CLICK TO HEAR ESCANABA CITY MANAGER JIM MCNEIL INTERVIEW
Ballot Proposal: Efficiency of Taxpayer and Ratepayer Funds
Shall the City of Escanaba be authorized to use the principal and interest received from the 1965 sale of the City’s gas utility to pay for the unfunded accrued liabilities of any defined benefit retirement plan sponsored by the City, but only to the extent such liabilities exist as of November 4, 2025?
If approved, this proposal will replace the restrictions approved by voters on November 2, 1965 that required the City to invest all principal received from the sale and use only the interest for capital improvements. The ballot item related to a 1965 sale of the city gas utility is designed to reduce the burden on both taxpayers and ratepayers through a more efficient use of funds.
In recent years, City Manage Jim McNeil says the city has worked hard to find efficiencies and balance budgets. Part of this effort is maximizing the return on funds held at the City.
Here are some common questions and answers related to this proposal:
What happened in the 1965 gas utility election?
In 1965, voters in Escanaba approved restrictions on how the funds from the sale of the gas utility could be used. These rules limited flexibility in managing the funds: 1) The principal could never be spent. 2) The interest could only be used for capital improvement projects. How will the funds be used if voters approve this proposal?
A YES vote allows these funds to be used to reduce existing unfunded pension liabilities.
As of June 30, 2024, the City’s Defined Benefit Retirement Plan was only 70% funded, leaving $11.5 million unfunded. This shortfall, caused by underfunding over many years, now falls on today’s taxpayers and ratepayers unless addressed.
The city has recently taken back control of the pension plan for greater control and transparency.
Does this proposal increase pension benefits for employees?
No. This proposal does not increase or expand employee pension benefits. It only reduces the existing unfunded liability. In fact, the pension plan has been closed to new hires since about 2008 and now has only 12 active members out of 155 total participants.
How does this proposal save money for taxpayers and ratepayers?
1) Correcting Generational Transfers Currently, today’s residents are paying for benefits earned decades ago – a generational imbalance. For the fiscal year ending 2026, the City must contribute $1.7 million into the plan, mostly to cover unfunded liability. These payments are scheduled to continue until 2033. By allowing the 1965 funds to be used, this burden can be shared more fairly across generations, reducing the strain on today’s taxpayers and ratepayers.
2) A More Efficient Use of Capital Nonexpendable endowment-style funds are often inefficient unless they earn significantly more than inflation. For a capital improvements fund, this is especially challenging since project costs are high and growing. Over time, the 1965 restrictions prevented the City from putting the funds to their best use.
The decision in 1965 overlooked Public Act 20, which limits the investment of municipal surplus funds. As a result, these funds are typically invested in bonds and securities of the United States or its agencies, certificates of deposit and savings accounts from financial institutions, and commercial paper rated within the top three classifications by recognized rating services.
For example, the real return of 3-month treasury bills since 1965 is about 0.50% per year, and approximately 1.60% for US Treasury Bonds. This merely maintains the purchasing power of the fund but produces very little income for capital projects. By voting YES, the funds will be invested in the pension fund, which targets a 7.25% rate of return.
Unlike the limited investments allowed under the old rules, the pension fund can invest in a mix of stocks and bonds. Historically, it has earned higher returns than Public Act 20 investments. Even an extra 3% per year makes a huge difference over time – helping residents save money for years to come.
To illustrate this, consider if the pension fund returns 7.25% over the next 10 years, versus a 4.25% return as restricted. For questions related to the proposal, you can contact Escanaba City Manager at (906) 786-9402 or jmcneil@escanaba.org.
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