lint, MI– Without a significant influx of cash– upwards of $200 million– to put towards its pension system, the city of Flint could face “insolvency.”
Chief Financial Officer Robert Widigan issued this warning during a budget hearing on May 12, 2022, where he gave a presentation with representatives from the Municipal Employees’ Retirement System (MERS) about the city’s severely underfunded pension liabilities.
“Without a cash infusion from the state, I cannot sit here today and assure you that there will be assets on hand to pay for future pensions to current and future city of Flint retirees,” Widigan said.
This is not a new issue, Widigan said and named deindustrialization, reduced state funding, population decline, and emergency manager mismanagement as contributing factors in the city’s financial struggles.
Flint’s pension fund obligations, which were $21 million in 2018, are projected to be $32 million in 2023 and $40 million by 2024. Widigan said the city’s average general fund balance is around $55 million.
“So having a payment of nearly $40 million for pension costs alone is not sustainable,” Widigan said. “Even making an annual pension contribution of $32 million is a tough stretch for the city.”
As a result, the 2023-2024 forecasted budget for the city projects a $16 million deficit for the general fund, which Widigan said was “driven by the pension contributions.”
“This is not a deficit, unfortunately. That can be fixed by making minor cuts to expenses or small increases to revenues. Instead, this is a deficit that likely only a substantial cash infusion can fix,” he said.
Widigan said he met with the Michigan Department of Treasury on “multiple occasions” but was not provided with any real long-term solutions or assistance to the “seemingly impossible” problem.
Right now, the city’s pension fund is just under 27% funded.
Marne Daggett, the regional manager at MERS, said that the city’s total liability as of Dec. 31, 2020, was approximately $559 million. The city’s assets at that time were about $149 million, which is less than 27% of the liability.
Daggett said there weren’t many other municipalities as underfunded as Flint.
“Not very many … that are in the 20% funding. There’s a few, but not very many,” she said.
David Kausch, a representative from Gabriel, Roeder, Smith & Company, an independent actuary for MERS, called the city’s pension plan “very mature.”
“A vast majority of the liability, 90% of the liability in this plan, is attributable to the retirees and beneficiaries,” Kausch said. “In terms of people, what this means is for every active employee you have participating in the retirement system, there are four retirees and beneficiaries.”
On average, Kausch said those retirees are about 70 years old with an annual benefit of about $29,000. He said there are roughly 1700 retirees in that position, which adds up to a $50 million cost to the city in benefit payments.
Kausch said at the current rate, it will take 23 years for the city to get to a point where the pension plan is fully funded. But he offered a few payment options for the council to consider.
The city could become fully funded in 17 years with higher annual payments and hit 40% funded by 2029.
“It’s a higher contribution, above $40 million, but it’s more money in there sooner and it actually pays off the unfunded sooner,” Kausch said.
The other method, as Widigan mentioned, is a large cash infusion right now of about $250 million.
“If you put a large contribution in immediately … that would immediately bring the plan above 60% funded, and it would relieve pressure on the contribution,” Kausch said. After the large payment, he said that annual contributions would drop to around $15 to $20 million.
For some council members, the second option seemed to be the only option.
“I guess I have some calls to make. … There’s not much way out of this, I don’t see, without an infusion of cash from somewhere that the city doesn’t have,” said Flint City Councilwoman Judy Priestley.
Flint City Councilman Quincy Murphy said he thought the city needed help from the federal government to resolve the issue.
“I think we need our congressman to come in and work with them in Washington to create a stimulus package that can come and bailout not only the city of Flint, but other municipalities that’s dealing with these structural, legacy cost deficits,” Murphy said.
He expressed concerns about the city having to file for bankruptcy and potentially being dissolved as a city.
Widigan said he didn’t think that was an outcome anybody wanted.
“I can tell you that the legislators we’ve worked with are very eager to try to find a solution versus something like bankruptcy or dissolution,” Widigan said. “And I’m talking legislature on both sides of the aisle.”
Flint City Councilwoman Tonya Burns said whether it was with guilt trips or baking cakes, Widigan needed to do whatever he could to get money from the state.
“I don’t care. You need to come back with $250 million plus, because we need it,” Burns said. “Let’s make Flint whole.”
