The profligacy of legacy costs

By Larry Sand
November 19, 2019

Better pay and working conditions for teachers can be achieved, if only the unions would get out of the way.

We live in striking times. In 2018 there were state-wide teacher work stoppages in West Virginia, Oklahoma, Arizona, et al. And this year, we have seen strikes in Denver, Los Angeles and Chicago. Not surprisingly, the reason for all these disruptive actions has been teacher pay, and to a lesser extent, working conditions. Indeed, in most places, teachers could be paid more and have a better classroom experience with just a few basic tweaks.

According to a recently released report by Daniel DiSalvo, a senior fellow at the Manhattan Institute, the way teachers can earn more money is very simply to get rid of legacy costs – pension plans and other post-employment benefits like very low-cost healthcare. DiSalvo writes, “As these legacy costs have risen, teacher salaries have flatlined or even declined in value.”

DiSalvo’s recommendations are commonsensical, if not original. He suggests moving away from defined-benefit pensions and replacing them with the more commonplace defined contribution plans. Most teachers’ pensions come in the form of a defined benefit plan, (403b), whereby a teacher is guaranteed a monthly pension payment for the rest of her life after retirement. The catch here is that for teachers to receive the benefit, they must stay in the profession for many years and reach a certain age. Much fairer to non-lifer teachers and taxpayers alike is a 401(k) – a defined contribution plan that is very common in the private sector – in which a teacher’s benefit is equal to his own contributions, those of his employer, and whatever earnings the investments accrue. Importantly, DiSalvo notes that states could offer teachers a deal wherein raises in salary are “matched with switching to a defined-contribution plan.” Many young teachers would undoubtedly opt for bigger paychecks in the present, instead of paying for retirement costs, which they could take care of later in their careers, if they decide to stay in the field. DiSalvo also says that states should consider eliminating retiree health-care benefits for newly hired teachers.

Perhaps no state suffers more from legacy costs than California. In a paper published by the Brookings Institution in May, University of Missouri economics professor Cory Koedel writes, “California’s pension debt is harming teachers and students now—and it’s going to get worse.” He explains that the California State Teachers Retirement System’s total unfunded liability is over $100 billion, “which is greater than the total amount of money spent to educate all of California’s public K-12 students for a year ($97.2 billion).”

Citing two recent studies, Koedel states that pension costs and health-benefits expenditures “are bending education finances in California to their will.” Large numbers of school board officials indicate that the rising costs are meaningfully affecting educational services. “For example, many report making cost-saving changes to district budgets that include deferred maintenance, larger class sizes, and fewer enrichment opportunities for students in response to rising pension and health benefit costs.”

In California, no place is more buried in healthcare costs than Los Angeles. My 70 year-old friend Harry began teaching in the district in 1985 and retired in 2009. According to the union contract at the time he entered the field, teachers needed 10 years of consecutive employment, plus age and years-of-service must have totaled at least 80 in order to qualify for retiree health benefits. Harry, who had 24 years in the system, was 61 when he retired and since 24+61=85, he easily qualified for free medical insurance for life. Well, actually, not quite free. When Harry gets his yearly medical exam, he has to fork over a $5 co-pay for the service. When he needed an ultrasound to check on some thyroid nodules, he paid nothing. When one of the nodules showed the potential of becoming malignant, he had a biopsy. Again, no charge. When Harry goes to the local drug store to pick up his monthly supply of blood pressure medicine, he gives a paltry $1.67 to the pharmacist for the pills. A $10,000 top-of-the line pair of hearing aids? Freeee! (For Harry, that is.) And Harry’s wife Minnie, who has never taught, has the exact same coverage.

While the L.A. school district has tightened up its retiree health benefits for teachers a bit over the past ten years, any serious change to state-run pensions and district health benefits in California and most states must come with the blessing of the teachers unions. And that just ain’t gonna happen. With the California Teachers Association’s heft in the California legislature and local union involvement in school board elections, any sensible reforms are just not in the offing. In fact, the teachers unions seem to be blind to the reality that a golden goose can lay only so many eggs. Epitomizing this denial, L.A. teacher and union activist Glenn Sacks attempts to make the case that “Teachers Unions Have the Cure for What Ails America’s Schools” in a Wall Street Journal op-ed. His main point is that teachers are afflicted with “time poverty.” He writes that unlike other white-collar professionals, “we face an enormous burden of clerical and low-level work.”

Sacks’ solutions are the usual ones: smaller class sizes, more support staff, hiring “sufficient staff to eliminate extraneous chores,” etc. Okay, fine, but there is not one word in the piece about where the money will come from to implement his plan. California is already home to the highest taxes in the nation and state debt is in the neighborhood of $1.5 trillion.

Sacks concludes his piece by insisting that “it’s time to implement teachers unions’ solutions.” Perhaps Mr. Sacks is not aware of the fact that the reason that he and other teachers are “time impoverished” is because all the money that could be freed up to “dis-impoverish” them is being sucked up by legacy costs. No, Mr. Sacks, teachers unions do not have the cure for what ails America’s schools. In fact, teachers unions are an integral part of the ailment.

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Larry Sand, a former classroom teacher, is the president of the non-profit California Teachers Empowerment Network – a non-partisan, non-political group dedicated to providing teachers and the general public with reliable and balanced information about professional affiliations and positions on educational issues. The views presented here are strictly his own.

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