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Original article URL: http://bridgemi.com/2014/04/grand-rapids-is-addressing-legacy-costs/

Guest commentary

Grand Rapids is addressing legacy costs

Gregory Sundstrom

Gregory Sundstrom

An unfortunate guest commentary written by Jacob Ignatoski first appeared in Bridge Magazine on March 20, 2014 – all without seeking current and correct facts about the City of Grand Rapids’ transformation efforts since 2010. It was later picked up by MLive.

While the title of the article suggests a legacy cost crisis of epidemic proportion is occurring in Grand Rapids, the article itself only refers to a previous study that deals with legacy costs of cities across the state, thus leading readers to believe that Grand Rapids is failing to address legacy cost issues.

As a researcher, Mr. Ignatoski should not rely on three-year-old source data or use a single source of information to inform opinion. More thorough research would have found that the financial discipline of the city’s Transformation Plan is actively reducing total pension and retiree health care obligations by millions of dollars – by almost $40 million as of June 30, 2013.

Meanwhile, our transformation plan has also allowed us to build our general operating fund savings to over 10 percent, to build our Budget Stabilization Fund savings to over 5 percent of General Operating Fund operations and create transformation savings to invest in Sustainable Asset Management.

This failure to follow up on the progress of Grand Rapids is an extraordinary disservice to the city and its residents. Even the most cursory follow up would show a much more relevant picture of the city’s financial situation – a remarkable transformation has taken place in Grand Rapids:

  • City employees have taken a 12.5 percent reduction in total compensation over the last two contracts.
  • Grand Rapids has cut GOF operating costs by 10 percent through LEAN, transformation, innovation and collaboration.
  • The city’s work force has been reduced by 36 percent since 2002 (more than 500 employees) and is producing the same or better outcomes for its residents.
  • The financial discipline of our Transformation Plan has helped us achieve a financial outlook where ongoing revenues meet or exceed ongoing expenditures.
  • The city is budgeting to fully fund the Actuarially Required Contribution (ARC) for retiree health care.
  • Prior to the recent Great Recession, funding in the city’s pension systems exceeded 100%. While the city’s pension plans have not fully recovered from the Great Recession, pension plans funding levels will continue to rebound as the economy strengthens and as the city and employees make actuarially determined annual contributions.
  • Legacy costs represent future costs of pension and retiree healthcare costs based on actuarial studies. The city’s discipline in controlling and then reducing these liabilities and then budgeting to fully fund the ARC each year is exactly what a responsible city should be doing.
  • The City and its employees have made substantial changes to retiree health care benefits that have significantly reduced the cost of these benefits to the city and its residents. Here is a listing of the changes already implemented:
  • Closed the Defined Benefit Retiree Health Care Systems to new entrants.
  • Converted existing, non-vested employees to a Defined Contribution Retiree Health Care Savings Account.
  • Implemented premium sharing for retirees who will “float” with the active employees enrolled in the health care plan.
  • For active employees who remained in the Defined Benefit Retiree Health Care Plan, they now have to earn the benefit over time (i.e. they are not immediately vested).
  • The City’s General Retirement System has been closed to new entrants. All new non-sworn employees will contribute an equal share to an industry-standard defined contribution retirement benefit. The Police and Fire Pension system, although not closed to new entrants, has lowered the multiplier for future benefits and increased employee contributions for those choosing to keep their existing level of benefit. The city has consistently contributed 100 percent of the ARC for the Pension systems.
  • Far from following communities spiraling into despair, Grand Rapids has been strategic in envisioning and executing one of the most significant municipal turnarounds we know of and is instead a leader in strong, farsighted financial management. Grand Rapids is well on its way to becoming one of the most financially sustainable cities in the nation.

Gregory Sundstrom is city manager of Grand Rapids

Bridge welcomes guest columns from a diverse range of people on issues relating to Michigan and its future. The views and assertions of these writers do not necessarily reflect those of Bridge or The Center for Michigan.

6 comments from Bridge readers.Add mine!

  1. Moderate

    …and the workplace quality and morale of City employees is at an all-time low. Success!

  2. Rob Sisson

    Ditto for Sturgis. Ten years ago, we began the process of changing from defined benefit to define contribution plans, reducing city staffing by more than 20%, privatizing services, and working with neighboring governmental units to collaborate on sharing of services and costs. Unfortunately, the structural problems (too many layers of government) impose higher tax burdens on people who live in core cities (from Sturgis to Grand Rapids) who pay for the streets, police, fire, and other services nearly everyone in the area of influence use everyday for work, shopping, church, healthcare and recreation. In essence, only half the people in our zip code who benefit from city services actually help pay for them, and cities are helpless to change the formula with the state taking action.

  3. Anne Schieber

    Anne Schieber Mackinac Center for Public Policy

    So why is Grand Rapids going to taxpayers and asking them to extend what was proposed to be a temporary increase in the income tax? A large chunk of the people who would be forced to pay this increase will not even get the chance to vote on it – that is the non-resident workers like the hundreds of workers who work at Spectrum Hospital for example. Ostensibly, this increase is to fix roads, an essential government service the City determined long ago was not worth the investment. The atrocious condition of the roads is due to long term neglect. The City is a little late to the party in trying to cut costs and reign in unsustainable pension and retiree health benefit costs. Many workers in the private sector don’t even have these benefits yet they are the ones who are forced to bear the brunt of this expense

    1. Info Dave

      That’s my thought, Anne. If the city of Grands Rapids is cutting so much, why are they asking for more money? Seems like it’s all on the backs of the middle class.

      1. Harris

        In point of fact, the proposal to the voters is not for an increase, but a continuation of a tax. A portion of the income tax that would be retired will instead (should the proposal pass) be allocated to street repair. For the tax payer there is no change at all in the tax burden — this has been a major point for the proponents of this proposal.

        The position of Ms Schieber is certainly convoluted: if the City has quit funding its street repairs (in the upcoming budget, street repairs are virtually zeroed out of the general budget), then the City should not go about raising funds for the streets? As reported elsewhere on Bridge, the City has been on the short end of revenue sharing — the dollars raised by property taxes in the City that would have gone for these street repairs. Again, the Mackinac Center position stumbles over itself. If the City is to pay for street repairs from its own property tax, then it properly needs it back from the State (and the Mackinac’s position on Revenue sharing is?); or barring that, the City must turn to other sources to meet its budgetary needs. One cannot be opposed to both Revenue Sharing and Income Taxes while maintaining with a straight face that it is the City’s duty to fund its roads.

  4. k

    Your problem is that your are governed by hard core conservatives. Anytime conservatives gain control they squeeze the middle class for every dime while supporting the wishes of the wealthy.

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