Stretching the School Dollar

Paul T. Hill
director of the Center on Reinventing Public Education

Guest blogger Paul T. Hill is the director of the Center on Reinventing Public Education and the author of a recent paper in Fordham’s Creating Sound Policy for Digital Learning series, “School Finance in the Digital-Learning Era.”

Futurists
have long regaled us with predictions about technology dramatically
improving education by giving millions more students access to the very
best teachers and deploying computer-based systems that allow them to
learn at their own pace at whatever time and place works best for them.
This vision is now becoming a reality, partly because tight budgets are
forcing K-12 schools to employ fewer teachers and boost the productivity
of those who remain.

Saving money is only part of technology’s educational potential,
however. More important is individualization and rapid adaptation to
what a student is learning, leading to the possibility of greater and
more consistent growth. Managing equipment, web links and vendor
contracts is also far nimbler than re-organizing people.

All this potential notwithstanding, however, plenty of policy and
structural barriers stand in the way of widespread adoption of
technology in K-12 education. Perhaps the toughest of these is our
traditional approach to school funding.

Simply put: Our current education finance system doesn’t actually
fund schools and certainly doesn’t fund students. Rather, it pays for
district-wide programs and staff positions. Much of it...

Last night, Rhode Island’s legislature passed a sweeping reform of its public-sector retirement system.
It cuts retiree benefits, mostly by suspending cost of living
adjustments, and institutes a cheaper hybrid plan with a 401(k)-like
private account component, and it should save taxpayers billions of
dollars in coming years.

Far-reaching as the bill is, however, this outcome is something of a
failure, good only by comparison to the tragedy that would have ensued
had lawmakers done nothing. Rhode Island waited until it was on the cusp
of disaster to make desperately needed changes. By comparison, Utah’s
reform, described in our recent series of case studies,
came about because lawmakers were thinking years into the future about
the risk pension shortfalls presented. They gathered support for changes
to the retirement system to head off a crisis before it became
inevitable.

The short-sightedness of the Ocean State shouldn’t be called
“courageous” simply because Rhode Island changed course at the last
possible moment to avert disaster. The state may provide a model for
other profligate jurisdictions like Illinois, showing them that change
is possible and following the old path over a cliff isn’t their only
option. But the country should look to more proactive reform-minded
states for an example of how best to structure teacher retirement
systems for the 21st century....

We are going to see increasing in-fighting among big government types
as big-spending school districts compete for resources with the rest of
the agenda supported by the public fisc. Schools are increasingly going
to lose those battles, which they’re not used to. Today’s example comes
from Montgomery County, Maryland, where I live.

Democrats on the county council have been butting heads with the
school board for months over skyrocketing education budgets, culminating
in a battle to repeal Maryland’s maintenance of effort requirement:

But the details of Maryland’s maintenance of effort law
have proved unwieldy in tough budget times. Its authors never
anticipated a housing bubble nor articulated a logical process for
working through it.

The debate has largely played out in Montgomery County. The county’s
nationally recognized schools have long been a generously protected
fiscal priority, and the county council exceeded minimum spending levels
by hundreds of millions of dollars over the past decade. When the
budget outlook worsened, though, the county council said it couldn’t
maintain the same level of investment.

“The county government was hurt by the fact that we were doing over and above what we were required to do,” said council president Valerie Ervin (D-Silver Spring), a former school board member.

Montgomery County provides a cautionary tale to those who see
resources as the primary lever for improving K-12 education. MCPS is a
very expensive district but...

Illinois may finally be addressing its dysfunctional teacher retirement system with meaningful, bipartisan reform:

The sweeping pension changes, presented by House
Republican Leader Tom Cross and Democratic Speaker Michael Madigan,
would establish three retirement options for government workers to
choose from going forward. State employees could keep their retirement
benefit in place but pay more; take smaller benefits but pay no more;
or set up a 401(k)-style plan that would give employees more control of
their investments but also see them roll the dice on the markets.

I’ve made no secret
of how little I think of last year’s “reform” in Illinois, which simply
took money out of the pockets of young teachers to make up for the bad
choices made by legislators and unions. This is a much better start, and it’s cheering that the Democratic leadership is on board.

Labor doesn’t like it, with the Illinois AFL-CIO’s president claiming
this measure would reform the pension system “on the backs of working
families.” But working people are going to be hurt no matter what, since
the retirement system is in terrible fiscal shape. The question is
whether reform shares the pain or soaks only new workers, and whether
Illinois can compensate new teachers in an attractive and competitive
way. The state needs to get both those questions right.

Keep it up, Illinois reformers....

Rhode Island's teacher pension system is a mess. The annual cost of the retirement system has doubled since 2003 and will likely double again by 2013. Education Sector has released a report today looking at state treasurer Gina Raimondo's plan to stabilize the pension fund by switching to a hybrid plan and spreading the fiscal pain among taxpayers, retirees, current employees, and new workers.

Ed Sector's analysis hits the important high points of the crisis in teacher pensions: this is a crucial education policy issue (because it's eating up needed funds that no longer reach the classroom), that existing defined-benefit pensions mistreat the majority of teachers in favor of a select few, and that reforms ought to share the pain among stakeholders rather than soak new teachers.

The writers (rightly) single out Illinois as a bad example that Rhode Island and other states should avoid. As I noted a few weeks ago, the "reform" there essentially amounts to theft from all new teachers. The RI plan is going to be painful for a lot of people, but it's smarter and fairer.

Go check out the report. I know it's Friday, but it's a quick read. The folks at Ed Sector have done a great job of making this technical subject approachable and interesting....

A penny saved is a penny earned, right? Not according to the Pew Philadelphia Research Initiative, which just released a study throwing cold water on the idea that closing underutilized schools can save money in strapped district budgets. The authors conclude that "the money saved as the result of closing schools, at least in the short run, has been relatively small in the context of big-city school-district budgets."

The experience of the cities studied doesn't bear that out, however. Looking at Milwaukee, DC, Pittsburgh, Detroit, and Kansas City, closing under-enrolled schools saved nearly 4% of the district's total budget annually on average (based on 2011-12 budget totals). In Kansas City, the savings cited in the report, $30 million, amount to almost 10% of the total annual budget. In DC, the $16.7 million savings translates into roughly 185 teaching jobs every year.

The report is useful in its consideration of the political and operational challenges faced by districts with buildings that are below capacity and draining budgets. Superintendents should certainly not oversell the potential savings from right-sizing. But even in the efficiency-blind world of K-12 budgets in urban districts, tens of millions of dollars represent real money and building closures are a worthy strategy to consider.

? Chris Tessone

Despite doomsday projections of huge layoffs as a result of the "new normal" of lower or flat education funding, NCTQ found in a recent survey that layoffs in large urban districts were modest ? 2.5 percent on average ? and only affected roughly half of surveyed cities.

The story of how cities avoided layoffs is interesting. More districts cut class time or school days than cut or reduced workers' benefits. Most simply reduced head count through attrition. These data could bolster the case of reformers like Scott Walker who argue that state policy should tackle runaway growth in benefits because school boards and administrators will not. Clearly only a tiny minority of districts were willing to touch these areas of their budget.

Some districts were much harder hit than the average, however, including our hometown of Dayton, OH. No doubt our Ohio team will comment on the particulars of the case there. Overall, however, NCTQ's survey suggests that many cities have found a way around massive layoffs and the Obama administration's dire predictions of huge job losses in education going forward may not be justified.

? Chris Tessone

In a new AEI/Heritage paper that is sure to create some buzz, Andrew Biggs and Jason Richwine say yes, teachers are overpaid relative to similar workers based on several different metrics. The most interesting result in the paper for me was this table, illustrating that teachers take a pay cut of roughly 3% when they leave the profession, while new entrants actually see a raise of almost 9% compared to their previous non-teaching job:

As the authors point out, this result is not consistent with teachers being "desperately underpaid," in Education Secretary Arne Duncan's words.

We need to take the conversation on teacher pay beyond averages, however. As we and others have noted before, younger teachers are under-compensated for the dramatic increases in effectiveness they realize in their first few years of teaching. We also ignore the alternatives certain teachers have in the labor market, paying PE teachers (who have few job options in the private sector) much more than physics and math teachers.

If we want to spend every education dollar effectively, we have to move beyond one-size-fits-all strategies and focus on each individual teacher's capabilities and effectiveness in driving student learning. This new AEI paper is worth checking out and brings valuable data to the table.

? Chris Tessone...

California's Jerry Brown is getting ready to propose what the AP calls "sweeping rollbacks" in public-sector pensions, raising the retirement age for non-public safety employees to 67, ending abuses like spiking and "air time," and mandating a hybrid system that has a traditional pension component and an added 401(k)-style defined-contribution plan.

Based on the Sacramento Bee's description of the plan, the change to a hybrid plan is far less radical than it needs to be to improve mobility of benefits for young workers (teachers included). The new system would still provide 2/3 of projected retirement income out of a defined-benefit plan workers would only earn after a full, multi-decade career in public service. It's also hard not to wonder how deeply Gov. Brown believes in this plan, since he pitched a much less serious reform in the spring that failed due to Republican opposition.

It's a better start to the reform process in California than that earlier plan, however. If Brown sticks to his guns against his union backers and gets these reforms through the legislature, it would be a positive first step in fixing the state's broken system of public employee compensation. Our latest report, Halting a Runaway Train: Reforming Teacher Pensions for the 21st Century, provides a case study of how the federal government enacted similar reforms in the 1980s. Check it out, Jerry!

? Chris Tessone...

Microsoft just reported its quarterly earnings, posting $5.7 billion in profits but disappointing investors, who had hoped for more. News like this naturally excites Wall Street more than it does education wonks. However, much of the wealth that now funds education reform initiatives, from teacher evaluation to charter schools to Common Core standards, was built at companies like Microsoft and Netflix.

We here at Gadfly thought it might be fun to track how some of the companies most associated with education reform are doing. So far I've added five companies to the Fordham Investment Index (or FINNdex): Netflix (associated with digital learning backer Reed Hastings), Wal-Mart Stores (the Walton family), The Gap (the Fisher family, supporters of KIPP and other efforts), Microsoft Corporation (Bill Gates), and KB Home (founded by reformer Eli Broad).

The market has not been kind to the FINNdex year-to-date. Unfortunately, many of education's leading funders come from the technology and real estate sectors, which have had a rough time over the past few years. The chart below shows performance of an equal investment in all five stocks (in blue) versus the S&P 500 (in red):

Let us know in the comments which other stocks associated with education reformers you think we should add. We'll update you on the performance of the FINNdex as its members pop up in the news from time to time....

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