California residents are all too familiar with fiscal imprudence
and the lack of balanced budgeting. After all, this is home to
the ongoing, litigation-plagued battle between the ex-action
movie star-turned-governor, Arnold Schwarzenegger, and the
Democratic-controlled legislature over what kind of taxes will be
raised to close the state’s $15 billion budget deficit.
But Golden State residents are becoming as familiar with
Government Accounting Standards Board rules and actuarial charts
as they are with the intricacies of program-based accounting.
Thanks to decades of generous pension deals with teachers unions
and fiscal mismanagement, taxpayers are on the hook for the state
teacher pension system’s $19 billion deficit (as of 2007); the
underfunding has likely grown since then thanks to the fund’s $46
billion in investment losses.
An even larger bill comes in the form of unfunded costs for
teacher healthcare deals. School districts — and ultimately,
taxpayers — will pick up $16 billion in unfunded healthcare
payments on behalf of retiring teachers. This includes the $10
billion in as-yet-to-be funded health insurance payments owed by
the Los Angeles Unified School District, the nation’s
second-largest (and most visibly dysfunctional) school district.
The tiny Encinitas Union School District near San Diego, which
educates a mere 5,600 elementary school children, has $4 billion
in unfunded healthcare payments.
“It’s the same problem the Big Three faced in Detroit,” said
Keith Richman, a California state assemblyman from Los Angeles,
to Capitol Journal. Indeed it is. Like GM, Ford and
Chrysler, school districts will eventually be bailed out by the
taxpayers. And California isn’t alone in wrangling with these
staggering costs.
Most of the public attention on education has focused on battles
between school reformers and teachers unions over academic
standards, school choice and the reauthorization of the No Child
Left Behind Act. But an even more fractious battle is emerging
over the array of generous defined-benefit pensions,
employer-subsidized healthcare plans, job protections and degree-
and seniority-based pay scales struck by states, districts and
locals of the National Education Association and American
Federation of Teachers.
Evidence that such compensation fails to reward high-quality
instruction or lure collegians into teaching, along with No
Child’s provision that all teachers must be well-versed in the
subjects they teach, are forcing states and districts to rethink
teacher compensation. The development of a statistical technique
called value-added assessment — which allows individual student
test-score growth to be measured against those in the same grade
— also means that teacher performance can be objectively
measured and rewarded accordingly.
This is a battle already seen in districts such as D.C. Public
Schools, where Chancellor Michelle Rhee is sparring with the AFT
local over a pay plan that would allow teachers to increase pay
by as much as $43,000 a year if they subject themselves to
more-rigorous performance evaluations, as I’ve noted this month
in Labor
Watch, a newsletter on labor reform published by the
Capital Research
Center.
But it is the mounting costs of the lavish retirement deals —
fueled by the upcoming retirement of Baby Boomers — that will
likely force states into embracing performance-based pay plans.
Thanks to four decades of generous retirement deals and new
accounting rules, citizens are realizing that teaching has become
the best-compensated profession in the public sector. This,
however, has come at the expense of taxpayers and children alike.
THE TAB STARTS WITH TEACHER PENSIONS, which are even
more-abysmally managed than other public pension programs. The
Indiana State Teacher Retirement Fund, for example, has been
chronically underfinanced for decades; its deficit doubled from
$5 billion to $10 billion between 1993 and 2007. West Virginia’s
teacher pension has long-been the nation’s most heavily-indebted
based on the percentage of uncovered liabilities. Just 55 percent
of benefits owed to teachers are covered by the plan; its $3.4
billion deficit (as of June 2008) has grown in the last six
months thanks to $1 billion in investment losses.
Then there are the healthcare benefits. Unlike pensions, almost
no money has been set-aside for those future costs. Texas has
only set-aside 3 percent of the money needed to cover its $22
billion tab healthcare tab for retiring teachers, according to
the state’s Teacher Retirement System in a report released last
year. In Utah, taxpayers must eventually pay down the $1 billion
tab for retired teacher health expenses.
New Jersey taxpayers face an even heftier $36 billion invoice for
unfunded healthcare costs, according to a state treasury analysis
released last year. The benefits cost the state $3.6 billion a
year, most of which is never fully paid. The state has yet to
set-aside money to begin paying down those costs. This, by the
way, is on top of the $10 billion teacher pension deficit Garden
State residents must eventually pay.
What taxpayers are buying on behalf of these teachers are very
sweet deals. A teacher in Ohio with 29 years of service can
retire and collect pension benefits at age 55. That’s five years
earlier than the state’s mandatory retirement age of 60 — and 10
years earlier than the average private-sector worker. A Missouri
teacher can technically retire as early as age 52 so long as her
combined age and time of employment totals 80 years. Even better,
she can retire and then get rehired, allowing her to double-dip
— or collect a pension and a regular teaching salary — at the
same time.
The healthcare benefits are even sweeter. A retired teacher in
Michigan who isn’t eligible for Medicare picks up just 12 percent
of her $1,171 monthly premium for herself and her spouse; the
state picks up the rest. When she qualifies for Medicare, she
will pay just five percent of her monthly premium; the remaining
cost is subsidized by taxpayers.
AS IN OTHER PARTS OF THE PUBLIC SECTOR, the rise of unions has
helped make these perks more lucrative and expensive. Starting in
the 1960s, as the NEA and AFT won the right to collectively
bargain in 34 states, teachers unions became potent forces within
districts, at the statehouse and in campaign finance. In turn,
they struck deals with legislatures and districts for the kind of
early-retirement packages, boosted pension annuity payments, free
healthcare deals and lowered retirement ages long-ago rejected by
the private sector.
By 2003-04, states spent $50 billion on teacher benefits, a near
three-fold increase over the amount spent 16 years ago, according
to the U.S. Department of Education. The average state now spends
28 cents on benefits for every dollar spent on teacher salaries;
four states — Indiana, West Virginia Wisconsin and Oregon —
spend twice that amount.
This spending has made teaching one of the most lucrative in both
the public and private sectors. By 2002, the average teacher
earned 25 percent more than that of the average American worker,
according to the Education Intelligence Agency, a teacher union
watchdog think tank; this doesn’t even include pension benefits.
A Missouri teacher retiring at age 52 will get 200 percent more
in pension benefits than she actually paid into the plan
during her career.
But now states and districts — and ultimately, taxpayers — are
straining to pay this burden. As it turns out, the benefits are
also exacerbating teacher shortages. Twenty-five percent of
Michigan teachers and other school employees retire before age 55
while 64 percent leave before reaching 60, according to a 2007
analysis by the Detroit News. At the same time, the
benefits — along with the lack of performance pay — makes
teaching less attractive to the talented collegians needed to
replace retiring teachers.
Some states are now taking stabs at reform. South Carolina Gov.
Mark Sanford has spent the past four years pushing to that
state’s early-retirement plan for teachers, which allows
double-dipping. In November, Georgia Gov. Sonny Perdue pushed for
a reform that would have ended automatic cost-of-living raises
for retirees on the state’s $47 billion teacher pension. It was
defeated by the Peach State’s NEA affiliate. More of such
skirmishes loom on the horizon, especially as states — egged on
by both school reformers and angry taxpayers alike — realize
that comfy retirements for teachers are too expensive for
citizens and their children.
