Lansing these days is full of
talk from budget experts and tax-hike lobbyists bemoaning a "school finance
crisis," and an "unsustainable, broken school financial model."
"experts" are wrong about Michigan’s "school finance model" being broken. What
is broken is the school management model.
state doles out more than $12.5 billion each year for schools — a minimum of
$6,700 per student — and a great deal of local money finances them, too. The
state School Aid Fund, from which most of this money is distributed, is enjoying
solid revenue growth, projected to be 2.5 percent this year and 3.9 percent next
year. Gov. Jennifer Granholm has proposed using this growth to finance a
per-pupil state aid increase next year.
However, schools will continue to feel an economic pinch. Excessive employee
pension and health care packages now consume some 14.9 percent of school payroll
expenses, according to
recent figures produced by the Citizens Research Council. This portion is
expected to jump to 20 percent of payrolls by the 2007-2008 school year. Were
the state to boost the minimum $6,700 per-pupil grant by $200 in each of the
next few years, the rising costs of providing these generous benefits would
gobble up most or all of the increases.
who complain about a "broken school finance model" talk as if these health and
pension liabilities are an act of God. But they aren’t: They did not descend
upon the public school system like a plague of locusts. Instead, they are the
product of school boards that have been either too cozy with employee unions or
too timid to stand up to tough union bargaining tactics. Michigan’s school
boards have given away the store in contract negotiations over the years, and
union representatives on the other side of the table have happily carted it off.
This is the management model that is broken.
does "given away the store" mean? The "defined benefit" pension
plans that the school unions have fought to preserve are Exhibit A. Under these plans, the
employer periodically pays out benefits in predefined amounts to retired
employees for as long as they live.
much of the private sector, employers have shifted away from these defined benefit plans to "defined contribution" plans, such as 401(k) accounts. With defined contributions plans, regular deposits are placed in a tax-deferred private account that is owned by the employee and that becomes the "nest egg" that funds the worker’s retirement. In return for owning this account and being able to take it from job to job, the employee
forgoes the right to a pension benefit of a predefined size; he or she instead receives the market return on the savings in the account (a very good return over long periods of time). The employer does not assume huge pension liabilities like the ones that are now stressing public schools.
1996, an effort was made to shift new teachers — not teachers already
employed — to a defined contribution system. From the reaction of the school
employee unions, you would have thought that they were about to be drowned.
Tremendous pressure was brought on state legislators, who quickly backed off.
The result is the escalating pension funding "crisis" that schools are now
Exhibit B is school employee health insurance coverage. These aren’t just
Cadillac health plans — they are veritable Rolls-Royces. It is estimated that
schools could save approximately 25 percent on health insurance costs if they
just offered the same coverage given to state employees. This is a startling
amount, given that state employees are not known for suffering under stingy
these bad management decisions have turned public school employee benefits into
a house of cards. Now that this house is looking shaky, the government school
establishment is running back to Papa Taxpayer, hoping that he will pull out his
checkbook without examining how the schools got into these financial straits in
the first place.
of the schools’ apologists are straightforward about their demand for higher
taxes, proposing a 33 percent increase in the 6-mill state school property tax.
Others are more subtle, suggesting a state constitutional amendment that would
require the state to increase school aid funding by 5 percent or the rate of
inflation, whichever is less.
way, taxpayers should hang on to their wallets.
Jack McHugh is a legislative
analyst for the Mackinac Center for Public Policy, a research and educational
institute headquartered in Midland, Mich. Permission to reprint in whole or in
part is hereby granted, provided that the author and the Center are properly