February 24, 2005

Cash and carry  

Carl Nyberg over at Blogging Blagojevich's Blunders critiques the Blagojevich plan (who else's?) to fix some perverse incentives built into the teachers pension fund system. Basically the problem is that the local school boards are giving big raises to teachers right before they retire which ups their pension amount considerably (since the pension is calculated on salaries in the most recent years). The problem is that local school boards don't pay for this, the state does -- it's sort of an unfunded mandate in reverse. From the Trib's editorial:

[T]axpayers should be asking why in the world cash-strapped school boards have been guaranteeing massive pay increases in long-term contracts.
Isn't this obvious? Local school boards are accountable to local constituencies, so naturally they're going to try to get and retain the best teachers they can. This means paying the most, and since they can increase their teachers' pensions dramatically by paying a big raise for only one year, that's what they're going to do. Since the boards only have to pay for the raise (and not the higher pension) out of their own budget, it's a way of leveraging those funds, given the (poorly constructed) constraints they have to work with. This practice is apparently common and accepted enough now that it's written into some teacher's contracts.

Blagojevich's response has been to look for a way to put a limit on those end-of-career pay raises -- basically he wants to impose a 3% limit on these raises, beyond which the local school board would have to pay for the increases. Nyberg thinks this is a unfair:

[B]y kicking the problem back to the school districts G-Rod is creating a situation where the local boards have two choices. They can either cut services to pay for pensions or raise property taxes. And remember they have to do this in the context of having their health care costs rise significantly more than the rate of inflation.

Rod's "fix" is really just shifting the tax burden to the property tax and creating a grunch of crises at the local level.

While I sympathize somewhat with the school boards, the state simply cannot allow this practice to continue, and unless the local school boards are made responsible for the pension costs they incur, what's to stop them from making these commitments again? I can't speak to the specific numbers, but Blagojevich's plan is the right idea -- it puts the budgetary responsibility with the decision makers, eliminating the incentives that led to this situation to begin with.

Now, should there be a grandfather clause that commits the state to paying for the pensions related to raises in contracts already signed? I'm of two minds about this. On the one hand, it seems a little unfair to change the rules and expect the school boards to honor those commitments (which are legally binding) with local tax money. But on the other hand, the property taxes that will have to be paid on these teachers' contracts would actually be paid by the constituents who receive the services. If bigger contracts pay for better teachers, shouldn't the localities that benefit from those better teachers be the ones paying for them?

Carl Nyberg  {February 24, 2005}

To be clear, I think the end of career sweeteners are wrong and should be stopped. However, I don't think it's solution to saddle the local districts with pension obligations they weren't expecting.

That said, if any districts sign any sweetener contracts after the governor has mentioned the possibility they will have to pay for them then they are sorta tempting fate and should be held accountable for their irresponsibility.

paul  {February 24, 2005}

I don't know Carl. The school boards who created these contracts knew what they were doing. First of all they were taking every advantage of state resources to sweeten up these contracts, and to add insult to injury they were probably able to hire the best teachers as a result.

It would be interesting to know which districts went all the way to putting this in a contract.

Carl Nyberg  {February 24, 2005}

I suspect the answer is that all school districts started doing it once they figured it out.

Say the superintendent was greedy and the school board not exceptionally disciplined. IIRC, your high school district (D200) did plenty of this. Does it make sense from a public policy point of view to saddle school districts with obligations they can't meet?

Post a comment

Remember personal