The Bad Economics of Buyouts

One of Mike Bishop’s proposed Senate “spending cuts” is an early retirement buyout estimated to save $190 million. This would be another in a long line of ill-advised public accounting gimmicks in Lansing. That $190 million short-term gain would be “less of a savings than a transfer of costs from the active payroll to the pension system that, depending upon participation, would amount to $800 million plus in pension liability plus several hundred million more in health care liabilities that are already under-funded,” Doug Drake, chair of the State Employees Retirement System Board, tells the Center for Michigan. As documented in this report, the last buyout of state employees resulted in just such an $800 million pension liability.