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Revenue backed bonds are unfunded liabilities

When people talk about unfunded liabilities in the public sector, they’re usually referring to pension/retirement payments. According to the US Census Bureau, there are about 6,000 active public pension plans in the US, with nearly 15M active contributors, more than 11M retirees and more than $4.5T in assets. The discussion often focuses on the relative equity of defined benefit versus defined contribution retirement plans.

In Michigan, the State is ultimately responsible for public pension payments, even when the beneficiary didn’t work directly for the state. The discussion about public pensions in Michigan is a deep, dark hole. Inside that hole are decades of financial neglect by the legislature; a stack of court cases; the State Constitution; guaranteed versus non-guaranteed benefits; moving targets regarding the state’s funding responsibilities versus those by pension participants; the financial realities and risks of investing pension funds; efforts to close certain pension plans and the political motivations behind them; and highly variable enthusiasm for addressing the problem.

In these circumstances, few people misunderstand the danger that unfunded or underfunded public pensions present. They are a liability – an unfunded liability.

But they’re not the only unfunded liability the public needs to worry about. For what appears to me to be reasons that are either purely self-serving or political, the Washtenaw Community College Board of Trustees has not asked the Washtenaw County taxpayers to authorize any bond/millage combinations since 1996. These bond issues, which usually fund capital projects feature a special time-limited tax that creates an income stream to repay the bonds.

Revenue backed bonds are unfunded liabilities

Instead, the Board has relied exclusively on general obligation long term bonds, which use the College’s operating millages to guarantee repayment of the bonds. On the one hand, it doesn’t cost the public anything more than it already pays. On the other hand, it obligates the College’s operating funds to pay debts. (Debt is not an operating expense.) It seems to me that this could potentially be the crux of a lawsuit to prohibit funds authorized for operating expenses to guarantee debt repayment, but that’s a different discussion altogether.

Make no mistake. Issuing long-term bonds that have no taxpayer-authorized revenue stream to repay them is creating an unfunded liability. If you dislike the idea of public pensions carrying an unfunded liability, you should equally dislike the idea of an elected Board of Trustees authorizing the sale of bonds with no definite funding source to repay them.

Watch the Health and Fitness Center

The Health and Fitness Center is a prime example. When the Trustees issued bonds for the building were issued, the plan was that the building was going to pay for itself. That hasn’t happened. While the building does generate money, its massive maintenance demands and annually increasing bond debt mean that the subscription fees don’t fully cover the building’s operation. Last year, the Trustees authorized the use of $4M in federal pandemic relief funds to cover the building’s operating losses.


And the Trustees have never been transparent about exactly how much this damned building is costing the taxpayers.

The Trustees plan to use the same model to pay for the hotel they cited as a “high priority” in WCC’s most recent Master Plan. Instead of investing in educational programs and new educational facilities with the property taxes you pay, this group of Trustees wants to waste your tax dollars on building a hotel.

On the banks of the Huron River.

Immediately downstream of the sewage treatment plant.

On a small sliver of land in Superior Township that’s currently zoned as “Recreation/Conservation.”

And when the hotel doesn’t pay for itself (because who wants to stay at a hotel downstream of a sewage treatment plant?), the Trustees will use even more of your tax dollars to pay the unfunded liabilities they created.

If this isn’t how you want the WCC Trustees to spend your tax dollars, vote carefully in the 2022 WCC Trustee election on November 8.

Photo Credit: Zak Greant, via Flickr