Years of increasing pension and health care liabilities on the part of the Tuscola County Road Commission have the organization facing a shortfall of millions in promised benefits – and officials worried about how it could impact the county.
Mike Hoagland, controller, Tuscola County, sent an email on Nov. 10 to Mike Tuckey, director of finance, Tuscola County Road Commission, expressing concern on the part of county commissioners and offering possible solutions to the problem.
According to its 2015 financial audit, the road commission has about $2.7 million in underfunded pension liabilities between two pension plans. Projected shortfalls in promised health insurance coverage are even worse.
Though the road commission operates as its own entity, Tuscola County Board of Commissioners Chairman Thom Bardwell told The Advertiser that it could eventually become a countywide problem unless steps are taken to reduce costs.
“The flags have been there for a few years,” Bardwell told The Advertiser, calling concern over the problem “major.”
The county may not be responsible to cover the liabilities promised to retirees (through the Uniform Budget and Accounting Act), but officials said that doesn’t mean it won’t somehow be felt.
“It’s still the county road commission,” Hoagland said. “So if the inability to pay became so bad? I don’t know. I wouldn’t rule out it somehow coming back to the county…politically or financially.”
The county already is facing its own financial battles, trying to sustain and/or improve services in the face of a shrinking population and tax base that is relatively flat by cutting costs wherever possible.
County road commissions like Tuscola County’s were organized by Act 283 by the Michigan Legislature in 1909 to achieve two primary goals: provide uniformity in road construction and maintenance across the state; and provide cost efficient and high quality road services for local roads.
There are 82 county road commissions in Michigan.
County road commissions are not part of general county government, except in Wayne County, which has a public works department instead of a road commission. They are legally separate entities, receiving nearly all of their operating funds directly from the state.
County road commissions either have a thre-or five- member board that is either appointed by the county board of commissioners or elected by the voters. In Tuscola County, the board is Chairman Jack Laurie, Vice Chairman Gary Parsell and members Mike Zwerk, Julie Matuszak, and Pat Sheridan.
County boards of commissioners decide how the road commission board members are chosen.
Road commissioners serve staggered six-year terms so that every two years, one commissioner’s term expires.
County road commissions have a variety of responsibilities including, but not always limited to, maintaining almost 90,000 miles of roads, 365 days a year. Some of the many county road commission duties include the following:
- Ensuring steady and safe traffic patterns
- Gravel road upkeep
- Road and bridge construction, repair and maintenance
- Snow removal, salting and sanding
- Surface treatments and chip/crack sealing
- Street painting and marking
- Maintaining road signage
- Controlling roadside vegetation, mowing and brush cutting
- Roadside ditch and drain preservation
According to its 2015 audit, the Tuscola County Road Commission had about 40 employees.
The road commission had revenue of about $16 million for 2015 and expenditures of about $10 million. That’s compared with revenue of about $13.2 million for the previous year and expenditures of about $10 million.
What has county officials most concerned, however, are the benefits as they relate to retirees, current and future – specifically, health care benefits and pensions.
Underfunding of pensions is a growing problem.
Michigan Capitol Confidential examined that state’s 100 largest cities and found that 80 of the systems were underfunded. The main problem is that investment markets have not performed as well as anticipated for a sustained period.
Like many public bodies, Tuscola County Road Commission’s pension fund is mostly through the Municipal Employees’ Retirement System (MERS) (though a small part is through another program).
“Pension plans are underfunded,” according to the audit. “The underfunded actuarial liability at this time is in excess of $460,000 and $2.3 million for the two respective retirement plans. In order to meet the 30-year amortization minimum contribution goal, contributions should continue to be increased.
“We recommend the road commission review their pension plans and take the necessary actions to improve the funded status,” the audit continues.
In his Nov. 10 correspondence to Tuckey, Hoagland pointed out when the county was facing a similar issue last year, it was able to issue pension obligation bonds.
Pension obligation bonds allow organizations to eliminate unfunded pension liabilities by borrowing against future tax revenue, then reinvesting proceeds. To qualify, employers must change pension plans from defined-benefit to defined-contribution.
Defined-benefit plans guarantee a lifetime payout whereas defined-contribution plans allow employees to determine how much and where their retirement savings are invested.
The idea is that the investments will produce a higher return than the interest rate on the bond and earn money for the pension fund.
In August, the county board authorized the Tuscola County Health Department to also issue $4 million in pension obligation bonds.
However, the Tuscola County Road Commission can’t use the option per law, Hoagland said.
Hoagland did recommend the commission change from a defined-benefit program to defined-contribution, suggesting it could help the organization realize some cost savings.
Another problem for the road commission is its post-employment health insurance.
“The Road Commission is the only Tuscola County governmental entity that offers employer-paid health insurance to retirees,” Hoagland wrote.
Some employees hired before Sept. 16, 2003 receive health insurance benefits for life. Those hired after received benefits for three years post-retirement.
“For calendar fiscal year 2015, plan liabilities continued to increase with an actuarial determined liability of nearly $8.9 million,” Hoagland wrote.
Hoagland cited a portion of the audit that recommends the board explore additional options available to reduce the cost of the benefit.
“The road commissioners may want to consider obtaining professional assistance to project future retiree health insurance liabilities and alternative methods of reducing these liabilities,” Hoagland wrote. “These obligations are a major cost issue for which expertise is needed to help guide important decision making.”
Tuckey could not be reached by press time.
Despite Hoagland’s correspondence – and Bardwell claiming that “the flags have been there for a few years” – the Tuscola County Road Commission five-member board claimed to be confused over what the county was concerned about as recently as mid-November.
The road commission board was set to discuss the matter at its Nov. 17 meeting after receiving the correspondence from Hoagland.
However, Tom Young, Tuscola County Board of Commissioners member liaison to the road commission, was not present.
“We’re not really sure what it is they want to talk about and their liaison person, Commissioner Young, is not here,” said Jack Laurie, chairman, Tuscola County Road Commission. “We would like to not have that discussion until he’s here to fill us in.
“We’re not really sure what the county is after because they have been part of this planning process from the very beginning,” Laurie said during the meeting. “And we have had, well, two that I remember, consultants come in and talk about our role and what’s needed and certainly we agree with that.
“We’re doing what our plan says. We’re not breaking any laws. So we don’t want to talk about this now, until we have somebody from the commissioners to tell us exactly what it is they expect because we can’t really get that…out of the letter that we got.”
Gary Parsell, Tuscola County Road Commission board member, made a motion to table the discussion, adding that he “didn’t really know where they are coming from.”
The motion passed.
The next Tuscola County Road Commission meeting is set for Dec. 1, 8 a.m., at the commission’s building at 1733 Mertz Road in Indianfields Township.
Andrew Dietderich is editor of The Advertiser and can be reached at firstname.lastname@example.org