University of Arkansas Office for Education Policy

What’s Driving Teachers’ Strikes

In The View from the OEP on February 20, 2019 at 10:58 am

The op-ed re-posted below was written by new OEP faculty member Josh McGee (@jbmcgee on Twitter) and appeared in Monday’s USA Today. The piece argues that school budgets are being squeezed by large numbers of new staff and rising benefits costs. Paying for all those new people and their increasingly expensive benefits is leaving less money to effectively pay teachers. The re-posted version below includes Arkansas specific data in indented brackets.

Teachers strike for higher pay because administration and benefits take too much money

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In Denver on Feb. 11, 2019. (Photo11: David Zalubowski/AP)

U.S. public schools administrative staff and rising benefits costs are squeezing school budgets nationwide.

Not long after Los Angeles’ teachers have returned to work after a six-day strike last month, more than 5,000 teachers in Colorado’s largest school district went on strike demanding higher pay. The Denver strike was resolved after three days, but it’s likely that this is just the beginning of teacher activism in 2019. Teachers in California, West Virginia and Virginia are gearing up to fight. As the legislative season gets rolling, teacher pay and education funding are hot topics in statehouses across the country.

Given all this it would be easy to believe, as many do, that America’s schools are starved of funding. But that argument doesn’t fully match the data. While there is variation across states, school funding has increased dramatically over the past 40 years.

According to the National Center for Education Statistics, inflation-adjusted per-pupil spending on public education has more than doubled since the 1970s.

[Arkansas’ spending per pupil has grown faster than the national trend over the last 40 years. Inflation adjusted spending per pupil has more than tripled from $3,356 in 1969-70 to $10,310 in 2015-16. However, Arkansas’ per pupil spending is still well below the national average of $12,330]

So why all the unrest? To answer that, we need to take a look at how all that new money has been spent.

The first part of the answer is that U.S. public schools have added large numbers of instructional, administrative and support staff over the past four decades. Student-teacher ratios have decreased from 22 to 1 in 1970 to about 16 to 1 today. And since 2000, the number of public school administrators has increased more than five times faster than student enrollment, a fact that has not gone unnoticed by labor leaders.

[While the NCES doesn’t report data for Arkansas going back to 1970, the state’s student-teacher ratio has decreased slightly from 14.1 in 2000 to 13.7 in 2015. Arkansas’ student-teacher ratio is below the national average likely because of the state’s large number of rural schools.

NCES also does not report a state-level time series for staffing, but in 2015, district administrators and school principals made up 3.3 percent of all Arkansas public school staff, which is slightly below the national average of 3.9 percent.]

In his letter announcing the strike, Denver Classroom Teachers Association President, Henry Roman wrote, “DPS has made its choice to keep critical funding in central administration, and not to apply more of those funds to the classroom where they would provide the greatest benefit for student learning.”

As part of the deal to end the strike in Denver, the district agreed to cut 150 administrative positions and eliminate large administrator bonuses.

Teachers who made up about 60 percent of all public school staff in 1970 now make up less than half, despite there being more than a million more teachers in today’s classrooms. More employees means that the budget pie is divided more times, leaving fewer dollars for each individual teacher’s pay.

[As with other staffing data, the NCES doesn’t report state-level data going back to 1970. However, teachers as percentage of all public school staff has decreased in Arkansas from 50.6 percent in 2000 to 48.6 in 2015.]

Money is going toward paying down debt now

At the same time, rising benefits costs are squeezing school budgets nationwide. While average inflation-adjusted teacher salaries have been relatively stagnant since 1990, benefits costs have risen from 16.8 percent of expenditures in 1990 to 23 percent of today’s much larger expenditure base.

[National average inflation-adjusted teacher salaries decreased by around 2 percent between 1990 and 2017, but in Arkansas they increased by approximately 14 percent. However, Arkansas’ average teacher salary is still about $10,000 below the national average – $48,616 vs $58,950.

Arkansas’ schools spend a lower percentage of their budgets on employee benefits, 19 percent, than the national average.]

More recently, the growth of retirement costs — in particular, payments to cover unfunded benefits earned by teachers for past service — has placed pressure on school budgets. Almost every state increased teachers’ retirement benefits in the booming 1990s. But the additional promises were not accompanied by responsible funding plans. Over-funded at the turn of the millennium, by 2003, teacher pension plans were collectively short by $235 billion. By 2009, pension debt had more than doubled, to $584 billion.

The strong bull market since the Great Recession has not put a dent in the shortfall, which now totals well more than $600 billion. As a result of pension-funding shortfalls, retirement costs per pupil have more than doubled since 2004, from about $530 to more than $1,300 today.

[Arkansas has done a better job than most states managing its teachers’ retirement system (ATRS), and as a result ATRS is better funded and its costs have not risen as much as the average teachers’ plan. For a more thorough discussion of the teacher retirement system’s finances, see our previous blog post here.]

Retirement costs now exceed 10 percent of all education expenditures on average across the country. Unfortunately, the majority of these contributions do not benefit teachers in today’s classrooms because roughly 70 percent of retirement contributions are going to pay down debt rather than for new benefits.

[Retirement costs now make up around 8 percent of Arkansas education expenditures. ATRS is 79 percent funded, and approximately 57 percent of the state’s annual contribution goes to pay down pension debt.]

Growing retirement costs for these legacy-benefit promises pose a challenge for many school districts to maintain their current level of services, much less to hire new teachers and support staff or give high-quality teachers a pay raise.

What protected teachers once is a danger now

Rising benefits costs are a big part of the L.A. school district’s budget woes, limiting funds available to meet the demands of the teachers’ union for more pay and support staff. That helps explain why teachers there settled for little more than was on the bargaining table when they chose to strike.

While the L.A. district has a $1.8 billion budget surplus today, it’s burning through it at an alarming rate, and rising benefits costs are much to blame. By the 2031-32 school year, the district expects to spend more than 50 percent of its budget on health care and pensions.

Even in Texas, considered by many to be a bastion of fiscal conservatism, pension debt has ballooned. The state and school districts now owe the Teacher Retirement System $46.2 billion in benefits that teachers have already earned, a total that is roughly equivalent to all of the state’s other debt combined.

[At the end of the 2018 fiscal year, Arkansas’ total long-term debt payable for bonds, capital leases, and notes was $3.9 billion. The state and its school districts owe ATRS $4.2 billion for benefits that teachers have already earned, a total that is slightly higher than all of the state’s other debt combined.]

To be sure, there is no immediate national “crisis,” insofar as most teacher pension plans are not on the brink of failure. But it’s clear that the rising cost of benefits that were meant to protect teachers is now endangering teacher pay and larger school funding in a way that was never anticipated. Indeed, school districts will likely be seeing red for some time — both at rallies and in their budgets.

Josh B. McGee, a senior fellow at the Manhattan Institute, is a research assistant professor in the Department of Education Reform at the University of Arkansas. Follow him on Twitter: @jbmcgee

Who’s Using Act 173?

In The View from the OEP on February 13, 2019 at 11:30 am

Today we look into who is enrolling in public schools under Act 173, which allows home school and private school students to enroll in their local school district. School districts are reimbursed by the state for one-sixth of the foundation funding amount per course in which the student enrolls (about $1,100 in 2017-18).  The Act was passed two years ago, and permits, but does not require, school districts to participate in the program. So we got to wondering, who is using Act 173 to enroll in public schools? We looked into it, and share our findings below.  You can read more in the associated policy brief.

How many students are enrolling in districts under Act 173?

Using data from 2017-18, the first year in which home school and private school students were eligible to enroll under the Act, we found that only 95 students enrolled in at least one course in their local district under Act 173.  This amounts to 0.02% of the public school population.

Are students who enroll under the Act demographically different from the public school population as a whole?

Figure 1. Demographic Differences Between Act 173 and District Public School Students, 2017-18

Figure1_Act173

We found that a greater proportion of Act 173 students were White and a smaller proportion of them were Black or Hispanic compared to regularly-enrolled district
students. While 86.3% of all Act 173 district students were White, only 55.9% of all regularly-enrolled Arkansas public school students were White. In contrast, only 5.3%
and 3.2% of Act 173 students were Black or Hispanic respectively, while 25.5% and 13.1% of the overall Arkansas public school population reported those racial identities.

Interestingly, Act 173 students were significantly more likely to report having a disability than public school students as a whole. Overall, 35.8% of all Act 173 district students reported having a disability compared to just 13.7% of regularly-enrolled district students, a difference of 22 percentage points. Of the Act 173 students reporting a disability, the vast majority (30/34) reported having a speech or language impairment.

No students identified as Limited English Proficient (LEP) enrolled in district schools through Act 173, compared to 8.5% of regularly-enrolled district students that are
identified as LEP.

Are Act 173 students concentrated in particular grade levels?

Yes!  Act 173 students disproportionately enrolled in high schools. Forty-four students
used Act 173 to enroll in a total of 23 district high schools in the 2017-18 school year. Twenty-five Act 173 students enrolled in either middle school or junior high and 26 used the program to enroll in elementary schools. Middle/junior high students enrolled in 15 different schools, whereas elementary students enrolled in only five schools, with the vast majority (21) enrolling in Baseline Elementary in Little Rock.

Figure 2. Number of Act 173 Schools and Students, by Level, 2017-18

Figure2_Act173

Are certain geographic regions more likely to enroll students under Act 173?

Actually, as a share of the public school population, Act 173 students are fairly equally distributed around the regions of the state. Most Act 173 students enrolled
in schools in either Central Arkansas (34 students,or 35.8% of all Act 173 students) or Northwest Arkansas (31, 32.6%). By district, the greatest number of Act 173 students enrolled in a school in Little Rock (25, 26.3%).  Central and Northwest Arkansas are the
largest education regions by total number of public school students, with
142,932 and 172,634 students, respectively.

Figure 3. Number and Share of Act 173 Students, by Region, 2017-18

Figure3_Act173

What type of districts enroll Act 173 students?

Given that Act 173 benefits districts by allowing them to serve more families in the community while also increasing district resources,we found it interesting that only 35 of Arkansas’s 227 traditional school districts enrolled any students under Act 173 during the 2017-18 school year. According to the latest data available, there are over 24,000 students enrolled in private schools in Arkansas, and over 20,000 students being home schooled in the state. That is over 44,000 students that districts could be serving under Act 173!

District size was an important factor in predicting Act 173 participation. A district with enrollment one standard deviation above the mean (that is, roughly 4,700 students) was approximately three percentage points more likely to have students enrolled using Act 173 relative to a district at mean enrollment. Larger districts are generally in areas with a larger number of private and home schooled students who might benefit from Act 173.  These larger districts also offer more distinct courses that might attract such students.  However, only three of Arkansas’ ten largest school districts (Little Rock, Pulaski, and Fayetteville) reported enrolling any Act 173 students during the 2017-18 school year.

Table 1: Ten Largest School Districts with no Student Enrollment Under Act 173, 2017-18

Table1_Act173

Here at OEP, we think Act 173 is a great opportunity for private and home school students to gain value from attending a public school, and enrolling these students enhances the districts through additional revenue and broader community engagement.

Recommendations!

Although fewer than 100 students enrolled in public schools under Act 173 in the first year, we anticipate increased participation in the years to come, and have some suggestions for things that would increase participation.

1. Promote Act 173 Enrollment. The Act is designed to benefit students, by providing them access to more courses, and districts, by allowing them to serve additional students in their community and receive more resources. However, only a small number of students used the Act to enroll in courses in their zoned district in the first year. The modest initial enrollment in the program could be because families lack awareness of this opportunity, because demand for district courses by home and private schooled students is modest, or because districts have not elected to participate in Act 173.

Education officials in Arkansas should encourage districts to be more proactive in promoting these opportunities to private and home school students living in their   district. They also should encourage districts to announce on their websites if they are or are not seeking to serve more children in their community through Act 173.

2. Highlight Available Resources. Demand for Act 173 enrollment is particularly
strong among students with disabilities. Districts should highlight the resources they have available and the services they offer to support such students.

3. Provide Supplemental Funding. The students with disabilities making use of Act 173 tend to be more resource-intensive to educate than the average district student. As a result, Arkansas education officials should explore ways to provide supplemental funding to districts enrolling such students to offset potential challenges. Changing special education funds so that they are tied to specific students, instead of wrapping general funding into the matrix, is something that we have addressed previously, and we feel it is a more equitable way of providing resources to students who need them the most.

4. Expand Student Choices. Act 173 does not allow students to enroll in a school
outside of the district in which they live. Additional students could benefit from this Act if nearby districts offered more attractive courses and they were able to enroll in them through a combination of Act 173 and the Public School Choice program. Better alignment between those two “consumer choice” initiatives would expand opportunities for students and districts while also providing state officials with a demand-driven measure of district school quality.

 

We look forward to bringing you more information about Act 173 enrollment as the data become available. Stay tuned!

Thoughts on Arkansas’ Teacher Retirement System

In The View from the OEP on February 6, 2019 at 11:38 am

This week, we are pleased to announce that Dr. Josh McGee has joined the team at OEP! McGee’s policy and research expertise will enhance OEP’s capacity to help policy makers and education leaders make evidence-informed decisions to improve Arkansas’ public education system.  Today, Dr. McGee shares his thoughts on Arkansas’ Teacher Retirement System.


Over the past two decades teacher retirement benefits have been a significant topic of conversation in statehouses across the country. For a number of reasons, including longer lifespans and lower than expected investment returns, teachers’ retirement benefits in Arkansas and nationally are turning out to be more expensive than policy makers had expected. School districts and state governments have not been putting aside enough each year to fully cover the cost of the benefits their teachers have earned, and as a result, unfunded liabilities, or pension debt, has grown dramatically, as has the cost of paying down this debt.

EDRE’s own Robert Costrell has an excellent graph illustrating the rising cost of teachers’ pensions. On average in the U.S., the cost of retirement benefits per pupil has grown by nearly two and a half times since 2004 from $530 to $1,312 today. Teacher retirement costs now make up more than 10% of all education expenditures, and because retirement costs have increased faster than education budgets, in many places they are crowding out schools’ ability to increase pay, purchase supplies, adequately maintain buildings, etc. (see reports here and here). In response to rising retirement costs, nearly every state has reduced teachers’ benefits and/or increase their contributions. The majority of state’s and district’s annual contributions, around 70 cents out of every dollar contributed, now goes to pay down pension debt rather than to pay for new benefits earned by today’s teachers.

The good news is that while Arkansas’ teacher retirement system (ATRS) has faced similar challenges as other public pension plans, it is in better financial shape than the average public plan, and as a result, its costs have not grown nearly as steeply. Below are graphs depicting ATRS’s funding and cost per pupil. As presented in Figure 1, at the end of FY2017, the latest year for which data is available, ATRS was 79% funded with a $4.2 billion pension debt, which is better than the national average of 72% funded for public pension plans.  Although the annual employer cost of Arkansas’ teachers’ retirement benefits has risen by $242 per pupil since 2001, Figure 2 illustrates it is still below the national per pupil average in both dollar terms ($822 vs $1,312 per pupil) and as a percentage of education expenditures (7.9% vs 10.7%).

Figure 1: Arkansas Teacher Retirement System Liabilities, Assets, and Debt, 2001-2017.

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Figure 2: Employer Contributions per Pupil, US and Arkansas, 2001-2017 (Projected through 2023). Graph reposted from Robert Costrell’s testimony before the Arkansas Legislature’s Joint Committee on Retirement on September 11, 2018.

Pension 2 

The fact that ATRS has remained in relatively good shape over the past two decades is a testament to the proactive, responsible steps that policymakers working together with ATRS have taken to keep costs in check while also ensuring a meaningful and secure benefit for the state’s teachers. Having that said, there are still significant risks on the horizon which the state would do well to understand and work to mitigate. Below is a brief discussion of three of the biggest challenges facing ATRS.

First, despite a nearly decade-long bull market since the Great Recession, Arkansas has made limited progress in paying down its pension debt. This is at least partially due to the backloaded repayment schedule (a.k.a. amortization), which is based on the expectation that the payments into the plan will grow by 2.75% annually. Because of this backloading, current contributions are not large enough to cover the interest on the pension debt, so under current funding policy, the debt is expected to grow for the next 10 years before finally declining until it is fully paid off in 29 years. This is akin to paying the minimum on a credit card – yes, you will eventually pay it off, but you’ll end up paying a whole lot more than the original amount and will have less financial resilience over a longer period of time. ATRS has acknowledged the value of accelerating the pension debt repayment schedule to avoid negative amortization, and we strongly recommend that the state consider doing so.

Second, public workers are living longer than public pension plans currently expect, and this is especially true of teachers. That’s what the Society of Actuaries (SOA) found as it works to updated mortality tables for public employees (see news article here and SOA report here). While it’s really awesome that teachers are enjoying longer lives, the cost of retirement benefits is going to go up significantly if/when ATRS updates its mortality assumptions in the next few years. The state and ATRS should formally study changes in public employee mortality based on the SOA’s findings and plan experience, and they should aggressively update the plans mortality assumptions to ensure the state has the most accurate picture of future benefits costs.

Third, the state and ATRS are betting on a 7.5% investment return to finance a huge share of teachers’ retirement benefits. While ATRS recently lowered its return assumption, it is still higher than the national average of 7.4% and much higher than their most sophisticated peers like the teachers’ retirement systems in New York City and California both of which have lowered their assumed return to 7%. The assumed return is important because it is the key ingredient used to estimate how much money the state and districts need to set aside today to fully cover the cost of the benefits owed to teachers when they retire. Using a higher expected return means budgetary costs will be lower today; however, it also means making a bigger bet on the market to cover a larger share of benefits costs over time, and as a result, it significantly increases the risk that contributions will need to rise in the future to make up for investment returns that didn’t materialize. Investment returns falling short of expectations was the single largest factor that contributed to the current pension debt, and returns will continue to be a big driver of teachers’ benefits cost. To provide a sense of scale, ATRS estimates that if the assumed return was lowered by 1 percentage point to 6.5%, which is roughly in line with the recommendations of the Society of Actuaries Blue Ribbon Panel on Public Pension Funding (SOA BRP), then the pension debt would increase by more than $2.5 billion or 60 percent. Given we are likely headed into a period of lower investment returns and the next recession is lurking somewhere in the not too distant future, sticking with a high assumed return places future state and school budgets at significant risk, not to mention teachers’ retirements. The state and ATRS should work together to remove some funding risk by developing a plan to lower the assumed return and increase contributions over time, bringing the assumed return in line with the SOA BRP recomendations.

These three risks are not insurmountable, and Arkansas is certainly not anywhere close to a crisis that requires drastic action. It is very important, however, that the state be vigilant, and seek to address potential issues well before they become larger problems. Like any system that relies on the power of compounding (i.e., exponential growth), problems with ATRS’s funding can get out of hand quickly if allowed to fester. This is why stress testing, as proposed in HB1173, and having formal cost-sharing plan developed in advance are so important. Not performing routine stress testing is like driving without headlights – you may survive, but the potential for unexpected disaster is huge. We recommend that the state adopt stress testing requirements for all of its pension plans, including ATRS, so that policymakers better understand the risks they face down the road and can make plans to navigate effectively through them.

In addition, the importance of planning ahead cannot be overstated. Once a pension plan gets into funding trouble, without an established plan address the problem, de facto cost-sharing will ultimately occur through ad-hoc changes that are almost guaranteed to disproportionately affect certain groups of employees (i.e., new teachers or retirees) and/or taxpayers (i.e., future vs. current). In contrast, a formal cost-sharing plan can distribute unexpected cost increases between taxpayers and employees in a predetermined, fair, and transparent manner. We recommend the state work with its pension plans to more clearly define its funding goals (here is an example from Texas) and the steps that would be taken should the plan experience unexpected cost increases. Additionally, we recommend that any future changes to benefits, like COLAs, or contribution rates should only be made in the context of having a clearly defined funding policy and cost-sharing plan. 

About Josh :

Josh

McGee most recently served as the Executive Vice President of Results-Driven Government at the Laura and John Arnold Foundation where he worked on a diverse set of issues ranging from retirement policy to how we address the national opioid epidemic. McGee is a Senior Fellow at the Manhattan Institute and is Chairman of the Texas Pension Review Board. McGee also serves on the boards of several nonprofits including MDRC, EdBuild, and the Equable Institute.