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Education policy maven Rick Hess of the American Enterprise Institute think tank offers straight talk on matters of policy, politics, research, and reform. Read more from this blog.

Teaching Profession Opinion

The UFT Could’ve Taught Bernie Madoff a Thing or Two

By Rick Hess — October 22, 2010 2 min read
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In my experience, few topics are more assured to provoke yawns (oh, and the ire of NEA and AFT officials) than talk of teacher benefits and underfunded pensions. But they matter. Big time. Mostly because benefits consume scarce dollars that would otherwise go to schools, students, and classrooms. But they also matter because the deals required to address such unaffordable benefits get really bizarre. Take the deal on guaranteed tax-deferred returns that New York City and the UFT struck last year.

In addition to their generous pension, New York City teachers are also eligible for a voluntary tax-deferred annuity retirement program. That plan for many years guaranteed teachers at least an 8.25% rate of return on investments, with the city committed to fully honoring the rate if the market didn’t deliver. For readers who don’t spend a lot of time following the markets, that’s a ridiculously expensive guarantee. Hell, Ponzi schemer Bernie Madoff went to jail because he made promises like that and then couldn’t deliver. Moreover, the S&P 500 Index, for instance, has actually lost value on an annualized basis over the past decade. Thus, the tax-deferred guarantee program costs New York City precious dollars that could otherwise have gone into schools and classrooms. The major difference from Madoff’s scheme is that the UFT can always count on NYC to raid the schools in order to make good on its unaffordable promises.

Last year
, to partially unwind that promise (and to win a UFT agreement to dial the guaranteed return back from 8.25 to “just” 7% in the midst of a brutal, job-killing recession), the UFT insisted that New York City shorten the teacher work year by two days. UFT-represented employees who had been required to report to work and start preparing for the school year on the Thursday before Labor Day would henceforth report instead on the Tuesday after Labor Day. The UFT resolution bragged of “winning back” the two days.

This is how extravagant benefit promises cannibalize schooling. We’re going to see those promises pushing hard on school spending as states struggle with tight budgets and underfunded pensions. It’ll be fascinating to see if the NEA and AFT leaders so eager to declare that they’re just fighting “for the kids” will continue to press for “victories” that reduce instructional time, teacher preparation days, and school budgets as the price for trimming their supersized, industrial-era benefits.

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