Well it is that time of the year, local election time.  There are many schools districts in Michigan that have school tax increases, via a millage, up for vote on May 2.

Why might your property tax increase, because one of the ways in which we fund our schools is through our property taxes we pay on property we own.  This increase could not only happen to owners of properties but also renters, because the owners could increase your rent to help cover the cost of their increased property taxes.

A large part of why these school districts need more tax dollars is due to the fact that state officials have failed to adequately fund the school pension system over the past 4 decades years. The cost of catching up on unfunded pension promises is stressing local school budgets and pressuring officials to seek higher property tax rates.

In fact Michigan’s state teacher pension system has been underfunded for at least 41 out of the past 42 years.  One of the reasons the state Pension fund is so underfunded was due to state officials assuming that the rate of return on their investments would average 8% a year, because the investments have not consistently attained that rate of return the underfunding was compounded year after year.

Did you know that we taxpayers are spending about $2 billion today to attempt to catch up on the state’s pension liabilities. What does this mean to you the taxpayer and the school districts themselves?  It means that our schools must pay 36 cents out of every dollar they receive to not go into the classroom via teachers’ pay, schools supplies or upkeep of the school but instead to pay for pensions.

The only way to alleviate this problem is to offer new school employees only 401(k)-type retirement plans, these plans cannot be underfunded and reduces taxpayer liability.  New teacher hires today are offered either a pension or a 401(k) style plan.  The most recent data we have is that only 17% of new hires choose the 401(k) style plan, which is odd since less than half of the teachers attain the 10 years of service it takes to vest themselves into the pension plan.  With a 401(k) plan they are not required to be vested so they would have the ability to take those funds with them when they leave the teaching profession.

The Live with Renk show airs Monday through Friday 9 a.m. to noon, to let me know your thoughts call (269) 441-9595