MacIver Institute: Analysis of New Data Shows MPS on Verge of Bankruptcy

[Madison, Wisc…] An analysis of data provided by Milwaukee Public Schools paints a bleak picture for the financial stability of Wisconsin’s largest school district.

A report issued this week by actuaries at Gabriel Roeder Smith & Company shed light on a $2.398 billion unfunded liability when it came to Other Post-Employment Benefits (OPEB) in Milwaukee Public Schools. These funds, which cover items like health and life insurance, are applicable to thousands of retirees who won’t set foot in the classroom this year, and thousands more candidates who never have.

“Our continued analysis shows that MPS does not suffer from a shortage of taxpayer funding,” said Brett Healy, President of the John K. MacIver Institute for Public Policy. “Rather, the children of Milwaukee are suffering from the politicians’ inability to say ‘no.’”

MacIver’s review of the data found:

  • MPS’s actuarial liability, the unfunded debt created through providing OPEB funds, is growing at an alarming rate as well. From July 2007 to July 2009, this shortfall increased from $2,222.7 million to the current figure we have today – a gain of nearly $175 million in just two years. While retirees are making use of their benefits, the District is failing to cover the bill, instead deferring much of the cost for future payment because of budgetary concerns. While this removes the problem from the spotlight in the short term, it creates a looming cloud of debt that may cripple MPS in the future.
  • However, these benefits, which cost hundreds of millions of dollars annually, don’t exclusively go to teachers. The wide scope of OPEB reaches to spouses, secretaries, mechanics, lunchroom workers, custodians, and even board members – who need just eight years of service to qualify for full benefits. While 12,143 active and retired teachers (and their spouses) claimed benefits, 5,030 of the individuals served by Milwaukee’s OPEB have never taught a class in MPS.
  • At an average annual cost of $10,939.71, these non-educators covered by MPS’s pension benefits added over $55 million to the district’s burden between 2009 and 2010 alone.
  • This obligation comes from a funding disparity that allows OPEB costs to be set aside and accumulate debt, essentially creating a larger burden for future generations to deal with. Employer contributions to this fund have historically fallen way short of annual OPEB costs, covering only 29.8% of the actual price of insuring retirees over the past three years.
  • These obligations, which hover between $175m and $200m annually, present a major burden on educational budgeting, and each year that the full cost is not met shifts a greater expense to be paid at a future date. As a result, approximately $388 million in obligations have added up in the past three years alone.

Click here for MacIver’s analysis.

“The depth and breadth of retirement benefits at MPS is staggering,” said Healy. “To have school board members qualifying for full benefits after just 8 years and over 5,000 individuals in the system who have never taught a single day in their lives yet are in line for a lifetime of health benefits, is astonishing.”

The Governmental Accounting Standards Board (GASB) is the body that sets the accounting standards for state and local governments. In 2004, GASB imposed regulations forcing local governments, including school districts, to provide full transparency of their future health care liabilities. As a result, these units of government were forced to provide accountable reports detailing where and how health care funds were being spent and where the money was coming from to foot the bill. On Tuesday, a committee of the MPS Board received the latest actuarial assessment of their non-pension related obligations.

“The children of Milwaukee deserve better,” said Healy. “To saddle their future with this level of debt is unfair and just plain wrong and if the school board does not make dramatic changes soon to stem the benefit tsunami, MPS will have no other option but to declare bankruptcy.”