The following is my guest editorial that was published in the Detroit Free Press on April 22, 2011. I also created a PowerPoint presentation to further flesh out the details. You can access it here.
Let’s start here as we view the Michigan budget in the context of the Lost Decade: The state-sourced budget contributions to K-12 operations this year are about the same as they were in 2003.
Costs, nevertheless, have increased. From 2004-09, total of all Michigan K-12 schools net operations costs increased by $640 million.
The prevailing narrative would have you believe that health care and reckless spending were the cause. The facts don’t support this.
As general fund budgets tightened, voters approved bonds and sinking funds, allowing capital outlay in operation budgets to decrease by over $800 million.
Total salary costs actually decreased in this period by $66 million.
This means other costs increased by $1.5 billion. So what accounted for that number?
Energy. We’re all paying more for it. Schools are no different. Supplies, mainly energy, accounted for 10% of the increase.
Health care. It’s Gov. Rick Snyder’s bogeyman, but health care only accounted for 17% of the $1.5 billion.
Retirement pension and health care costs, the domain of a pension system state owned, operated and constitutionally protected system, drove far more — 22% of the total.
Purchased services. They cover the remaining 51%: $772 million in just six years, an amount three times greater than health insurance increases.
What could account for such a swing? Simple. Districts avoid ever-rising retirement costs only by shedding salary expense, through downsizing, contracting or outsourcing.
Now can you see why salary costs actually decreased? Districts have outsourced non-core functions aggressively and thereby massively increased the purchased services total.
But try as school boards might, there’s no dodging that legacy retirement bill. The retirement system is funded by a state established straight percentage of salaries. Last year saw 54,268 fewer active employee salaries than in 2004, yet in that same time 26,544 more retirees were added to the retirement rolls. Unfunded liability has reached nearly $12 billion. In response, the state increases the contribution rate.
Before you blame over-accommodating school boards or greedy employees, know that this rate is nonnegotiable by the locals, and it is not subject to local collective bargaining. The rate is 20% of total payroll this year, 24% next year, and it will be 27% the next.
In 2004, Michigan schools spent on average of $1,261 per student for retirement. This year it is $1,691. In two years it will be $2,155 — a 71% increase from 2004.
By 2012 K-12 retirement costs will have increased by $1.38 billion since 2004, attributable to an obligation made by a once wealthier state.
Now, recall that the state’s portion of the K-12 bill is at 2003 levels.
Meanwhile, Gov. Snyder wants schools to operate with $960 million less next year. In response, as schools outsource even more, and perhaps turn to wage rollbacks for teachers, the unfunded liability will get even worse.
Maybe we can acknowledge that employees should contribute 20% of health insurance premiums, but let’s quit pretending that current employee health care is our biggest problem. It’s those legacy costs, over which local districts have virtually no control — a check written in a different time that’s increasingly difficult to cash. We can’t outsource this liability.
If the tough nerd leading these budget reforms wants to live up to his self-proclaimed brand, he might start by recognizing the state’s obligations and then stop blaming everyone but the people who created the system, and get to work fixing it.