! The most liberal publication in the state and likely the midwest, the Detroit Free Press, discovered that although Michigan's healthcare liabilities are only 1.9% funded, and the pension obligations are $50 billion underfunded (Michigan's current FY2010 budget is $45 billion), other places are worse off, so that makes it OK or something. From the freep comes this laugher in the first 2 paragraphs:

Michigan taxpayers are on the hook for more than $50 billion in unfunded pension and retiree health care for future public sector retirees, according to a new report on state retirement systems from the Pew Center on the States.

On the bright side, it's worse elsewhere. Californians have a $122-billion shortfall. Illinois, with the most underfunded pension system, is about $94 billion in the hole.

Illinois has a larger population (13 million), as does California (55 million). Michigan dipped to under 10 million. In any case though, you know what they say about silver linings:

Later in the article, the freep got back to hard reality:

The calculations are based on state-by-state analysis of the cost of future benefits and the retirement systems' projected capacity to cover them.

Michigan's pension systems, which include state employees and school teachers, have $70.4 billion in anticipated payouts to current and future retirees.

Can anyone say "unsustainable?" And then there's the healthcare obligation:

The picture for retiree health care is bleaker. Pew pegs Michigan's liability for health care and other non-pension benefits (such as life insurance) at $40.7 billion, with only a small fraction (1.9%) currently funded. Only California, New York, New Jersey and Illinois have larger gaps.

In most states, public pension benefits are legally sacrosanct; in Michigan, they enjoy constitutional protection. And a failure to reduce costs or save more in the interim "could lead to higher taxes," Huh said.

Michigan Budget Director Bob Emerson said state and local officials are well aware of the deficit, and have taken steps to address it.

State employees were transferred to a defined-contribution retirement plan more than a decade ago. Gov. Jennifer Granholm's 2011 budget calls for an end to retiree health care vision and dental benefits, Emerson pointed out.

Here's what the freep doesn't say: back in  1996 when talk started of transferring all state employees to a defined contribution plan, there was one class of employees that got exempted - unionized state teachers. And there are a lot of them. Why did they get exempted? Simple - the Democrats canine devotion to teachers unions. That tell you pretty much all you need to know about why Michigan is where it is. In fact, this recent post of mine tells you that things haven't changed much since then: Michigan's problem in one headline: 'Union leaders are ready to interview candidates' for Governor. Yup.

As far as the healthcare obligations, here the problem, and the solution. Problem: healthcare benefits are given to employees after they retire up until medicare takes over at age 65. This incentivizes state employees to retire at age 50 or sooner with a full pension and healthcare benefits. Pull that healthcare benefit and viola! - that problem is solved. Even though the MI state constitution guarantees some chunk of the pension obligation, there is no such provision for healthcare. Thus, remove that incentive.