School Finance

Only halfway through 2011, a number of states have reformed their laws governing public sector workers' benefits, a few of them in dramatic fashion. The need to close the yawning gap between promises made to workers and the dollars saved for them on states' balances sheets is evident. According to a recent analysis, the average household will have to pay $1,398 in additional taxes every year for the next 30 years to fund retiree benefits, with New Jersey taxpayers on the hook for $2,475 per year per household before that state's recent reforms.?Even more optimistic commentators recognize that the funding ratios reported by states themselves rely on rosy assumptions about investment returns that are not likely to be borne out in reality.?Consequently, states have begun to adjust contribution rates, close loopholes, and otherwise modify pension and retiree healthcare benefits.

It is worth noting that most of these reforms leave public-sector workers, especially those newly-hired, worse off. In many states, this is a necessary evil, with budgets straining and taxes being ratcheted ever higher. Some states have done better than others in making fundamental reforms to address the sustainability of workers' benefits without soaking new workers or taxpayers,...

While everyone is following New Jersey's public union bombshell vote, my friend E.J. McMahon of the Empire Center in Albany reports on a new maneuver by the New York State United Teachers to end run? the property tax cap being promoted by new Governor Andrew Cuomo.? ?As McMahon says, the cap is not even through the state legislature yet and NYSUT is trying to circumvent it:

An egregious fiscal abuse on its own terms, the bill (S.4067-A) would allow school districts across the state (except for New York City) to issue 15-year bonds to cover a portion of their rising teacher pension costs over the next several years ? at least $1 billion in all, by one estimate.? The measure was introduced two months ago at the behest of the New York State United Teachers (NYSUT) as a way of reducing pressure on teachers to make contract concessions.

The drama in Albany continues.

--Peter Meyer, Bernard Lee Schwartz Policy Fellow

South Carolina is in hot water with the Education Department over the state's failure to meet federal maintenance of effort requirements for special education spending. ED is threatening to dock South Carolina $111 million in federal aid after rejecting a waiver request. The Palmetto State has cut SPED support for three years running due to budgetary pressure.

Federal mandates are coming under attack across the board, often for good reason. Idaho has announced it will refuse to comply with NCLB ? not ask for a waiver ? while the Council of Chief State School Officers is planning to blitz Arne Duncan with waiver requests. In South Carolina's case, however, lawmakers felt they couldn't continue to privilege special education students over every other recipient of state dollars. The state could, of course, have made its case more compelling by matching spending cuts with an agenda of effectiveness in education services, possibly?following Massachusetts' example of outsourcing services to more cost-conscious providers.

The federal response ? that states should allow special education spending to balloon in a time of fiscal austerity when everyone else in the school system is pressured to be more efficient ? is senseless. Washington's...

As if the teachers unions need another reason to hate charter schools, here's one: The finding, from a new Fordham Institute report, that when given a chance to opt out of state pension systems, many charter schools take it. Furthermore, a fair number of these charters replace traditional pensions with nothing at all.

Why is this such a big deal? It's not just that unions will worry that charter schools are mistreating their teachers. More fundamentally, if charter schools continue to multiply, and they are allowed to opt out of state retirement systems, those systems will collapse under their own weight--an outcome the unions will fight to the death.

First some background. The new Fordham study, by Michael Podgursky and Amanda Olberg, examines six large states where charters are allowed to opt out of the traditional pension system. In a few of these states, including California and Louisiana, most charters stay in the system. (That's largely because teachers in those states don't participate in Social Security; see the report for an explanation about that.) But in other states, including...

In this "Ed Short" from the Thomas B. Fordham Institute, Amanda Olberg and Michael Podgursky examine how public charter schools handle pensions for their teachers. Some states give these schools the freedom to opt out of the traditional teacher-pension system; when given that option, how many charter schools take it? Olberg and Podgursky examine data from six charter-heavy states and find that charter participation rates in traditional pension systems vary greatly—from over 90 percent in California to less than one out of every four charters in Florida. As for what happens when schools choose not to participate in state pension plans, the authors find that they most often provide their teachers with defined-contribution plans (401(k) or 403(b)) with employer matches similar to those for private-sector professionals. But some opt-out charters offer no alternative retirement plans for their teachers (18 percent in Florida, 24 percent in Arizona).

Guest Blogger

Today, Fordham released our latest, "Charting a New Course to Retirement: How Charter Schools Handle Teacher Pensions." Authors Amanda Olberg and Michael Podgursky explain the report's findings here.

In the wake of the economic downturn, American public schools face serious, long-term fiscal challenges. Of them, rising pension costs are a particular concern. Yet school districts have no mechanisms for reining in these costs; almost all districts are tethered by statute to state pension systems (or, sometimes, their own local pension systems). It turns out, though, that some states allow their public charter schools to opt out of those systems. How they handle this opportunity bears scrutiny?and may suggest some lessons for the larger public-education system.

Nationally, teacher compensation comprises 55 percent of current expenditures in K-12 education. (That figure rises to 81 percent when all school staff are included.) A large and growing share of these costs goes to help fund retirement benefits. Between 2004 and 2010, for example, district pension costs (not counting retiree health insurance) increased from 12 percent to over 15 percent of salaries....

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