Just how well will a new state law work that is meant to more closely monitor communities with steep legacy debt?

The answer won’t be known for years, especially in places like the distressed downriver Detroit community of Lincoln Park.

In 2015, Lincoln Park was the last city in Michigan to come out of emergency management, as then-Gov. Rick Snyder praised cost-cutting measures imposed under  the state’s emergency management law.

Emergency manager Brad Coulter slashed retiree health costs from $4.3 million a year to $600,00 a year in this city of 37,000, wiped out a $1 million deficit and put about $3 million in savings into the city’s pension system.

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Calling it a “painful decision,” Coulter did so by scrapping health care coverage for hundreds of retirees and replacing it for some with a monthly stipend of $150 to $450. He also eliminated reimbursement for others under Medicare Part B, which meant those retirees would have to pay individually into that program.

Retirees sued, but a federal court in 2017 upheld Coulter’s actions.

Three years later, Lincoln Park is by no means out of the woods.

It still had more than $90 million in unfunded pension debt in 2017, according to the state Treasury Department, with $9 million in required annual contributions – nearly one-third of its revenues. Thanks to its elimination of health care benefits, it now calculates its unfunded health care liability at just $4 million – where it had exceeded $100 million.

Under a law approved in 2017, Lincoln Park is among nearly 90 Michigan cities, large and small, from all parts of Michigan, required to file plans to pay down their debt. The list is proof just how pervasive this problem remains across the state.

State standards call for pension plans to be at least 60 percent funded. Lincoln Park’s pension for municipal workers was just 18 percent funded in 2017. Its pension for police and firefighters was 27 percent funded.

The state in January approved Lincoln Park’s plan for improving its financial standing, including a promise to contribute $3.4 million more a year to the municipal workers pension fund until it is 60 percent funded. But it projects it won’t reach that standard until 2035.

The city calculates its retiree health debt will be 40 percent funded – the state standard – by 2028, by promising to contribute $528,000 a year to the fund for 12 years.

Lincoln Park City Manager Matthew Coppler told Bridge Magazine there’s no guarantee the city can keep this payment schedule for a decade or more, especially if there’s a recession.

“I am a little concerned about what the market is doing now,” he said. “A number of our gains are being washed away.”

But he nonetheless said the city fully intends to stand by its promises.

“That is our first commitment,” he said.

Whether Lincoln Park – and other cities like it – stick to their word over time will be critical to how well this law works.

Eric Scorsone, a Michigan State University economist and former deputy state treasurer, concedes there’s no teeth in the law to force cities to comply with their stated plans.

“I think we knew going into this, whether they could actually follow their plans is going to be a question mark. We knew this was going to be a starting place, not an ending place.

“Has it fixed all the problems? No, I don’t think anyone thought that was going to be the case.”

That might by why critics have been skeptical the law has the teeth needed to force troubled communities to aggressively tackle its liabilities.  

“While identifying the problem with accurate information is very important, our local government workers, Michigan’s taxpayers and our future generations need a solution,” John Kennedy, chairman of the West Michigan Policy Forum and president and CEO of Kentwood-based Autocam Medical, said in a statement about the new law.

“We cannot simply stop at this point and think everything has been resolved.”

Rep. James Lower, R-Cedar Lake, had fought for stricter state oversight that would have allowed state financial teams to impose measures to drive down debt in communities that refuse to tackle it on their own. Employee unions, Democratic lawmakers and municipal lobbying groups opposed the measure and it was stripped from the legislation.

Lower ultimately voted against the watered-down version of the very measure he had co-sponsored.

“If it doesn’t work out, it’s entirely on them,” Lower said.

Meanwhile, many of Michigan’s larger cities remain deep underwater.

According to Treasury Department data, Lansing had about $573 million in unfunded pension and retiree health care debt in 2017. That year, the city spent about $44 million ‒ more than a fifth of the city’s $197 million in revenue ‒ on promised pension and health care benefits to its retirees.

Flint had nearly $640 million in unfunded legacy debt, with just 37 percent of its pension debt funded and none of its $293 million in health care funded. Saginaw had more than $430 million in unfunded health care and pension debt, according to Treasury figures.

Wayne County has the highest concentration in the state of cities flagged by Treasury for unfunded debt.

The Wayne County list encompasses 28 cities and public bodies – including more than a dozen Detroit downriver communities such as Allen Park, Ecorse, Southgate, Taylor in addition to Lincoln Park.

“A lot of these communities are going to be dealing with this for many years to come,” Scorsone said.

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