Shores Municipal Finances
March/31/2010 18:14
For those Shores residents who want to learn more the fiscal problems facing municipal governments, I highly recommend reading two recently published newspaper articles. In the Friday March 19th edition of the Detroit News, the Metro section contains an article by Candace Williams entitled: “Warren mayor calls for pay cuts.”
A number of initiatives of Warren mayor Jim Fouts were highlighted, including the appointment of Louis H. Schimmel as executive administrator. Mr. Schimmel is the financial expert who helped lead the cities of Ecorse and Hamtramck out of insolvency. Warren, unlike Grosse Pointe Shores, is not one of the cities in dire shape that are on the State of Michigan fiscal watch list. Yet the mayor of that city chose to act boldly and prospectively by engaging the services of a recognized authority to help stave off financial trouble.
Shores residents should note that Mr. Schimmel is a friend of Shores resident John Booth. John’s public offer several months back to help arrange a meeting with Mr. Schimmel and our city council was firmly rebuffed at a recent “finance committee of the whole.” Citizens need to ask themselves- just what is it that has the incumbents so afraid that they would refuse the opportunity to have a highly regarded and widely recognized expert in municipal finances come in and look at the Shores situation? You would think what when the Treasury Department of the State of Michigan has us listed as one of the state’s most fiscally unsound communities that the offer of outside expertise would have been welcomed.
The other recommended article appeared in the March 15th edition of the weekly financial paper, Barron’s. It focuses on the “massive overhang that threatens the financial future of many cities and states” related to government pension obligations. To read the article called the “The $2 Trillion Hole”, activate this hyperlink. If you cannot access the article on line, Barron’s is also available at the Grosse Pointe libraries.
Author Jonathan Laing points out that the bleak financial position of many local governments can be traced to their defined benefit pension plans. The Shores seems to be the poster child for many of the practices brought to light in the article: modest contributions by plan participants, pensions exceeding 75% of pay from the highest earning years, “spiking” the pensions by including inflated overtime, payouts of years of unused sick and vacation days, and the practice of “double-dipping.” According to Laing, “besides the politicians, the primary culprits are the public-employee unions which have used their growing power to dramatically enhance pension benefits.”
The consequences of these unsustainable legacy costs is that they tie up more and more of the municipal budget, and leave less and less for providing direct services to residents. As I fill out my Grosse Pointe Shores Fiscal Priorities Survey, it puzzles me why the focus of the questionnaire seems to be what on services the city can cut, rather than asking residents how they want the council to deal with the true root cause of the problem.
Do some quick math. The Shores revenue intake is in the ballpark range of $6 million a year, and falling as your housing values plummet. Subtract the required $600,000 in pension fund contributions, the $800,000 that should be going to fund retiree health care, the $600,000 in bond debt service payments and add in the $2.6 million dollars in Shores employee salaries, and there is not a whole lot left to pave our streets or provide other direct services to residents. About 25% of your hard earned tax dollars that go to the Shores are required just to fund the retiree pension and health care liabilities! If these figures are hard to believe, don’t take my word. Please peruse the most recent Shores financial report, and the pension fund and retiree health care reports as posted on this website on the Source Documents page.
It seems to me that the best hope for the Shores is that the May 4th recall election will succeed, and our council will gain more fiscally responsible members like Ted Kedzierski and Dan Schulte. When Mayor Cooper and the incumbents refused an offer to meet with a well-recognized financial expert like Lou Schimmel, they provided voters with unequivocal proof that, unlike Mayor Fouts in Warren, they are not really serious about doing what is required to get Grosse Pointe Shores back on firm economic ground. Can we really afford another year and a half of letting the Cooper regime continue with business as usual?