The School Aid Fund Shell Game; The Tanks are Running Dry

As negotiations continue in Lansing over a budget and funding for schools, I have been corresponding with my State Representative, Frank Foster (or at least his staff), about the merits of the House proposal.  Mr. Foster has trumpeted that the House plan adds nearly $292 million dollars for 2013-2014.  While that is only a drop in the bucket which the GOP emptied in 2011, it’s also false.

Since the election of Governor Snyder and the rise to power of radical elements in the House and Senate, school funding, teachers, teacher unions, and public schools have been under constant attack.  It is not hard to make the argument that the actual objectives of these folks fall into two categories:

1)      emasculating the teacher unions which for so long have opposed most Republican candidates and through this emasculation, making it harder for Democrats to be elected in the future, and

2)      redefining our curriculum to satisfy the radical right religious convictions of those who are funding the attacks on unions and public education.

Mr. Foster and the GOP of course would never admit to these two goals, but as we all know, talk is very cheap in Lansing, and it’s the actions of our government which tell us what we really need to know.   Defending these two claims is beyond the scope of this article, and they aren’t really relevant to the ongoing battles over school funding at this point.  The wheels have already been set in motion and all that is left is the messy paperwork to complete the job.

Back in 2011, the K-12 school aid fund had a healthy $650 million surplus and no cuts to foundation grants, which provide the bulk of school funding, were in the offing.  But because Snyder and the GOP were not able to balance the budget while still giving huge tax breaks to corporations, they robbed the school aid fund and essentially balanced the budget on the backs of our students.   Keep in mind this was money already raised and earmarked exclusively for K-12 education.  The transfer of this money created a shortfall in school aid and every school district in the state was forced to make even more cuts to their already thin budgets.

Larger class sizes, less services, fewer supplies, more fees, etc were the fallout from this GOP raid.  At the same time, of course, the state legislature continued to scream about poor testing results and skimmed even more cash from public education by authorizing more charter schools (despite their unproven track record) and the creation of cyber schools which have never been shown to work, but solve two GOP goals: they are cheaper and they don’t involve employing union workers.  Regardless of the outcomes for our students, the GOP keeps squeezing public schools and there’s no end in sight.

But to hear Representative Foster tell it, in 2013, the gracious legislature is offering $292 million back to the schools in new money.  Who wouldn’t support this?  Well, anyone who actually looks at the numbers will see just how “gracious” this move really is.  To fully understand the smoke and mirrors being offered by the GOP, you have to understand how the teacher retirement system works.

Each year, teachers pay a percentage of their income into the pension system.  School systems also pay money into the system based on the overall payroll in the district.  Each year the state tells school districts what percentage of their payroll must be dumped into the pension system to keep it working.   Remember that the Michigan Public School Employees Retirement System (MPSERS) was doing quite well until the stock market crash brought on by failed GOP banking and housing policies made billions of tax dollars go poof!  While no one went to jail for essentially stealing billions from us, MPSERS was put into a very perilous position…there simply wasn’t enough money to pay teachers who had already earned their retirement.

So what did our GOP legislature do?  They raised the amount of money local schools had to pay into the system without regard as to where that extra money would come from.  As the matching percentage climbed over 20%, this spelled disaster for schools.  Since payroll is the largest part of any school district’s budget, increasing the match each year was leading many districts into financial ruin.  Keep in mind that NONE of this was the fault of the local districts, their administrators, or the teacher unions.  ALL of this was the fault of bad investments and banking and housing policies designed by the GOP.

As population decline hit our state over the last 10 years, there’s no doubt that the number of teachers needed should decline as well.  As less teachers are in the system paying in, and more teachers are retiring, the MPSERS system is certain to come under even more stress.  Instead of doing what they can to protect the system, the GOP is accelerating its demise.  There are legitimate constitutional questions as to whether the GOP can even do what it has done to teacher pensions since the state constitution prohibits cuts in public employee pensions.  But the courts will have to sort that out.  Nonetheless in 2012, the GOP signed a death warrant on MPSERS by ensuring that no new hires will pay into the system and only teachers currently employed will attempt to fund not only their own pensions, but also the pensions of already retired teachers.

So while the GOP disguises their tactics as being proactive to save the system, nobody but their PR people believes that to be true (or perhaps naïve, malleable State Reps.)  Think of the MPSERS as a giant tank with input hoses filling it on one end, and output hoses draining it on the other end.   The input hoses might be labeled:

  • Current teachers paying a percentage of their salary into the tank
  • Local school districts paying a percentage of total payroll into the tank
  • Gains made in investments by MPSERS managers

The output hoses might be labeled:

  • Teachers drawing pensions
  • Losses due to poor investments by MPSERS managers

Keep in mind that local school districts are also required to keep their budgets balanced and must pay for all current expenses involved in running the district.  They receive money through foundation grants regulated by the state and/or from local property taxes depending on a number of factors.   So it’s appropriate to think of local school districts as giant tanks with hoses running in and out as well.  Input hoses might be labeled:

  • Foundation grants fixed by the Legislature
  • Property taxes set by the voters
  • Federal grants for special ed, etc.
  • Draws from fund balance

Output hoses might be labeled:

  • Annual operating expenses
  • Contributions to MPSERS set by Legislature
  • Additions to fund balance

So if we start with the LocalSchool District tank, the Legislature controls the foundation grant which is the biggest part of school aid for most districts.   If they turn up the volume on the hose, districts have more money for all the things they must do.   If they turn it down, however, schools have the same obligations to educate children, they just have less money to perform those functions.   The Legislature also controls the output hose dealing with contributions to MPSERS.  Each year they present local schools with a percentage of their payroll that must be sent to the pension system.  Like the input hose, the Legislature controls the flow out of the tank.  The higher the percentage, the more money flows to pensions and is not available for school operations.  Over the last several years the legislature has opened the MPSERS hose to unprecedented levels and schools have been scrambling to find money for other programs.

This is where the smoke and mirrors of the current House proposals are played out.   Representative Foster claims that they are $292 million to the input hose for local schools in the coming year.   While this in no way comes close to $650 million siphoned out of the tank in each of the last two years, it does offer some hope that the local school district tank will have more coming in than going out.

Remember that the output hose for MPSERS is still pretty wide open.  Instead of opening that hose even more, the Legislature decided to close it a bit.   Everything is looking better for local schools.  The input hose is increasing, the output hose is decreasing and the tank has a chance to keep enough water in it to run the schools.

But wait…just before the $292 million gets to the local school tank, the Legislature diverts $272 million to the MPSERS tank.   They claim this is a help to schools.   Keep in mind, the Legislature controls both hoses.   They determine how much schools must pay into MPSERS and they control how much money goes into the schools.  In essence all they have done is add $20 million to the local schools while at the same time claiming they are adding $292 million.

So why would the Legislature do this?  For our answer, let’s go look at the MPSERS tank.  Remember that the Legislature controls how much money local schools must pay into the tank.  They also make rules as to who is allowed to pay into the tank and who is allowed to draw from the tank.  Someone had the brilliant idea that in order to save the retirement system, we ought to close the output hose so that less money is leaving the system.  To do this, starting with new hires in 2012, teachers will no longer be enrolled in the MPSERS system.  Perfect!  At some point in our future, the number of people drawing out of the system will dry up completely.

But here’s the smoke and mirrors.  By cutting off the output hose, the Legislature also closed off the input hose.  Only teachers currently in MPSERS will continue to fund it.  Oh-oh!  So as pre-2012 teachers age and head to retirement, more and more will be drawing out benefits from the tank.   Meanwhile fewer and fewer teachers will be paying in.  The input hose has been choked off and the output hose has been opened full blast.

It’s no wonder the Legislature is beginning to divert money intended to educate children into the MPSERS tank.  The Michigan Constitution protects the retirement benefits of public employees, yet the Legislature has intentionally created a system that is doomed to fail.   Now, as schools are faced with more shortfalls in their annual budgets, what can they do?  Well, they can offer their experienced teachers incentive to retire early.  Teachers at the top of the pay scale can be replaced by new teachers making one-third of the people who they are replacing.  Sounds great!  Except this immediately adds MORE people who will be drawing retirement from the MPSERS tank and they are replaced by ever more teachers who are not paying into the system.   The more teachers who take early retirement, the more pressure is put on the already shaky retirement system.

So before we start patting Representative Foster and the GOP on the back for adding $292 million into the school aid fund, remember that the number is really $20 million and that is truly a drop in the bucket.   We should be asking them to replace the $650 million a year they absconded with starting in 2011.  We should be asking them to stop creating commercial competitors for our public schools which will draw even more students out of the system.  (The input hoses cut again, the output hoses opened even further as more teachers are cut loose.)

But for the GOP to make these changes they will have to abandon their real agenda.  That is, they will have to give up their mission to destroy teacher unions and to infuse our curriculum with radical “Christian” teachings.   It’s hard to imagine that happening without a large assist from the voters in 2014.

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