It is no secret that America’s 564 state and local public pension plans are in serious trouble, with Joshua Rauh of Stanford’s Hoover Institution putting the cumulative underfunding at $3.4 trillion.
Less widely known is that the shape of a long-term cure for this deficit has already begun to emerge – and with it the unexpected opportunity to finally give parents with children in poorly performing public schools the right to pick an alternative placement. Consider first the underlying pattern of recently negotiated settlements to salvage financially shaky public pensions. Although union officials are reluctant to concede a permanent trend, there has been a consistent willingness on the part of their members to make a self-serving concession: allow new workers to be hired with 401(k) style defined contribution plans, which reduce taxpayers’ long-term pension obligations, in return for giving current and retired workers something close to what they were originally promised.
In 2011, Atlanta Mayor Kasim Reed and his city council negotiated a plan that saved $25 million in annual pension contributions, mostly through reduced pension payments for new hires. A year later, Lexington, KY, municipal officials and union representatives came to a similar agreement that was passed by the city in January of 2013.
One of the best-kept secrets about Detroit’s bankruptcy reorganization is that new hires who retire after 30 years will receive pensions costing 40 percent less in inflation-adjusted dollars than those who retired before the settlement. In total dollars, new workers contribute ten times more to Detroit’s 2013 reorganization than do those grandfathered into defined benefit pensions.
Of course, with today’s low interest rates many pension funds are so far underwater that even denying future workers the same defined benefits enjoyed by their predecessors is not enough to restore plan integrity. As part of their agreement in Lexington, for example, active police officers and firefighters still had to give up one percent of their paychecks and accept lower cost-of-living (COLA) increases. And with many pension trustees making riskier investments to compensate for the low return on bonds, even what has already been contributed cannot be considered “safely in the bank.”
Which is where school choice comes into play.
Widely seen by education reformers as a way to improve K-12 teaching through competition, voucher systems have a second and until now underappreciated advantage: they cost less than traditional public schools. And, if greatly expanded, could free up more than enough savings to cover projected pension deficits without requiring either higher taxes or cuts to non-educational public services.
Consider that more than half a million school children are already enrolled in experimental voucher programs across the US, and several have already been studied to determine their fiscal impact. In 2014 Jeff Spalding of the Friedman Foundation looked at all of the ten largest programs to get the most accurate picture to date of their overall financial benefit.
Spalding’s study went well beyond comparing the face value of a private school voucher to the per pupil cost at nearby public schools. He took into account a number of complicating factors, including the fact that students already in a private or parochial school become eligible for newly established voucher programs, that voucher amounts vary across existing school choice programs, that learning disabled students require special services, and that the sources of public school funding differ from state-to-state.
Even accounting for all these variables, the average annual per pupil savings of voucher programs turns out to be $3,400, a figure that confirms the relative efficiency of school choice. But if we go one step further than Spalding and multiply his calculated savings times America’s 50.4 million schoolchildren, we find that vouchers have the potential to reduce public pension deficits at the rate of $171 billion annually.
That’s a $1 trillion reduction in less than six years.
All this does not mean that public union officials will eagerly embrace the idea of funding member retirements with savings from school choice. But what they have already signaled through their acceptance of 401(k) plans for new hires is that, when pushed to the wall to preserve promised benefits for current and past workers, the structure of public services going forward is negotiable.
Furthermore, it is possible to significantly expand the number of voucher programs in ways that minimize the immediate disruption to most of the nation’s public school teachers – i.e., by taking advantage of the sharp employment fall-off caused by retiring baby boomers and by focusing initially on large cities with the worst performing schools and most distressed pension funds.
For the present, government unions will continue to insist that both their K-12 education monopoly and past pension promises are sacrosanct. But as it becomes clear that reforming the former is the only way to guarantee the later without risking a taxpayer backlash, one of these sacred cows will give way.
And the recent history of union bargaining has already told us which one it will be.
Choosing where to live, based on school quality and cost.
You're starting a new job in the western part of the state. Many factors will determine where you'll decide to live; but the education of your children will be of paramount importance, as will the costs or taxes. THIS SECTION IS COMING SOON...
From EdChoice, Jeff Spalding: an excellent program-by-program breakdown of school voucher costs and savings
From CNBC: What's your share of the underfunding of pensions in your state?
From George Mason University: an excellent overview of underfunded pensions
Sensing impending crisis, Dallas policemen yank money out of pension plans
The must-visit website started by winner of 1976 Nobel Prize for Economic Science, Milton Friedman, and his wife: All about education choice.
several decades ago when states and cities began offering generous pensions and other post-retirement benefits to their employees, usually because public unions had subsidized the campaigns of the politicians who made these promises. Unfortunately, the annual payments required to support these commitments were often not fully funded by city and state budgets – an oversight that was covered up by overly optimistic assumptions of about how far invested pension fund assets could grow.
Only now are citizens beginning to realize that their taxes will have to be dramatically raised to make underfunded public pensions whole.
to provide the K-12 education for their kids that best suits them. The chosen school maybe a public school, a charter school, a private school or a special mission school. Some or all of the tuition is provided by the town or state. In addition to meeting the preferences of the parents, school choice also creates a healthy competition among schools which, in turn improves overall quality.
School choice is a term used to cover a wide variety of programs offering students and their families an alternative to local public school districts, which typically enroll students according to the geographic location of their residence. What all these programs attempt to do is give families greater discretion in spending the per pupil allocation of public funding for the education of their children.
Currently in the United States, the most common school choice program is the scholarship tax credit, which allows an individual or corporation to receive a credit toward state incomes taxes in return for charitable donations made to a non-profit group that, in turn, gives out private school scholarships. A similar type of program – often called a voucher program -- entitles parents to tap the per pupil cost of educating children at the local public school and spend the money instead at private or parochial placement.
Other school choice options include:
> Open enrollment laws, which allow students to cross district lines to attend public schools outside of the district in which they live.
> Charter schools, which are schools funded by local public school districts but which operate independently within them. Such schools are typically exempt many of the state and local statutes which govern the running of conventional districts.
> Magnet schools are public schools that have a specialized focus, such as the performing arts, science and technology, or foreign languages. Unlike charter schools, which are usually open to all children on a randomized or first-come/first-accepted basis, acceptance at a magnet school often requires passing admissions test.
> Education savings accounts operate like a voucher program, but give parents more options in terms of how the public money allocated for a child’s education can be spent. Permissible expenses include not only tuition and fees at a private or parochial school but textbooks, special education services, and tutoring.
> Home schooling is instruction in a child's home, provided by – or at least supervised by – a parent and often with the aid of online resources. Depending on the state, home-schooled children are often given access to public school facilities that are hard to replicate in the home, such as athletic fields and science laboratories.
Universal school choice as national policy exists in a number of countries including Australia, Denmark, the Netherlands, New Zealand, and Sweden.
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