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?