Monday, February 28, 2011

MPSERS Pension in Trouble - Part II (Why The Noise Is NOT About What We Pay Teachers)

In this post I'll attempt to highlight why addressing the problems with Michigan's Public School Employee's Retirement Plan (MPSERS -- or the Pension Plan) is important, why waiting will cost everyone more, and why much of the national agitation about teacher compensation is NOT about base pay.

When rhetoric turns to public employee pay the focus turns to benefits; typically heath care and pension benefits. These two benefit costs have escalated so far, and so fast, that they essentially crowd out the ability to provide nominal salary increases for employees (not counting the 6% per year "step" embedded in many contracts for newer teachers). So while total compensation costs increase dramatically (salary plus benefits), the long term public employee (employed for more than 10 years) does not see the impact of these large compensation increases in their own checking account.

The data below illustrates our own experience. Retirements and the privatization of custodial and transportation operations restrained aggregate salary cost as a budget item. But benefit costs continue to escalate dramatically (expand browser window to see full chart).


Six years ago total benefit costs represented 41% of total salary costs; today benefit costs represent 51% of salary costs. In four years total benefit costs will equal 61% of salary costs. For illustrative purposes the only salary increase projected is the "built in" step and level increase (an average of 3% per year; this is driven by a 6% annual "step" increase for approximately 50% of the employee population) -- the projections do not assume any additional increase in salary.

Our district has been proactive in managing all operating costs. We have privatized custodial and transportation operations; reflected in the years with decreases in total salary costs. We have a cost sharing agreement with staff on health care premiums which is just now slowing the increase in total health care costs. We implemented a one-time-only early retirement program four years ago and we had 50 individuals take advantage of the states early retirement program last year (note: the retirements had the ironic effect of accelerating the pension problem, something I've pointed out in the past). Even with these savings, the unrelenting growth in pension costs will overwhelm these cost savings within the next two years.

A massive demographic shift has occurred that kicks the legs out from under the traditional pension model. There are more and more retirees and fewer and fewer workers to support those retirees. In Michigan, that trend is projected to continue as our population ages.

The pension costs are crippling school operating budgets because they are forced on districts without any corresponding increase to school funding. As school funding is cut the increased pension costs force cuts in programs and staffing. As fewer and fewer students enter the K12 system, the burden of these costs will only escalate. Today's $60 billion unfunded pension liability represents $38,740 for each of Michigan's 1,548,800 K-12 students. That's a hole not even the most ardent tax advocate could hope to plug. Benefits must be adjusted, and the only component open for adjustment is the health care benefit currently attached to the pension plan. Continuing to hope the problem "goes away" will only increase the cost. More money will be allocated to that liability as it grows and there will be less money flowing to the students, teachers, and programs of Michigan's schools.

4 comments:

Kevin said...

Rob, this is (as usual) an excellent analysis presented in a style that is very easy to understand. As we consider areas where the District will be facing pressure to cut expenses, what's the role of technology spending? Like most parents, I support the use of technology in the classroom but its enormous cost makes me wonder whether there are any mechanisms in place to measure whether the expenditures are making a difference in student performance.

Rob Lawrence said...

It’s difficult to measure the ROI of technology invested in the classroom -- but that does not mean we don’t try to quantify performance. The objective is never really focused on the specific technology; rather it’s how technology enhances our ability to engage students in a deeper and more meaningful way. The model is based on the framework detailed on the BPS web site (here: http://birmingham.k12.mi.us/modules/cms/pages.phtml?pageid=222475&sessionid=6e3b5c6855ec38b8e5aa7fb22b847785). In a district like ours, where test scores and performance are consistently strong, our focus is on keeping that level high while bringing up (or closing the gap) of lower performing students.

Alan November has condensed the value of technology by discarding the word itself:
“Let go of the word technology. If you focus on it, then you’ll just do what you’re already doing. The trick in planning as we move forward is to think about information systems, whole systems of the flow of information and communication.”

The best response we get is from teachers that tell us stories about how some of these technologies, when coupled with different teaching/learning techniques, affect students in ways that are new to them. Our key measurement is focused on closing that achievement gap while at the same time moving everyone to higher levels. Technology investment is always focused on assisting in that objective.

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