Pension debt will ‘eat everything in its path’

California’s teacher “pension debt will eat everything in its path,” writes Chad Aldeman on Education Next.

California discovered a $2.4 billion budget surplus from what it projected in January, but that money won’t be going to any new, exciting program. It won’t support the state’s transition to new academic standards. It won’t be going to expand kindergarten or offer pre-k to 4-year-olds. Governor Jerry Brown has other plans. He wants the money to go toward paying down the state’s debt, especially the $74 billion unfunded liability from the state’s teacher pension plan (CalSTRS).

In order to pay off the full debt over 30 years, Brown’s plan calls for teachers to pay more, school districts to pay much more and the state to pay more. “By 2021, nearly 40 percent of California teachers’ total compensation will go toward paying down the pension plan’s liabilities.”

Yet, due to high mobility, only one in five young teachers will receive a full pension, according to a Bellwether analysis. Half won’t qualify for a minimal pension benefit.

Illinois’ early retirement incentives didn’t lower student achievement, even though experienced retirees were replaced by less-experienced or brand-new teachers, concludes another study in Education Next. The state’s two-year program seems to have raised test scores in reading with the strongest positive effects in “schools that serve a more disadvantaged student population.”

It’s possible less-effective, less-energetic teachers were the most likely to take advantage of the early retirement offer, researchers speculated.

The state’s two-year program saved school districts $550.5 million in salaries, but the state paid all of that and more in pensions. However, a well-designed program could save money for taxpayers too, researchers concluded.

Emanuel tries to turn Chicago schools

Mayor Rahm Emanuel has fought fiercely for education reform in Chicago, writes Alexander Russo in Ed Next.  When he took office in 2011, Emanuel pledged “to do bold, concrete things—enact a longer school day and year, implement principal performance bonuses, expand International Baccalaureate (IB) programs, and revamp teacher evaluations—and get them done as quickly and visibly as possible.” After three years, results are mixed.

Test scores have risen in the Windy City, but lag far behind the Illinois average.

Emanuel faced a $1 billion budget deficit and massive and unfunded pension liabilities. Enrollment was declining leaving schools half empty. The mayor rescinded teachers’ 4 percent salary increase to balance the budget.

The “newly energized” Chicago Teachers Union (CTU), led by Karen Lewis, went on strike for seven school days at the start of the 2012-13 school year. The new contract blocked merit pay and gave teachers 2 to 3 percent raises. 

Yet Emanuel was able to extend the school day and year and introduce a new teacher evaluation program.

Despite some progress, Chicago schools face budget problems, bitter fights over school closures and $19 billion in unfunded pension liabilities.

Emanuel and Lewis have not been able to work together on funding or pension issues.

Emanuel was pushing for a delay in addressing pension liabilities. “I’m going to turn this battleship around,” he told the Chicago Sun-Times, but “I’m not going to reverse 30 years of bad practices in just three years.”

Teacher pensions benefit administrators

School superintendents and administrators have no incentive to reform teachers’ pensions, write a trio of University of Missouri economists. Administrators “reap the largest benefits” from the pension system, write Cory Koedel,  Shawn Ni and Michael Podgursky in Education Next.

. . . the pension system transfers wealth from lower-income professionals to higher-income professionals. Beginning teachers are subsidizing a handsome payoff to better-paid administrators, who are the appointed guardians of the public interest in the education system.

Virtually all public school teachers and administrators benefit from generous defined-benefit retirement plans. A Missouri teacher with 30 years of experience earns 75 percent of her final average salary. The median retirement age is 56. Superintendents and other administrators get more for their pension contribution than senior teachers.

There’s no evidence these pension plans improve the quality of the teaching workforce, the economists write.

It seems likely that schools could do a better job of recruiting young teachers by putting money in upfront salaries rather than in end-of-career pension benefits.

Given the powerful incentives that are in place, there is no reason to expect school administrators or their organizations to support reforms that would provide a more modern and mobile retirement system for young educators, like those found in nearly all other professional employment settings.

When it comes to pensions, “labor and management are on the same side of the bargaining table,” they conclude.

Teachers unions aren’t to blame

Once hostile to teachers’ unions, Education Realist now thinks unions are blamed unfairly for many education problems. She starts with teachers’ cognitive ability.

. . .  high school teachers have always been pretty smart, and drawn from the top half of the college grad pool. . . .  testing and knowledge standards for elementary teachers was once low, is now much higher and more than reasonable since the states dramatically increased the credentialing test difficulty as part of their adherence to NCLB.

However, “this dramatic increase did not result in either improved outcomes or evidence that new teachers who qualified with tougher tests were superior to teachers who didn’t,” she writes. “The research at best shows that smarter teachers give a teeny tiny boost to outcomes.”

States — not unions — set knowledge requirements for teacher credentialing, she writes. They struggle with disparate impact. “Set credentialing standards high, and you lose your black and Hispanic teachers.”

Reformers “unions promote pay scales that give all teachers the same raise, regardless of quality” and oppose performance pay.

Okay. So the very notion of a union is antithetical to getting competitive, performance-driven people who want rewards for their hard work.

But “there’s no point to performance pay if the objectives are delusions, she argues. If competitive, high-performance people became teachers, they’d be unable to raise outcomes and they’d quit.

The “big Kahuna of teacher union beefs” is that it’s hard to fire bad teachers.

If government unions ceased to exist tomorrow, teachers would still have Loudermill, the relatively recent Supreme Court decision that says that employment is a property right, and states can’t deprive their employees of property rights without due process. And most states have tenure written into their laws, independent of union contracts. So the changes necessary to undo teacher rights are far more than just dumping unions.

Oregon dropped tenure in favor of renewable two-year teaching contracts, but nothing changed. Oregon is below average in teacher dismissal rates, reports the Center for American Progress. While some states without tenure laws have high dismissal rates (Alabama, Alaska), others have low ones (Mississippi, Texas). The “bulk of the apparently onerous dismissal laws are encoded in state law, not in union contracts.

Teacher unions to blame for big pensions and “a compensation structure that repels competitive, performance-driven workers,” Education Realist concedes. However, “many of the teacher protections and all of the standards lie at the state level, entirely out of the union’s purview.”

Of course, teachers’ unions have a great deal of influence on state law.

The pension squeeze

Pension reform is essential — and possible– argues a new Fordham report, The Big Squeeze: Retirement Costs and School District Budgets.

Philadelphia schools could spend as much as $2,361 per pupil by 2020 on retiree costs alone, more than 10 times the current level — and 13 percent of the school district budget —  if the governor’s pension reform plan doesn’t become law, the report warns.

Milwaukee will spend $1,924 per pupil on pensions and health care for retirees, but that’s $1,588 less per pupil because Wisconsin passed Act 10, a reform measure.

Ohio’s pension reform means Cleveland schools will spend less on retirement costs in 2020 than it did in 2011; the new laws are projected to save it about $1,200 per pupil that year.

But pension reform is always costly for someone. Both Wisconsin and Ohio in effect raised employee pension contributions and reduced retiree health benefits. While the changes in Milwaukee will be shared by all teachers, the impact in Cleveland will be felt disproportionately by new teachers, who will be essentially “taxed” to pay for the benefits of current and past employees.

That could discourage young people from entering teaching, the report warns. Young teachers will earn less — and less in the future — to maintain “relatively generous benefits for veteran teachers and current retirees —some of whom will spend more years in retirement than they did in the classroom.”

Pensions for public-sector employees will change dramatically in the future, Fordham predicts. Public employees may be offered 401(k)-style plans or “cash-balance plans. The current system isn’t sustainable.

Lawmakers have promised teachers retirement benefits that the system cannot afford, because the promises were based on short-term political considerations and willfully bad (or thoroughly incompetent) math. (For instance: assumptions about market returns that were wildly optimistic, and assumptions about longevity that were overly pessimistic.) The bill is coming due and someone’s going to get soaked.

Retirement benefits take 10 percent of the school budget in St. Louis, writes Stephen Sawchuk. Student enrollment is declining as pension costs are rising. ” The situation has hastened some of the district’s cost-cutting measures, and fights over whether and how to restructure pensions are looming.”

Teacher benefits are eroding pay

Teacher Benefits Are Eating Away at Salaries, writes Chad Aldeman on The Quick and the Ed.

Public school districts spent less per student in 2010-11 than the year before, the first decline in nearly four decades, the Public Education Finances Report confirms.

The report also shows that “employee benefits continue to take on a rising share of district expenditures,” writes Aldeman. From 2001 to 2011, public education spending increased 49 percent: Salaries went up 37 percent and benefits 88 percent. “Benefits now eat up more than 20 percent of district budgets, or $2,262 per student, and those numbers are climbing,” he writes.

Unfunded pension and health care promises total $1.38 trillion, Pew estimates.

Public school spending falls for the first time

U.S. public-education spending per student fell in 2011 for the first time since 1977, reports the Census Bureau. Public schools spent $10,560 per student, a drop of 0.4 percent from the year before. Adjusted for inflation, spending per pupil dropped once in 1995, according to the Wall Street Journal. In real dollars, spending per pupil was down 4 percent in 2011 from the peak in 2009.

New York spent the most per pupil at $19,076, followed by Washington, D.C. at $18,475. Utah spent the least, $6,212 per student, followed by Idaho at $6,824. (Both low-spending states have lots of Mormons, which means large families and fewer social problems.)

Thirty states increased per pupil funding: New Hampshire is spending 6.8 percent more.  Twenty states and the District of Columbia spent less. Illinois cut spending by 7.4 percent.

In the future, more education spending will go to teacher pensions and health benefits, leaving less for instruction, predicts Kim Rueben, a senior fellow with the Tax Policy Center and an expert on the economics of education.

What’s covered — or not– in education

Charter schools got lots of coverage in 2012. The cost of teachers’ pensions did not. That’s according to the Koret Task Force on K-12 Education’s five hits and five misses for education coverage in 2012, which was based on analyzing 43 newspapers, magazines, television networks, websites, and more.

In addition to charters, hits included teachers’ unions, special education, pre-kindergarten education and No Child Left Behind.

Pension costs, Common Core academic standards, international comparisons of student achievement, online or digital learning and Louisiana’s education reforms made the “misses” list.

“Unfunded teacher pension costs are education’s own ‘fiscal cliff,’” according to task force chairman Chester E. Finn Jr. “The Common Core may well lead to enormous changes in curriculum, instruction, and testing. What Governor Jindal has accomplished in Louisiana should be a model for the nation. Shame on the press for not giving such issues their due.”

I feel I’ve seen a lot on Common Core, but I’m not a typical news consumers.

In No One Benefits, the National Council on Teacher Quality argues that teacher pension systems are failing both teachers and taxpayers. Pension systems have $390 billion in unfunded liabilities, according to NCTQ. Only 10 states can keep the pension promises already made.

In addition, retirement eligibility rules are “burdensome and unfair.”

In 38 states retirement eligibility rules for teachers are based on years of service, rather than age, which is costly to states and taxpayers as it allows teachers to retire relatively young with full lifetime benefits. The 10 states that no longer allow teachers to begin collecting a defined benefit pension well before traditional retirement age save about $450,000 per teacher, on average.

Since 2008, 40 states have raised employer contribution rates, at an average cost of $1,200 more per teacher each year. Over the same time period, 27 states have raised teacher contributions, costing the average teacher almost $500 more per year. “Small adjustments are no replacement for systemic reform,” concludes the report.

Los Angeles shortens school year again

As Chicago lengthens the school day, Los Angeles keeps shortening the school year. A deal with the teachers union would cancel up to five instruction days in the coming school year and reduce teacher pay by 5 percent. “This would bring to 18 the number of school days cut over four years,” reports the Los Angeles Times.

There is, in fact, a strategic advantage for unions in taking furlough days and shortening the school year. The salary cuts that result are temporary; they expire after one year and must be renegotiated every year.

In the process, teachers avoid making permanent concessions on pension or health benefits. L.A. Unified employees still pay no monthly premiums for health insurance for themselves or family members. And teachers still receive raises based on experience or additional education.

Shortening the school year also “could generate the outrage needed to build public support for boosting state funding,” political analysts say.  “You’re not going to mobilize nearly as many people by warning them about the need to renegotiate pension and health benefits,” said Dan Schnur, director of the Jesse Unruh Institute of Politics at USC.

“Democratic lawmakers in Sacramento recommended legislation this week that would allow districts to cut up to three weeks off the next two school years — on top of the five days already approved, if voters fail to approve a tax initiative on the November ballot,” reports the Times. They’re going to kill puppies and kittens too.

Survey: Teachers’ unions lose support

Teachers unions are losing support, according to an annual survey by Harvard’s Program on Education Policy and Governance and Education Next. Only 22 percent of the public has a positive view of unions in 2012, down from 29 percent in 2011.  More striking, only 43 percent of teachers have a positive view, down from 58 percent the year before. Teachers holding a negative view nearly doubled to 32 percent from 17 percent in 2011.

Researchers ask:

“Some people say that teacher unions are a stumbling block to school reform. Others say that unions fight for better schools and better teachers. What do you think? Do you think teacher unions have a generally positive effect on schools, or do you think they have a generally negative effect?”

Respondents have five options: very positive, somewhat positive, neither positive nor negative, somewhat negative, and very negative. Many people choose the neutral option.

When people have just two choices on their assessment of union impact, 71 percent of teachers said unions had a positive impact. However, the public split down the middle on the either/or option: 51 percent said unions had a negative impact, while 49 percent said their effect was positive.

Gov. Scott Walker’s victory in the Wisconsin recall election is good news for schooling and a big loss for the state’s teachers’ unions, writes Rick Hess.

Public-sector unions also lost pension reform votes in San Jose and San Diego.