The problems with unaffordable, anachronistic teacher pensions have finally started to get the attention they should’ve gotten years ago. Andy Rotherham recently wrote a terrific column laying the issue out, and some of the new Republican governors—most prominently Rick Snyder, the former Gateway executive who was just elected Michigan’s governor—have signaled they’re going to confront pensions head-on. Snyder has flat-out said that he doesn’t think Michigan’s system of public employee compensation is affordable. Newly elected GOP governors John Kasich in Ohio and Scott Walker in Wisconsin have sounded similar notes—making Chris Christie’s no-nonsense stance with New Jersey’s public employee unions look less an oddity and more a template for reform-minded Republicans.
This is an issue I’ve been harping on for a better part of a decade, so I’m delighted to see this growing interest. As Juliet Squire and I explain in “But the Pension Fund Was Just Sitting There...,” an article in the most recent issue of Education Finance and Policy, the gist of the situation can be easily grasped through the lens of an iconic comic strip:
In a memorable "Doonesbury" comic strip from the late 1970s, Garry Trudeau's Raoul Duke, serving as general manager of the Washington Redskins, improbably signed star free agent "Lava Lava" Lenny. When asked how he had pulled off this remarkable feat, Duke insisted he had not spent "a penny more than he's worth! I swear it! Besides, the pension fund was just sitting there!" (Trudeau 1979). In this punch line Trudeau captured the tension at the heart of pension politics--the incentive to focus on the here and now and appease today's claimants at the expense of long term concerns and more dispersed constituencies. Those temptations are rife when it comes to retirement systems in the private and public sectors alike. In the private sector, rules and regulations seek to tame corner cutting and shortsighted behavior, with varying degrees of success. But for public pension funds, including those that cover teachers, the primary safeguard is the self-discipline of public officials and the hope that they will not be unduly tempted by short-term electoral considerations and influential constituencies.
Juliet and I argue that teacher pensions pose two challenges for K-12 schooling. The first is the temptation for irresponsible fiscal stewardship. Pensions are in the business of delayed gratification. Public officials are not, and they often make commitments to employees that outstrip the available funds. The second challenge is that pension arrangements hinder efforts to boost teacher quality by embodying an industrial era model of compensation and benefits that make it tougher to attract educated talent in today’s labor market. While the alignment of the political stars has occasionally helped states and localities address the first challenge, hardly any have demonstrated a willingness to tackle the second.
What to do about all this?
First, understand that pension politics are characterized by four simple truths. Elected officials will always have incentives to emphasize the short term, making it necessary to create institutions that ameliorate that temptation or reward attention to the long term. Reform typically will happen when the broader public is stirred and its electoral might is leveraged to neutralize the familiar advantages of the employee unions. Legislators and governors rarely accept responsibility for poor stewardship or extravagant promises, especially since they are able to blame pension managers for funding shortfalls. Finally, modifying pension systems requires addressing concerns of veterans who will feel cheated, selling the advantages to younger educators, and designing systems that clearly stand to boost teacher quality so as to engage education reformers in the effort.
There are at least three options that pension reformers might pursue to reshape the political context or alter the balance of power. The first is a “starve-the-beast” strategy, which ensures that new dollars are devoted to fulfilling existing obligations, countering the tendency to use any new dollars to expand benefits. Employee unions have consistently and successfully urged legislators to spend any available dollars on new benefits, suggesting a perverse discipline implicit in curtailing available revenues.
Second, reform requires that proponents change the context of the political debate by agitating and mobilizing the public and clarifying the costs of current arrangements. This is extraordinarily difficult to do—especially given that rewards for public officials who step up and take on pension reform are almost nonexistent. The reality is that it typically happens only when a fiscal crisis throws existing policy choices into stark relief.
Third, there are tools and institutional innovations that can better enable public officials to make the kinds of difficult choices needed to reform outdated policies and provide responsible fiscal stewardship. One approach is to craft rules that temper short-term political incentives, such as regulations boosting the autonomy of auditors. Another might entail creating a new body with the authority to police public pensions and to establish guidelines regarding matters like fund balances and anticipated rates of return. Yet another can involve new legislative rules which slow down the granting of benefits and require that legislators reconcile their books more assiduously.
If interested, check out the article, where we work through these issues in more depth and with the assistance of several eye-popping examples.