While the rest of the world was celebrating the passage of an ESEA (only eight years or so late! yay!) or looking at NEPC's brutal-but-necessary report on the charter gravy train, the Center on Budget and Policy Priorities was releasing the results of its three-month study of state funding for education over the last almost-decade.
The first part of the story is familiar. Back around 2008, the Great Recession hit. Although, let's not say "hit" and give it a fancy name as if it were some random act of nature and not a predictable and avoidable economic collapse caused by reckless greedheads on Wall Street. Instead of a Great Recession that somehow happened, maybe we could instead refer to that time that Wall Street screwed over every American in a series of criminal and stupid acts so huge that they have yet to be paid for their misbehavior in the slightest. Let's call it that.
But I digress. Wall Street tanked the economy, resulting in a big bunch of cutbacks as every state tried to deal with a sudden lack of money. That part of the story we already knew.
The second part of the story, which you may have suspected, is that once states got in the habit of slashing education budgets, the just kept on doing it even after the economy began to recover. CBPP does not bury the lede on this one:
Most states provide less support per student for elementary and
secondary schools — in some cases, much less — than before the Great
Recession.
The report breaks it down. 31 states provide less funding in 2014 than they did in 2008. In at least 15 states, the difference is 10% or greater.
In at least 18 states, local funding fell as well. In at least 27 states, local spending rose, but not enough to offset state level cuts.
The champs are Arizona and Alabama, where state education funding dropped by more than 20%. North Dakota increased education spending by a whopping 90%. And while the report is useful, more digging could be done-- Pennsylvania has raised school funding since 2008 as reported, but that's because 2008 represents a huge drop from 2007.
"Well, " you may say. "Could this precipitous and widespread droppage be influenced by enrollment. Maybe Arizona and Alabama cut spending because those states no longer have all that many young 'uns."
The report is way ahead of you, breaking numbers down by Per Student dollars as well and-- whoops! Sorry, Arizona and Alabama. You are still numbers 2 and 3 on the education budget slashing list. Oklahom was in the top ten on general cutting, but leaps to number one when we price it all out by students. And some states (lookin' at you, Kansas) have made their funding formulas so obtuse that a completely clear comparison across the years is difficult.
Why the drop in funding? The report suggests five reasons.
1) States have been slow to recover
2) States used budget cuts to fix their recession problems
3) The feds have cut aid to states
4) Costs are rising
5) Some states have slashed taxes big time.
In fact, number 5 is pretty powerful. Of the five top spending cut states, four have also cut income taxes (Oklahoma, Arizona, Wisconsin, and Idaho). So schools may be starving for support, but at least rich people got to keep more of their money (because after forty years or so of hopelessly waiting, we're still sure that trickle-down economics will start working any day now).
The report concludes by stating the blindingly obvious (it must be blindingly obvious, because so many policy makers in states fail to see it)-- when you slash education spending, bad things happen and a bunch of good things don't happen.
The report is worth a look, and you'll want to see how your own state stacks up. Check it out, and on this Happy ESSA Day, contemplate how states have been slowly flushing their schools down the financial toilet while Congress has been trying to pass an education bill.
Peter, this CBPP report explicitly states that pension are not included. Factor in those monies and education spending has grown faster than inflation....it's just that pensions are crowding out general ed funds. An extra $600 million this year in PA. You can't raise taxes high enough or fast enough to fill that hole. Rock, meet Hard Place. Absent pension reform, the price will be paid in the classroom.
ReplyDeleteBy pension "reform", I assume you mean "pension theft"?
DeleteBTW, isn't it hilarious that we have money for all this testing, test prep, ed consultants, ed tech, etc., but if we don't "reform" pensions, that money will come out of the classroom. I'd laugh if it weren't so pathetic.
and... NC - http://www.ncpolicywatch.com/2015/12/08/starving-the-schools/
ReplyDeletePast unpaid debt is what is crowding out education funding, not pension spending. The actual costs of pensions is quite sustainable. Four out of every 5 dollars claimed to be a pension cost is actually repayment of interest on state debt.
ReplyDeleteNot repaying borrowed money owed to pension funds for 50 or so years has accumulated quite an interest payment. The bill is past due. That is where the $600 Million is going. To pay back the money that was "borrowed".
Place the blame where it belongs. Blame deadbeat politicians trying to welsh on old debts. Elected officials tell you to blame pensions for budget problems so you don't blame them.
They don't tell you they stiffed their employees and now don't want to pay at all. You seem to be OK with that.
There are many places the state could take money from. Instead of pensions or classrooms, how about having Pennsylvania confiscate your retirement funds to pay for their malfeasance?
They could say that it is "unsustainable" to pay your money back. They could say "Why don't you just take less?"
That is what some states are telling their public employees.
Funny how politicians always have money for their friends.
Maybe your retirement is next to go. Feel free to join the club! Maybe then someone can say "Rock, meet Hard Place to you!
So where are some of those 'many other places' where the state can take an extra $600 million a year?.....Medicaid? Senior Care? Roads? Human Services? That's the only place I see where one can find that much loot to fill the pension hole.
DeleteDear Michael,
DeleteYou obviously don't know much about state budgets. Most states have 3 or 4 budgets and play the "we don't have money" game with the "operating" budget, while spending billions from other budgets on their "friends and family".
There is always plenty of money for things they wish to pay for (like Charter Schools or "sweetheart" contracts) and nothing for anyone or anything else. The reason you can't "see" any other place for this money to come from is that you aren't looking.
Elected officials count on people like you to support their theft, knowing that some people just don't care when someone cheats their neighbor.
You seem to be concerned enough about some of these needs to support theft of the property of others to pay for it, rather than pay the true costs. Or are you just creating a false choice to justify this theft?
The argument that we can have either roads, medicaid, Senior Care, etc. OR pensions is a false dichotomy. There are many other possible choices you ignore to make this claim.
Failure to pay employees what they have already earned is nothing more than theft. It will have to be paid back by everyone, including those it was stolen from, in one way or another.
Debating the relative worthiness of other competing demands upon state funds (as a justification for stealing from some citizens) is a red herring.
Shall the state begin to allow your employer to take back money you have already earned? Shall the state be allowed to just take it from you to pay its own bills?
Someday, you might be the one on the losing end of a political scam. Then you would find out how it feels to be thrown under the bus so someone else can avoid paying their bills.
If nothing else, remember that the money you claim can't be paid back wasn't the state's money to take (and spend on operating expenses) in the first place. If it is fair to take earnings from teachers to fund the state operating budget, why isn't it fair to take money from you?
The question was where do you recommend we pull $600 million from this year. You just can't wave a hand and loudly shout 'It's there somewhere!' Tell us.
DeleteMichael - if a burglar breaks into my house and steals my rent money, how sympathetic do you think my landlord is going to be when I say, "the question is, where do you recommend I pull $1,000 from this month? I can't just wave a hand and loudly shout 'it's there somewhere!' Tell me."?
DeleteDienne,
DeleteMichael is never expected to produce any evidence of no money. His claim is enough in his mind. He will, however, demand that you produce endless evidence to support any opinion that disagrees with him. It is a standard strategy of people like him.
If he actually knew anything about the ins and outs of state budgeting, he would already know several good choices for places where money is available. It would mean less money available to insiders though.
Did you ever wonder why elected officials spend millions of dollars to get elected to positions that pay 5 figure salaries. They spend because the job gives access to almost unlimited pork (and opportunities for graft).
That alone should tell you that there is lots of money available, just no money for you.
Maybe Mike suffers from Stockholm Syndrome and identifies with those tho have "kidnapped" his interests.
In any case, he is really not worth the effort. He, like some others here, are only using this platform to spread disinformation disguised as concern for fiscal responsibility.
It all boils down to, "We took your money to pay for things we got then, and we don't want to pay you back now!" They are mouthpieces of the thieves. Nothing more.
There is a structural problem with defined benefit pensions. Public officials make promises that other people have to keep. In general this will lead to more generous promises being made, but it is especially problematic when the other people that were supposed to keep the promise can simply move out of the reach of the taxing authority.
ReplyDeleteIt seems to me better to pay the full cost of employing people each year, so a defined contribution plan makes more sense.
Hmm, something must be going wrong with this blog, it looks like a couple words got chopped out of your last sentence. Let me help you out: "...so a defined contribution plan makes more sense FOR EMPLOYERS."
DeleteYou're welcome.
Dianne,
DeleteYou and I are both employers of teachers in our district, though we depend on the elected school board to negotiate a good contract. Of course you can simply move out of the district if you think the school board was too generous in the negotiation.
Why do you think it is especially good for employers? Teachers can negotiate any deal that that the local school district will agree to. An added bonus is that with a defined contribution plan, teachers who leave the district before vesting are actually fully paid for their work.
Please, TE, as an economist, you can't be unaware of the disadvantages for employees of defined contribution plans. This is from NJ, but explains it well: http://www.njspotlight.com/stories/14/05/27/explainer-the-debate-over-defined-benefit-vs-defined-contribution-pensions/ Your babe-in-the-woods act like you don't know these things is, to say the least, disingenuous.
DeleteSpeaking of problematic, your continued refusal to spell my name correctly despite the fact that it's printed right on the screen and despite the fact that I've called you on it before says a lot about you.
Dear teachingeconomist,
DeleteThe so called "structural problem" is nothing more than politicians not paying benefits when earned. When you spend that money to operate rather than pay it into the pension fund (so it can be invested) of course you have a structural deficit after a while.
Interest costs begin to grow faster than revenue sources. You owe both the borrowed money and the interest it would have earned had it been paid into the pension fund. Until it is paid back, it continues to grow.
Are you advocating that it not be paid back? It wasn't the government's money to take in the first place. It was earned compensation of the employee.
If what you argue were true, (that defined benefit plans don't work) annuities would not work. Defined benefit plans are nothing more than annuities. Are you making the claim that the insurance and annuity business is a fraud?
The government has created a debt problem. It is disingenuous to call it a defined benefits problem. Compound interest on the debt is causing the problem, not pensions.
Defined benefit pensions are entirely sustainable. As a matter of fact, they were so efficient that businesses in the private sector terminated many of these plans to gain access to their excess earnings.
Businesses support 401K plans for YOU. They want the illusion of replacing a benefit with another benefit. What really happens is that a benefit is taken away to reduce costs and increase profits.
Those in charge, however, generally have cash balance plans (which are defined benefit plans) for themselves.
Keep in mind the Employer is us....the taxpayer....We The People. Any deal on pensions should benefit us and our children. The current arrangement is bankrupting public education. It will collapse of its own weight...this screwing the children, the taxpayer as well as the retiree.
Delete"Keep in mind the Employer is us....the taxpayer....We The People. Any deal on pensions should benefit us and our children."
DeleteSo does that mean that if we shaft teachers and steal their pensions, I'm going to get a check cut for the savings? Yeah, didn't think so.
As far as what benefits taxpayers, having educated fellow citizens is pretty high on that list. Having good, stable teachers goes a long way toward creating educated fellow citizens. Adequately compensating teachers (including benefits, including specifically retirement benefits) goes a long way toward attracting and retaining good, stable teachers.
As far as the system "collapsing", please see Hugh ODonnell's replies above and please retire the stale baloney - it didn't pass the smell test even when it was fresh.
Dienne,
DeleteAlas my auto-correct software does not recognize your spelling of your name and I do not always catch it.
I think there are several advantages of defined contribution plans for the employees.
1) there is no vesting, so employees get to keep their full compensation when they leave an employer. This is especially important in the teaching profession where many teachers leave before being vested in a retirement system.
2) there is no incentive to fire a teacher right before vesting in the retirement system. You might remember that many commentators on Dr. Ravitch's blog claimed that this was happening.
3) there is no worry that politicians will use the accumulated retirement funds for their own purposes.
4) there is no worry that politicians will renege on their promise to pay you in the future
5) there is no worry that demographic and population changes will make it impossible for the future politicians to keep their promise.
Hugh,
Eventually you have to stop blaming the dog for eating your cake and start blaming yourself for leaving the cake on the table when you leave the house in the morning.
Over promising and under funding is just something politicians tend to do, and it is best to keep that in mind when thinking about designing a compensation system.
It's times like this that I assume you aren't interested in actual dialogue at all. None of these things are ruled out by defined contribution plans, and defined contributions add the option of being bilked both by the government and whatever investment bankster they've awarded the fat contract of managing the portfolios to.
DeleteThere are zero advantages of a defined contribution plan. None. Zip. Zero. Zilch.
Peter,
DeleteI have given an argument, citing specific advantages of a defined contribution plan. If you disagree, perhaps you can explain why teachers who leave teaching before vesting and thus lose some of the compensation earned for the years they taught are actually better off than they would be if they got to keep all of their earned compensation.
As for the "investment bankster", who do you think manages state pension funds? Here is a list of the investment managers, advisers, and consultants currently managing your defined benefit plan ( http://www.psers.state.pa.us/content/investments/program_details/roster/2015-09-30-PSERS-List-of-Managers.pdf).
I think you will find an "investment bankster" or two on the list.
Dear teachingeconomist,
DeleteIs this your new plan? That if you can't refute the argument, lets blame the victim? Your cake illustration is like blaming a rape victim rather than the rapist for the crime committed.
You seem to imply that somehow teachers are to blame for this theft by politicians. Nice touch. I disagree. Theft is theft, however you couch it. Are you a shill of those who support that theft?
I found your example about vesting and refunds in defined contribution plans a good illustration of the half truths and obfuscation employed by some to fool the uninformed. Half truths and obfuscation are hallmarks of a disingenuous commenter.
Let us look at one so called "advantage" you point out. You assert that under a defined contribution plan an employee gets back their contributions if they leave employment. Seems fair. After all, it is their earned compensation.
However, you fail to mention that they lose any match paid(which was a part of their earnings) and all interest. Those revert to the employer. So earnings are actually reduced after the fact. Not so fair. I see you suggesting the replacement of one unfair practice with another unfair practice. That is not an improvement to me.
Many business types push defined contribution plans. There are opportunities for business to make money off these plans at the worker's expense. I have often wondered, if these plans are so great why do upper management types demand cash balance arrangements instead? I bet there is a reason. How about you?
Control by workers of costs or fund selection in defined contribution plans is an illusion. The employer selects and therefore controls the choices of investment (and fees charged). Any benefits in the form of discounts or "rebates" of fees accrue to the employer. The employer gets more and the employee gets less.
Any balanced examination of the history of retirement plans in private industry would conclude that changes have often really been reductions, not improvements.
Unethical businessmen have systematically plundered pension funds through terminations and bankruptcy to gain access to the surplus earnings of those plans in the pursuit of higher profits.
The claim was often made by businessmen that they really owned the money in the plans (even though all money invested earned by employees and paid into the fund on their behalf). To get at the money, plans were terminated. The businesses took the earnings in the plan and and ran. The government was left to pick up the pieces.
There is a long, well documented history of employers ripping off retirees by taking away retirement benefits and inventing so called "replacement" benefits that turned out to be rip offs. One of them was "defined contribution" plans. Do you really suggest we extend that thievery to teachers?
Why shouldn't teachers expect to get what they have earned and paid for? Are you one of those people who think they (not teachers)are "paying for teacher pensions"? The only person actually paying anything for a teacher's pension is the teacher.
The money invested in any pension fund is an earning of the employee, and does not belong to anyone else. It stops being someone else's money when the teacher earns it.
Unfunded liability is not future pension payments to retirees. It is unpaid debt service. Failure to pay is theft of workers earnings.
Your idea of pension "reform" boils down to the employer never paying back what is owed and replacing the present pensions with a supplementary savings plan that provides most with little or no retirement security.
The examples you cite are putting lipstick on a pig. Put any amount of lipstick you wish on it, it is still a pig. (apologies to pigs)
Leaving information out doesn't make it go away. Theft is still theft. When a debt is owed, it has to be paid.
Hugh,
DeleteOf course you can talk very seriously to your pet and admonish him or her not to eat the cake on the table while you are away for the day. I would put the cake out of reach of my pet, but that is just me.
I do have to correct you about one point. The employer contribution to your retirement is yours. The employer contribution DOES NOT revert to the employer when you leave. You take it with you. Let me quote from New York University's plan:
"Even if you plan to work at the University for only a few years, you'll find it advantageous
to participate in this Plan because you are immediately 100% vested in all contributions,
BOTH YOURS AND THE UNIVERSITY"S" (capitalization is mine)
Defined contribution retirement plans have been standard at post secondary institutions for decades.
Lots of luck getting your district to keep their promises made forty years ago, especially when the local taxpayers have moved away. Better to get your money when you actually earn it, not decades in the future.
Not paying obligations is not theft.....it's bankruptcy. Just look at what Obama did to the senior bond holders of General Motors. He set the pattern. Thus will come a similar fate for Pennsylvania teachers.
DeleteWell nice that TE admits that banking types are no more in control of their behavior than household pets. I don't generally put my dog in charge of my finances for exactly that reason - he doesn't know what he's doing. Perhaps if these financial types don't know what they're doing/can't control themselves, maybe they shouldn't be in charge of our money either?
DeleteDear teachingeconomist,
DeleteInteresting argument. I suppose your solution to gun violence is to expect everyone to wear a bulletproof vest too. Forget holding the shooter responsible because someone will continue to shoot people anyway? Great attitude.
Concerning defined contribution plans: they are one of several choices an employee might select for a retirement benefit at a university. You frame it to appear as the only choice, when it is not. Presenting "self managed" plans as "the standard" really isn't true.
When considering defined contribution plans as a whole, the vast majority of these plans exist in private employment. They generally do not allow employees to keep their match if they leave. That is one reason why employers like them.
So are you recommending defined contribution plans with some changes, or just hoping no one will notice that most of these plans don't work like you claim they do?
What about the current debt owed to employees? What do you think should happen to that debt?
One major flaw of defined contribution plans is that the employee assumes all the risks while receiving no benefit for assuming those risks. Great effort is expended (at universities in particular) to avoid discussion of this fact.
These "self directed" plans are often marketed by playing up to the egos of the staff ("Aren't you smarter than those so called "professionals" about managing money?")
Most employees find out that they are not. When investment performance turns out to be sub standard, they wind up with less retirement money. Even then, some won't admit to making a bad choice. But fund providers kept making their fees.
2009 was quite an experience for these employees. They discovered that they were not the savvy investors they thought they were. Many of those who selected these defined contribution or "self managed" plans now wish they hadn't taken them.
I have been told by several individuals that if they had to do it over, they would make a different choice. The defined benefit people are much happier with their outcomes. The returns provided in defined benefit plans turned out to be much better than the self directed plans.
What these university plans did was to shift performance risk from the employer to the employee. Individual investors never do as well as large institutional managers in the market. You are telling us this is better?
Defined contribution plans cost more, pass risk to the employee, and provide lower returns than defined contribution plans. Teachers shouldn't be forced into accepting them.
Your portrayal of pension obligations "the 40 year old promise" is false. Governments make binding commitments for even longer periods of time and are expected to pay them. Ask any bond holder.
Unfunded debt service and tax liability attaches to the property or income taxed, not to a person who as you say "moves away". The obligation and the debt, are current liabilities owed to employees.
Teachingeconomist,
DeleteI don't know what you mean by saying that defined benefit plans at colleges are standard, but in North Carolina, the faculty at public colleges, including community colleges, don't have the plan that they have at New York University. In NC, it takes 5 years to be 100% vested, and if one leaves the system and gets a refund, the refund is only the employee's contributions and interest. The employer's contributions are not refunded. Since so many states have different employee retirement systems, it is not surprising that defined benefit plans vary widely across the nation for various public employees, including college faculty.
https://www.nctreasurer.com/ret/Benefits%20Handbooks/TSERShandbook.pdf
Eric,
DeleteYou linked to the defined benefits plan that faculty may choose. If a UNC Chapel Hill faculty member chooses the optional retirement plan (a defined contribution plan), the employers contribution (6.84% of salary) generally leaves with the faculty member. Here is the section of the HR document that lists the limitations:
You are immediately 100 percent vested in the value of your employee contributions. The value of your employer contributions is 100 percent vested after five years of participation in the ORP. If you terminate employment with less than five years of ORP participation, you will become 100% vested in the ORP employer contribution provided you meet all of the following requirements:
your new employer is a higher education institution that sponsors a substantially similar or “like” retirement plan,
the successor plan offers a “like retirement plan” that is underwritten by one of the four carriers currently underwriting the ORP benefit, and
you begin participation in that successor plan as your “core retirement plan” within 12 months following your termination of eligible service in the plan (usually your termination of employment) with The University of North Carolina.
Here is a link to the UNC Chapel Hill site: http://hr.unc.edu/benefits/benefit-plans/retirement-programs/optional-retirement-program/
NC State's optional retirement plan is the same.
Teachingeconomist,
DeleteMy mistake. I thought the discussion about refunds of contributions was about DB plans.
However, the vesting requirements for the NC Optional Retirement Plan could easily lead to an employee who leaves before 5 years not getting to keep the employer contributions. The requirements are that one fulfill all those conditions that you mentioned. For instance, if an employee leaves for a non-academic job before becoming 100% vested, then the employee loses the employer contributions.
Luckily, there is a way around this. Death. In the plan document, it seems that death before the 5 years are up automatically qualifies one to be fully vested in the University contributions. Cool.
I hedged. I joined the DB and contribute to a supplemental DC. The best of both worlds.
"And some states (lookin' at you, Kansas) have made their funding formulas so obtuse that a completely clear comparison across the years is difficult."
ReplyDeleteYes, in my state, too (Indiana)...and we're still waiting for the $300 million Mitch Daniels cut from schools to be replaced...