Pension costs crowd out ed spending

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“Per-student spending on K-12 education has risen steadily over the last two decades, but student test scores, and teacher salaries, are stagnant,” editorializes American Interest. Where’s the money gone? “The cash infusion to K-12 has been used largely to pay for irresponsible pension promises politicians made to teachers’ unions and justified to the public with shoddy accounting.”

The editorial cites Feeling the Squeeze: Pension Costs Are Crowding Out Education Spending, a new Manhattan Institute report by Josh McGee:

Per-pupil spending on equipment, facilities, and property fell by 26% between 2000 and 2013, likely resulting in a growing backlog of expensive repairs and  replacements that will need to be made sometime down the road. Spending on instructional supplies (e.g., textbooks) declined by 10% per pupil. More than half of states (29) spent less per pupil on instructional supplies in 2013 than in 2000. […]

The vast majority of taxpayer contributions into teachers’ pension plans are now used to pay down pension debt owed for past service rather than to pay for new benefits earned by today’s teachers. As the value of this debt has increased, most current teachers have experienced stagnant salaries and reduced retirement benefits, while spending on classroom supplies, equipment, and building upkeep has declined relatively or even absolutely.

“Education ought to be a great equalizing force in our society and, in theory, an efficient way to invest in the future,” concludes American Interest. But, in many states, new education spending is really “a transfer payment to retired employees of the public schools who have been promised untenable lifetime pension benefits.”

Are teachers underpaid?

Teachers are underpaid, compared to other college-educated professionals, according to a new report from the Economic Policy Institute.

“Since 1996, the teacher wage gap — the gap between what teachers make in weekly wages compared with similarly educated and experienced workers — has increased from -4.0 percent to -17.3 percent,” the report concludes.

Factoring in benefits leaves teachers earning 11 percent less than comparable workers, according to EPI.

It’s an apples-to-oranges comparison, argues Fordham’s Michael Podgursky. Public school teachers and other public employees receive far more generous pension benefits than private-sector workers. The value of those benefits isn’t calculated accurately in Labor Department statistics, he writes.

Let’s say that the Fordham Institute contributes $1 to a 403(b) plan for its employee (we’ll call him Mike). D.C. Public Schools makes a contribution of $1 for Mary, a public school teacher, to its teacher retirement fund. Mike invests his $1 in a low risk government bond and earns 2 percent for twenty years. The D.C. teacher retirement fund, by contrast, assumes that it will earn 7.5 percent over the long run and gives out benefits to Mary accordingly. Moreover, these promises to Mary are legally binding and can’t be cut, so from Mary’s point of view, this is a risk free benefit.

At the end of twenty years, Mike has $1.49 in his account, but Mary has a benefit worth $4.25.

He cites a 2011 analysis by Andrew Biggs and Jason Richwine which found “workers who switch from non-teaching jobs to teaching jobs receive a wage increase of roughly 9 percent,” while “teachers who change to non-teaching jobs . . . see their wages decrease by roughly 3 percent.”

San Francisco Bay Area districts with high housing costs are offering “bonuses that can range from $1,000 to $10,000 for hard-to-fill positions in special education, math, science, dual immersion language, and for speech pathologists and school psychologists,” reports the San Jose Mercury News.

Teachers are grayer — and greener

Overall, the teaching force is becoming “larger, older, younger and less experienced, more female, more racially diverse and more consistent in academic ability,” according to a Consortium for Policy Research in Education (CPRE) trends report. (There are peaks for younger and older teachers and fewer teachers in the middle.)

Thirty percent of teachers who entered the profession in 1997 had quit by 2003. Teachers have similar attrition to police offers, but double the rate of engineers and pharmacists, writes Leslie Kan, a Bellwether analyst.


Employee Turnover By Occupation
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Teachers and police officers are among the few professions that still participate in a pension system, writes Kan. “Pension systems are best suited for employees who stay an entire career, but they generally benefit only a small percentage of teachers because of high turnover in the profession.”

 

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.