legislative wrap-up

Pension study bill may set stage for future PERA debates

Criticism of the state pension system was muted during the 2014 legislative session, but lawmakers quietly passed what potentially could be one of the more significant pension bills in four years.

The future of the Public Employees’ Retirement Association (PERA) is of vital interest to the state’s teachers and school administrators, all of whom are covered by the system and who make up about 65 percent of PERA’s nearly 200,000 members.

It’s also of concern to school districts, which are paying an ever-increasing percentage of their payrolls to PERA.

Senate Bill 14-214 doesn’t make any changes in PERA – it just launches three pension studies. But the results of those reviews could set the stage for legislative decisions starting in 2016.

Public employee pensions have been the focus of growing concern in recent years, especially since the 2008 recession decimated the value of pension fund portfolios. PERA’s liabilities, for instance, are only about 65 percent funded. (Get national background in this brief from the Pew Center on the Pew Charitable Trusts.)

A 2010 law that passed with bipartisan support made important changes to PERA, including less generous age and service requirements for employees hired after the law was passed. The law also allowed reduction of cost of living increases for current retirees, a provision that drew a lawsuit. That case is pending before the Colorado Supreme Court (see story).

The 2010 law didn’t ease concerns about PERA on the part of some Republican lawmakers, who in recent sessions repeatedly proposed bills to change the PERA retirement age, tweak calculation of benefits, convert PERA to a defined contribution system, change the membership of the PERA board and target highly paid retirees (like former governors). None of those measures passed, and only two such bills were introduced this session.

What the 2014 bill would do

SB 14-214 will set in motion three PERA studies, the latter two of which are of particular interest to K-12 employees. The studies would:

  • Provide a more detailed look at the total compensation of state employees, including pension costs
  • Evaluate the costs and effects of switching PERA to a defined contribution system from the current defined benefit system
  • Determine methods for tracking the financial health of PERA at intervals over the next 30 years

Supporters of the bill hope the results of the studies, particularly the second and third ones, will provide information that will calm the ideological and somewhat circular arguments over PERA.

“Having the data to shut down those debates could be useful,” said Sen. Pat Steadman, D-Denver and vice-chair of the Joint Budget Committee. That panel’s six members sponsored SB 14-214.

Steadman said the third part of the study “is going to be the piece that’s the most interesting and that makes a potentially interesting 2016 session.”

The 2010 PERA reform law (Senate Bill 10-001) was designed to make the system fully funded in 30 years, based on a variety of assumptions about investment rate of return, contributions, retirement payouts and many other factors. But the problem has been there’s no way to gauge how the law is working along the way, leading to unproductive “sky is falling” vs. “stay the course” arguments that aren’t based on data.

Henry Sobanet, director Office of State Planning and Budgeting / File photo
Henry Sobanet, director Office of State Planning and Budgeting / File photo

State budget director Henry Sobanet notes that there have been “all kinds of pension questions” ever since the 2010 law that can’t really be answered.

“Take for example this idea of the rate of return,” referring to the predicted return on system investments.

The PERA board has been assuming an average 8 percent return over 30 years, a figure that some, including Republican state Treasurer Walker Stapleton, have criticized as unrealistic by some. The board recently lowered the assumption to 7.5 percent.

The problem, Sobanet notes, is “you really don’t know until 30 years from now” if the rate of return assumption was correct.

“Isn’t it more important to think about what we could do along the way to know if we’re off” in the effort to make the system solvent, he said.

The idea behind the third study is to come up with methods for assessing what’s happening at shorter intervals. “I think what this will do is give us a more explainable insight into whether the [2010] model is working,” Sobanet said. “I think we can do more to show people why we think it’s on track.”

Referring to all three studies, Sobanet added, “I just don’t think it’s productive to have these discussions theoretically. We should have some numbers associated with this.”

PERA a touchy issue

Suggestions for changing the pension system can raise anxieties quickly, as shown by the pending lawsuit and by the passionate testimony from retirees almost every time a PERA bill is heard in a legislative committee.

Given that, Sobanet is careful in discussing the studies, noting that his boss, Gov. John Hickenlooper, “supports PERA, and he also supports defending Senate Bill 1.”

Sobanet continued, “This is a data investigation. We’re not proposing changes to PERA.”

PERA background

The school division is the largest of PERA’s six divisions, with more than 115,000 members. The separate DPS division has about 14,000 members. (The DPS pension system was merged into PERA a few years ago, but the assets and benefits are kept separate.)

The pension system has about $43 billion in net assets, and its liabilities were 63.2 percent funded at the end of 2012. The 2013 PERA financial report is expected to be released in late June. (See 2012 report here.)

School districts contribute a base 10.15 percent of payroll to PERA, plus an additional 6.4 percent in supplemental payments, some of which is money that otherwise would have gone to employees as salary. Employees contribute 8 percent of pay. DPS, which is a separate division, has a variable contribution schedule that can be as high as 20.15 percent.

Those supplemental payments, known by the acronyms SAED and AED, are scheduled to rise to a total of 11 percent by 2018.

funding dance

Indiana to tap reserves to free up $140M for teacher pay, Holcomb promises

PHOTO: Dylan Peers McCoy/Chalkbeat
Governor-Elect Eric Holcomb speaks to Republican supporters at an Election night event.

Indiana plans to free up $140 million over two years for schools with the goal of increasing teacher pay, Republican Gov. Eric Holcomb pledged Tuesday night in his State of the State address.

The state will tap into its $2 billion in reserves to pay down a pension liability for schools, Holcomb said, reducing schools’ expenses so more money could go to educators.

“Just like paying off your mortgage frees up money in your personal budget, this state investment will save all local schools $140 million over the biennium with continued savings thereafter,” Holcomb said.

He said he hoped schools would use the savings to increase teacher salaries. Lawmakers said after the speech that they would look for ways to make sure local districts direct more dollars to teachers.

The freed-up funding would equate to relatively small raises for Indiana’s roughly 70,000 public school teachers. In a bill seeking designated funds for teacher pay, Sen. Eddie Melton, D-Gary, estimated it would cost $315 million to raise educators’ salaries by 5 percent over two years.

The move to find the money to increase teacher pay comes after education leaders raised concerns over not having earmarked dollars. Holcomb previously suggested that schools use their overall funding, proposed to increase by 2 percent each year, for teachers’ salaries. Other Republican lawmakers have also proposed increasing teacher pay by reducing school budgets in other areas.

Still, the $140 million would come from reduced expenses, not a new influx of state dollars. Lawmakers would still have to approve the move.

“Personally, I think it’s a wise use of surplus,” said House Speaker Brian Bosma, R-Indianapolis.

Against a backdrop of an ongoing teacher strike in Los Angeles and large-scale teacher demonstrations in places such as West Virginia, Oklahoma, and Arizona, Indiana has made addressing teacher pay a top priority in this year’s legislative session. Indiana ranks 18th highest in the nation for teachers salaries adjusted for cost of living, according to an analysis of data from the National Center for Education Statistics and Council of Community and Economic Research — leading some to fear teachers will flee to higher-paying states.

But while the issue has easily won bipartisan support and united unlikely allies, it has proved more difficult to find a solution — namely, the money — that satisfies educators and lawmakers on both sides of the aisle.

“It’s too early to pick a number,” Bosma said, though both Republican and Democratic leaders agreed after the speech that the $140 million — while a “creative” approach — wasn’t enough.

“We can do that this year,” said Senate Minority Leader Tim Lanane, D-Anderson. “We can find a way to give an increase in teacher pay this year. We don’t have to kick the can down the road. We don’t have to say, oh, let’s turn it back over to the local school districts and let them find the money.”

But a meaningful solution could take time: Holcomb also announced Tuesday night the formation of a commission to study teacher compensation and search for ways to improve salaries, with the goal of proposing action in 2021. Business leader Michael L. Smith, an investment fund co-founder and retired Anthem executive, will lead the commission.

“Teachers deserve compensation that reflects one of the most honorable, critical and challenging occupations in the state,” tweeted Lawrence Township teacher Tamara Markey, Indiana’s Teacher of the Year, who was among community leaders invited by House Republicans to provide social media commentary on the speech.

Holcomb’s State of the State speech also emphasized workforce development, including preparing high school students for careers. He introduced Mary Roberson, superintendent of Perry Central Community Schools, to tout the district’s partnerships with local manufacturers to give students hands-on training.

“A strong economy depends on a world-class workforce,” Holcomb said. “That workforce depends on a great education. A great education depends on great teachers.”

protest prep

Los Angeles teachers went on strike Monday. Here’s what you need to know.

Teachers, retired teachers and parents show their support for UTLA in front of Venice High School in Venice, Calif., on Jan. 10, 2019. (Photo by Brian van der Brug/Los Angeles Times via Getty Images)

The nation’s second-largest school district will be upended Monday as Los Angeles teachers are set to go on strike.

Teachers and their union say they are fighting for higher pay, lower class sizes, and more support for district schools. The district says it agrees with many of the union’s demands, but can’t pay for them given its fiscal realities.

The United Teachers of Los Angeles rejected a final offer from the district Friday afternoon, which included steeper class size reductions and more nurses and counselors for schools. There was no bargaining over the weekend.

What will happen at Los Angeles schools on Monday?

Schools will remain open — with other staff, emergency substitutes, and parent volunteers supervising kids. Teachers will be outside picketing. Inside, the L.A. Times reports that “schools have been preparing to keep students together in large spaces and use online education when they can.”

Is this a continuation of the #RedForEd wave of teacher protest?

Yes and no. Schools staying open marks one crucial difference from what happened when teachers went on strike in West Virginia last year, closing schools for nearly two weeks. That was the start of a wave of teacher activism focused on school funding and teacher pay, reaching Oklahoma, Kentucky, and Arizona.

The L.A. Times has a helpful look at why this strike is both similar to and different from the ones across the country last year. Unlike in those red states, it notes, California teachers can’t be portrayed as “victims of Republican machinations” because the state government is reliably Democratic:

An us-versus-them construct, however, does not translate readily to California, where unions are among the state’s most powerful special interests.

And L.A. teachers must face off against a district whose leaders echo their union’s demand for increased state and federal funding for schools.

The union leader also is trying to put forward a complex argument on funding. While [UTLA president Alex] Caputo-Pearl argues that the state needs to do much more, he also says that L.A. Unified is hoarding a fortune — and that district leadership is choosing to starve its schools.

What are the union and the district really fighting about?

The L.A. Times broke down the essential disagreement over funding in a separate story this weekend. In short: Although the district currently has a substantial surplus, the district’s analyses, as well as one from L.A. County, suggest it will soon turn into a deficit. The union claims the district is “hoarding” money, while the district says it’s simply being prudent. At the same time, a proposed budget from the state’s new governor, Gavin Newsom, could bring an infusion of new resources. Reporter Howard Blume ends it here:

Beutner says the union’s demands would cost $3 billion. That’s debatable, partly because the union has not responded to the district with specifics on how much smaller it is asking for classes to be. The union’s position, so far, is to demand the elimination of a contract clause that gives the district broad authority over class sizes. …

Everyone wants smaller class sizes — teachers, parents, students. But meaningful class-size reduction is one of the most expensive reforms in education.

What about charter schools?

Unlike in most places that saw teacher strikes last year, Los Angeles is set to see charter schools play a big role in striking teachers’ rhetoric.

The union has gone on the attack against charters, which serve about one in five Los Angeles public school students and are mostly non-unionized. UTLA recently called for stopping any new charters from opening, pinning the district’s financial struggles on their growth.

The union also believes that the district wants to implement a “portfolio model” of managing schools, a controversial idea that often brings about charter school growth and holds district and charter schools accountable for their results in similar ways. (The district says it has no such plans.)

These union–charter battles have deeply shaped the district’s politics. The last set of school board elections were the most expensive in American history, with charter supporters spending nearly $10 million and unions putting in over $5 million.

But the union’s contract demands only briefly touch on charters. Charters, though, are the focus of many district educators’ anger over not having the resources they say they need and, in the unions’ telling, amount to privatization of public education.

Some of L.A.’s charter schools share buildings with district schools, making some confrontation possible on Monday.

The head of the state charter association wrote an open letter to Caputo-Pearl before the strike. “Please be kind to both our District and charter community,” wrote Myrna Castrejón on Friday. “Students, parents, and school staff aren’t crossing picket lines to make political statements.” (The union’s strike guidelines tells members not to “get involved in confrontations or debates,” threaten people who cross the picket line, or block entrances for kids. “It’s okay to make adults wait a little while to get in [to schools], though,” UTLA says.)

As to the substantive debate, each side can point to research backing up one of their key points. Academic analyses from other states, as well as a union-backed report from Los Angeles, show that districts really do lose resources as charters grow, at least in the short term. At the same time, studies show Los Angeles charter students do better on state tests than similar students in district schools.

What does this mean for teacher unions nationwide?

As the strike kicks off, other teachers unions will be paying attention — wearing red in solidarity or watching for cues as they inch toward strikes of their own. In Denver, for one, the teachers union is entering its last week of negotiations. And as CALmatters noted on Jan. 11:

Issues at the forefront of the LAUSD dispute, such as rising pension costs, declining enrollment and the charged debate over charter schools, are also brewing in other school districts across the state.

The looming strike in Los Angeles has made ripples in local unions across California. Teachers in the Oakland Unified School District, for example, are nearing a potential strike and plan to rally Saturday similar to a demonstration UTLA held in downtown Los Angeles in mid-December.

What will the political ramifications of the strike be?

That’s not at all clear, and likely depends on the length of the strike and the public response. But there is a special election around the corner to fill the seventh seat on the closely divided LAUSD board. Expect the strike and its fallout to play a big role in the race.

A few prominent elected officials have also weighed in supporting teachers, including U.S. Senator Bernie Sanders and California Rep. Ro Khanna — though most national Democrats have been silent.

Los Angeles Mayor Eric Garcetti, who is mulling a run for president, has tried to broker an agreement between the two sides, to no avail. A strike would complicate a campaign kickoff.

“Launching a presidential bid while thousands of chanting, sign-toting teachers take to the streets would seem to be a non-starter,” the L.A. Times wrote. “A strike could force Garcetti to push back any presidential announcement, as better-known rivals enter the race, soak up media attention and begin fundraising.”