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The right to criticize government is also an obligation to know what you are talking about. 
-Lent Upson, 1st Executive Director of CRC  

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The Health Care Obligations of Michigan Counties
February 2011
Note 2011-01

This paper was revised after its initial publication to better reflect the data gathered from the Municipal Employee Retirement System (MERS). Additionally, some of the tables were updated to correct data entry errors and to respond to counties that contacted CRC with different data after seeing their data presented in the tables next to the other counties.

Since 1970, health care spending has escalated 2.4 percentage points faster than the gross domestic product. The result for health care consumers and employers providing health care benefits is less affordable health care. Private sector employers have reacted to the rapidly increasing health care costs by reducing or eliminating employee benefits, but little is known about how local governments have reacted. This paper presents new findings about the impact of growing health care costs on Michigan county governments. The total actuarial accrued liability of other post-employment benefits for just 50 counties of Michigan's 83 counties, is $4 billion, almost $3 billion of which is unfunded. While some counties are taking aggressive steps to address their liabilities, others have yet to respond.

With more than 1,800 general purpose units of government and more than 800 traditional (K-12), intermediate and charter school districts in Michigan, the prospect of quantifying health care costs for local government is daunting. In an effort to tackle a digestible portion of that total, this paper focuses solely on county governments. While it is know that other types of local governments in Michigan are experiencing trends similar to counties, it is not known the magnitude of financial stress that the health care costs are creating for those governments.

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Michigan has 83 counties, ranging in population from just 2,300 in Keweenaw County to more than 1.9 million in Wayne County. In 2007, Michigan counties employed a total of 56,134 people, which was 34 percent of non-school local government employment and just 1.3 percent of total employment in Michigan. Michigan's county governments serve as the administrative arms of the State; provide criminal justice, health care and infrastructure services; and offer other services on a voluntary basis. County clerks record births, deaths and marriages. County registers of deeds record real estate transactions. County sheriffs provide police protection, predominantly in the unincorporated areas of each county. County prosecuting attorneys prosecute the laws in the trial courts. Additionally, county courts (district, circuit and probate), drain commissions, road commissions and mental health boards provide services to county residents.

Although counties use an array of funds to account for the varied nature of these services and the dedicated revenue streams that fund some of them, every county has a general fund through which most county services are funded. The general fund budget is the portion of the total county budget for which revenues are not restricted for specific activities. This is important because restricted revenues generally cannot be used to pay for the general other post-employment benefit liabilities of each county. For purposes of this study, and to the greatest extent possible, CRC has gathered information about employees and retirees funded through county general funds.

A couple of events have elevated counties' health care benefits as a key budgetary consideration in recent times. First, the prolonged economic recession in Michigan has severely impacted government revenues that finance county services. With declining revenues and increasing expenses, many Michigan counties are struggling to balance their budgets. The information provided in this paper show that a significant share of counties' budgets are going to pay for benefits provided to retirees for services provided years ago. Second, escalating health care costs and an increasing number of retirees are ballooning employers' health care bills. Finally, recent Governmental Accounting Standards Board (GASB) guidelines for the reporting of other post-employment employment benefits have drawn attention to the accrued health care liabilities of governments.

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