No free lunch

Study: Pension system shift could be costly in more ways than one

Converting the current pension plan for teachers and state employees to a defined contribution system could cost up to $15.9 billion over four decades, according to a new study.

And a replacement system likely would be more expensive for the state and school districts to operate if current levels of retiree benefits are maintained, according to the new study by the actuarial firm of Gabriel, Roeder, Smith & Co. It was presented to the Legislative Audit Committee Monday.

The 211-page report, one of three commissioned by a 2014 law, provides the first-ever detailed projections about the cost of converting the Public Employees’ Retirement Association and also gives new details about what it costs government employers to maintain current levels of retiree benefits as compared to other types of retirement plans.

The PERA system is primarily a defined-benefit plan, meaning retirees are paid monthly pensions based on years of work and an average of their three highest-salaried years. (PERA actually is called a “hybrid” plan because it also has a feature that allows people who leave the system before retirement to keep their contributions in PERA, earn interest on those and receive benefits when they do retire.)

Defined contribution plans are similar to 401(k) savings plans in that retirees receive benefits based on what they and their employers deposited into their plans, plus any investment earnings.

The PERA system’s pension obligations currently are only about 62 percent funded. The division that covers about more than 295,000 retired, active and inactive school employees is about 61 percent funded, while another division covering 30,000 Denver Public Schools members is 82 percent funded. Closing those gaps is expected to take 30 to 40 years in some cases.

That gap has sparked years of debate in the legislature, with many Republicans, worried about the unfunded liability, arguing that PERA should be converted to a defined contribution plan.

The problem is that vested PERA members and retirees have a legal right to current benefits so can’t be forced into a new system. “The state cannot eliminate the unfunded liability by moving new hires to an alternative plan, but must develop a plan to address the existing unfunded accrued liability,” the study concluded.

The Gabriel report provided the first estimates that have been made of what it would cost to switch PERA to a type of defined contribution plan. A scenario involving an accelerated pay-down of the unfunded liability from now through 2053 would cost $8.8 billion.

The study estimates it would cost $15.9 billion through 2053 if the pay-down wasn’t accelerated.

Another key aspect of the Gabriel study was a review of what it costs PERA employers to maintain the system’s current average retiree benefit, which provides an estimated 72 percent of preretirement salary for civil servants and teachers who enter the system at age 35 and work for 30 years. (PERA members are not eligible for Social Security.)

“This study found that the current PERA Hybrid Plan is more efficient and uses dollars more effectively than the other types of plans in use today,” the report concluded.

Leslie Thompson, the actuary who was the senior consultant on the project for Gabriel, told the committee, “There was no alternative plan that was as cost-effective at delivering the retirement benefit as PERA. … There is no alternative plan for which you could pay the same cost and get a higher benefit.”

Greg Smith, PERA executive director, said the Gabriel report “allows policymakers to see the efficiency of the plan we have in place. … What we learned from the report today is the most efficient way to address that is within the hybrid defined benefit plan.”

Smith said he believes the Gabriel study also demonstrates the advantages of PERA for employees such as teachers who leave the system after several years but allow their funds to remain within PERA to grow and be taken upon retirement.

“Our plan provides greater retirement security for even the short-term employee,” he said.

Some education reform groups have argued that pension systems like PERA don’t provide adequate incentives for young teachers (see story).

The PERA system was more than 100 percent funded as recently as the turn of the century, but its position has slipped because of legislative expansion of benefits and reduction of contributions early in the century. And stock markets drops in 2001 and 2008 damaged PERA’s investment portfolio.

The legislature raised employer contributions in the mid-2000s, and in 2010 lawmakers passed a comprehensive PERA overall that tightened benefits for new employees and reduced cost-of-living increases for retirees, among other changes.

Despite passage of that law, PERA has remained a popular target for Republican-sponsored bill in recent sessions, none of which have passed. The 2014 law that required the Gabriel study also commissioned a separate study of how to improve tracking of PERA’s financial health at intervals over the coming decades. (See this story for more details on the thinking behind the studies.)

And PERA is scheduled to issue a report at the end of the year on the impact of the 2010 reforms.

All of the studies will give the upcoming legislative session plenty of information to work with, although major pension charges may be unlikely, given that Democrats control the House and Republicans run the Senate and that 2016 is an election year.

Amendment 73

Here’s how some districts would spend their share of a $1.6 billion tax hike for education

PHOTO: Katie Wood/The Denver Post
Teacher Mandy Rees talks to her middle school students at Bruce Randolph School on Wednesday, March 1, 2017.

If Colorado voters this November approve a $1.6 billion tax increase to benefit schools, several metro-area districts are pledging to spend part of their share to boost teacher pay.

Raising teacher salaries is an idea that’s gaining political popularity, fueled by teacher protests around the country and here in Colorado, where education funding is below the national average and several recent studies have found teachers are dramatically underpaid.

School boards in at least 70 of the state’s 178 school districts – including Denver, Aurora, Jeffco, Adams 14, Westminster, and Sheridan – have passed resolutions in support of the statewide tax increase, called Amendment 73. Some have also specified what their districts would spend the money on.

Amendment 73 would raise personal income taxes for residents making more than $150,000 per year. It would also raise the corporate income tax and make adjustments to property taxes. In separate ballot measures, districts across Colorado – including Aurora, Jeffco, and Westminster – are asking voters to raise local taxes to support education, as well.

In addition to teacher pay, all three large metro districts named expanding preschool as a priority if Amendment 73 passes. Aurora listed decreasing student-to-teacher ratios, while Denver listed reducing class sizes. Denver and Jeffco said they’d also spend more on mental health support for students.

Click the links below to read the resolutions in their entirety. We’ve also included bulleted summaries of the spending priorities in Denver, Jeffco, and Aurora.

A Denver teacher gave an evocative example to the school board Thursday of why the district should prioritize support for students’ mental health by hiring more psychologists and social workers, something it has already begun doing with money from local tax increases.

Here is what the teacher, Michelle Garrison, had to say.

There’s all kinds of facts and figures about the types of trauma students go through in their daily lives. … But when I really thought about how to tell this story, I wanted to share with you some things about how this manifests and looks in a school. … Here’s some things that have happened in the past three days.

Three different third-grade girls crying on three different days because one student with severe emotional needs keeps hitting them and pulling their hair.

Five first-graders crying because another student was sprinting around the room grabbing and crumpling everyone’s art project, ruining their work.

One seventh-grade boy who sleeps soundly, drool and all, every day this week and tells me he can’t sleep at night because he’s afraid someone is going to take his little sister.

Attending a meeting in which we were told to offer coloring sheets as our sole intervention for a boy who has been hitting students with blunt objects and jabbing at their throats.

Attending a trauma-informed practice (training) of which the thesis was, “Don’t yell at kids because they might have really messed-up things going on at home.” I’m not really sure what else to do about what they do, though.

The police have been called to our building three times.

Over 20 middle school students running in the halls, sprinting in and out of classrooms, running and sliding on the floor, blaring music over a Bluetooth speaker. It took 15 minutes and five adults to get them back into classrooms.

I could go on. This is half of what I wrote down. I think you get the point.

This is despite a school full of wonderful adults, wonderful administration, and really wonderful students. But this is the reality of what happens.

I was trained as an art teacher. I do not know what to do to help these students.

Click here to read Denver Public Schools’ resolution on Amendment 73. The $1.6 billion in revenue that the tax increase would generate would be divvied up between school districts, and Denver officials said they expect the district’s share will be $150 million each year.

The resolution says the district will prioritize spending the money on:

  • Increasing pay to attract and retain high-quality teachers and staff
  • Better supporting student mental health needs
  • “Targeted funding and strategies to better support student groups with higher needs, including efforts to reduce class sizes”
  • Expanding early childhood education opportunities

The resolution notes that the largest portion of the funds should be spent on teacher pay, though it doesn’t specify a dollar amount or percentage.

Click here to read Aurora Public Schools’ resolution. It says the district will prioritize:

  • Adding school-based instructional supports, reducing student-teacher ratios, and establishing a clear career ladder to recruit and retain high-quality teachers
  • Enhancing preschool by increasing access, expanding quality programming, and increasing compensation for preschool staff
  • Increasing compensation and benefits to maintain a competitive place in the market

Click here to read Jeffco Public Schools’ resolution. In addition to naming priorities, it specifies what percentage of the district’s share of the funding it would spend on each one.

  • 50 percent to attract and retain quality teachers and staff
  • 15 percent to lower class sizes and staffing shortages
  • 10 percent to add mental health support and counseling, and school security
  • 10 percent to expand early childhood education
  • 7.5 percent to expand career and technical options, as well as science, technology, engineering, and math options
  • 7.5 percent to buy classroom learning materials, technology, and supplies, and offset student fees

Click here to read Westminster’s resolution, here to read Adams 14’s resolution, and here to read Sheridan’s resolution.

Westminster and Adams 14 didn’t suggest how the funds should be used. Sheridan included some commitments, but they aren’t very specific. They include spending on strategies to close gaps in test scores between different groups of students, and maintaining “adequate district operational functions.”

The Colorado Association of School Boards is collecting district resolutions, and you can find more of them here.

Colorado voters have twice before rejected statewide tax increases for education. At both the school and municipal level, voters are much more receptive to local tax increases. The Colorado Association of School Boards, which supports Amendment 73, is urging its members around the state to be as specific as possible about how they’ll spend additional funds. An online guide encourages school boards to “engage stakeholders” and “hold public discussions.”

Opponents of the tax increase have criticized the lack of specificity in how new resources will be spent. They say that spending more money doesn’t guarantee students will do better in school.

But Lisa Weil, head of Great Education Colorado, a major backer of Amendment 73, said school districts had to decide on their own how to cut during the Great Recession, and they should get to decide now how to restore the money.

“In 10 and 20 and 30 years of cuts, the legislature has never said how to cut,” Weil said. “They’ve left that to local communities, and local communities have done what they can to keep cuts out of the classroom and keep serving kids. There is no better way to ensure accountability than to put these decisions in the hands of people who are accountable to voters. They know the community, and it’s where advocates have the most opportunity to make a difference.”

Chalkbeat staffers Yesenia Robles and Erica Meltzer contributed to this report.

School Finance

The race is on to convince voters to give more money to Indianapolis Public Schools

PHOTO: Dylan Peers McCoy/Chalkbeat
Lexus Balanzar, a campaign worker for Stand for Children, is making the case for voters to increase funding for Indianapolis Public Schools.

With less than two months until Election Day, the effort to pass two referendums to increase funding for Indianapolis Public Schools is gaining momentum. Almost every day, campaign workers are fanning out across Indianapolis to seek support from voters. And Superintendent Lewis Ferebee is stopping by community meetings across the district to make his case that the district needs taxpayers’ help.

This multi-pronged approach illustrates how high the stakes are for the district, which aims to raise $272 million to prevent an even more dire financial situation.

The district first announced plans to ask voters for nearly $1 billion from taxpayers 10 months ago. Since then, the request was cut down, then the vote was delayed to rally more support. The district ultimately came to a final reduced request, which appears to be more palatable to community leaders and has won the support of the Indy Chamber. There is no organized opposition to the referendums, and a previous critic, the MIBOR Realtor Association, now supports them.

But the district ultimately needs the support of voters in addition to power brokers. The key to a successful referendum campaign is reaching out to both hyper-engaged voters and those who are less tuned in to local issues, said Andrew Downs, an associate professor of political science at Purdue University Fort Wayne.

When Ferebee presented last Tuesday to the Rotary Club of Indianapolis, for example, he was reaching members of the community who will likely tell friends and neighbors about the referendums, said Downs.

“They’re voters who will reach out to other people,” he said. “They are voters who typically have a network that will be activated in this case in support of the referendums.”

During the campaign for the planned May referendums, district leaders were juggling other initiatives that drew attention from the tax measures. But Ferebee is now front and center in the effort to win over voters. In a crowded banquet hall last week, Ferebee made the case for increasing funding to a group of Rotarians who appeared largely sympathetic. His low-key jokes drew friendly laughter. But the core of his argument was that the district needs more money to pay for safety improvements at schools and increase teacher pay.

When teacher pay is low, Ferebee said, the district struggles to retain and recruit teachers. It’s forced to rely on substitutes, and students suffer. “We know that our educators are so impactful in our lives,” he said. “We’ve got to do better with compensating them accordingly.”

The hard-won endorsement of the chamber has also gotten some voters’ attention. Tom Schneider, who works for Alpha Tau Omega National Fraternity, did not closely follow the referendums in the early months of the campaign. But as a chamber member, Schneider has learned more about it recently, and he has become an advocate.

“I’m really glad the chamber and the school district got together, they talked about it, and they figured out something that would work,” said Schneider, who rents downtown.

However, after months of political jockeying over the price tag, both behind closed doors and in the media, some voters have concerns over how much the request has changed and whether the district has shown that it needs the money.

Jefferson Shreve, a Republican on the Indianapolis City-County Council, said that even the reduced request is a significant amount of money.

Shreve was appointed to fill a vacancy on the council just last week, and he said he will continue to learn more about the referendums. But Indianapolis Public Schools leaders need to show how they arrived at the final request and how they will use the money.

“If you’re a citizen, and you’re just trying to keep up with this from the sidelines, the number is jumping around by hundreds of millions of bucks,” said Shreve in a phone interview last week. “That just doesn’t instill a whole lot of confidence.”

Reaching people who aren’t involved in groups like Rotary, such as low-income voters who work hourly wage jobs or busy parents of young children, takes other campaign tactics, said Downs, the political scientist.

The Indianapolis effort will include radio ads and direct mail, organizers say. The campaign is also relying on door-to-door canvassing, which the group Stand for Children Indiana has already begun. On a Friday afternoon in early September, three canvassers from the group traversed a neighborhood near Crown Hill Cemetery, before their day was cut short by torrential rain.

When a campaign worker knocked on Michael Bateman’s door, his Maltese Shih Tzu burst into high pitched barks. Bateman, for his part, was friendly if skeptical as he stood on the porch in the misty rain.

Lexus Balanzar got straight to the point: Would Bateman be willing to increase his own property taxes to raise money for school security and higher pay for teachers? The tax hike would cost just $3 more per month for homes at the district’s median value, she said.

The taxes on his home were already unaffordable, Bateman, an Indianapolis public school parent and alumnus, said with a dry laugh. “But if it’s for the teachers raises — if we can guarantee that they are for the raises, yeah.”

It’s an argument that could have broad appeal. A recent poll from Ipsos/USA Today found that 59 percent of Americans do not believe teachers are paid fairly, and even more say teachers spend too much of their own money on supplies.

Most of the year, Stand works directly with parents by training them to advocate for their children. But when election season comes around, the group takes on another, controversial role. The local branch of a national organization, Stand has been influential in helping elect school board members who favor partnerships with charter school.

Vote Yes for IPS, a political action committee supporting the referendums, is leaning on Stand for canvassing because the group has roots in the community, said Robert Vane, the lead consultant for the PAC. “Quite frankly, it would be political malpractice not to partner with them when appropriate,” he said.

When it comes to the referendums, Stand’s support could prove pivotal to success. In addition to canvassing, Stand donated $100,000 to Vote Yes for IPS. Stand officials declined to say how much the group is spending on canvassing, but the group said that its spending would be included on the Vote Yes for IPS financial disclosures.

The group has about 20 full-time, paid canvassers across Indianapolis, said Joel Williams, the Stand field director. The canvassers will continue door knocking and performing voter outreach until Election Day.

“We work as much as we humanly can,” Williams added.