July 22, 2013
by Michael J. Petrilli and Michelle Gininger
The Thomas B. Fordham Institute
Wisconsin governor Scott Walker has been called a lot of things over the past two years; many of these epithets are unprintable in this family-friendly publication. But according to a new Fordham report, he deserves one more: public-education hero.
That’s because his Wisconsin Budget Repair Bill of 2011–better known as Act 10, the endlessly contentious measure that shrank (to wages only) the scope of collective bargaining for Badger State teachers–defused the fiscal time bomb that otherwise would have blown up Milwaukee Public Schools (MPS).
Pre-Act 10, MPS was drowning in the rising waters of its retirement obligations (both pensions and retiree health benefits) to current and former teachers. In 2011, it spent $1,860 per pupil for this purpose, more than a tenth of the district’s budget. But the waters were slated to get far deeper.
According to a new technical study by economist Robert M. Costrell and education-finance expert Larry Maloney, MPS was on track to spend as much as $3,512 per pupil by 2020 on retiree health benefits and pension costs, money that would inevitably impact classrooms and students in unfortunate ways. Put differently, without Act 10, retirement obligations would have doubled from 11.5 percent of total MPS expenditures to 23.5 percent (!) by 2020.
MPS would have faced such agonizing choices as whether to fire a quarter of its teachers or negotiate a 25 percent reduction in their pay. Class sizes would inevitably have grown. Fresh, eager young teachers would inevitably not have been hired.
Thankfully, such a fate has been averted, at least for a while. Act 10 authorized MPS to modify its retiree health program, and the district has availed itself of that opportunity. In November 2011, the Milwaukee Board of School Directors approved a series of important changes, including reduction of the retiree health subsidy (and other measures), that will reduce current expenditures and slow future growth. Instead of rising from $831 per pupil in 2011 to $2,135 by 2020 (an increase of $1,304 per pupil), our report projects a more modest rise of $248 per pupil to $1,079.
Act 10 helped on the pension front, too. The law actually required employees to pay their share into the state retirement plan. (Previously, the teacher union had successfully bargained to have MPS pick up both the employee and employer contributions to the pension plan–meaning current teachers were paying nothing into their own retirement fund.) What’s more, by taking retirement benefits off the bargaining table, MPS could freeze its separate teacher-pension plan (a supplement to the statewide program). As a result, MPS pension costs are now projected to drop $184 per pupil by 2020.
None of this is apt to win votes for Governor Walker, as fixing the unfunded liabilities of public-sector pension and health-care benefit plans is wonky, complicated, and seems faintly harsh. Few teachers will thank Governor Walker for being able to remain in their jobs. But they and the citizens of Wisconsin should do so. So should the parents of children whose teachers won’t be fired.
Will other states follow suit? Or will they and their school systems end up in the financial ruin that Walker forestalled?
This piece was originally posted by the Thomas B. Fordham Institute.