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.
? Chris Tessone
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
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About the Editor
Bernard Lee Schwartz Policy Fellow
Chris Tessone was a Bernard Lee Schwartz Policy Fellow and the Director of Finance of the Thomas B. Fordham Institute. He has strong interests in governance and education finance, especially teacher compensation and school facilities finance.