School Finance

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...

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

...

This soapbox has a great view

Mike and Janie bite off big topics in this
week’s podcast—from the repeal of SB5 to racial imbalances in gifted-ed
programs to online learning. Amber wants CRPE to name names and Chris starts
subbing for the pension benefits. You’re gonna want to sit down for this.

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...

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...

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...

The Education Gadfly

Everyone's favorite guest host, Dave DeSchryver, joins Mike to discuss the 2011 NAEP results, ESEA reauth, and charter schools in middle-class locales. Amber dissects the Chinese education system and Chris extols the virtues of eating red meat.

[powerpress]

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...

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