Teacher’ Retirement: Don’t Agonize, Advocate for Fiscal Responsibility

Contact your legislator

The legislative session has likely three months remaining, more than enough time to put Vermont state government back on a sustainable fiscal course. Over the next couple of weeks, Campaign for Vermont will send you powerful opportunities that the legislature could choose that achieve sustainability. You may agree with some of these opportunities and disagree with others, but when you agree, contact your legislator and challenge them to take action.

House Members: http://legislature.vermont.gov/people/all/2016/House

Senate Members: http://legislature.vermont.gov/people/all/2016/Senate

Introduction: Keeping the state budget on a sustainable track requires commitment, good ideas and leadership. Here’s what that looked like when the unsustainable spending of the Kunin Administration hit the wall of the 1990-1991 recession.  As Vermont emerged from that recession, both Governors Snelling and Dean committed themselves to sustainable spending.  Snelling raised taxes to protect the most vulnerable through the bottom of the recession but simultaneously demanded that those tax increases sunset once the state was back on an even keel.  Dean stayed true to the course Governor Snelling set, allowing budget growth of just 1.85, then -2.16, then 2.88 percent for fiscal years 1992, 1993, and 1994 respectively. Dean leveraged this constraint to bring necessary reforms in human services and education spending, the same areas driving budget growth today.

Unfortunately, few current state house leaders exhibit much passion for sustainable spending and cost containment. In 2011, they abandoned their own effort, Challenges for Change, which had identified millions in potential cost savings opportunities. Since then, the spending of state dollars has increased at a 5% rate while Vermont’s economy struggles along, growing at just 2 to 3 percent.  The consequence of this imbalance is inevitable, the ever persistent “budget gaps” which the legislature then fills with more and more taxes and fees on Vermonters.

But, there are alternatives to ever increasing taxes and fees. Here’s one that legislators could choose to enact. Campaign for Vermont will offer more suggestions over the coming days.

Retired Teachers’ Pension and Healthcare Benefits: Property Tax Savings Target At Least $89 million; General Fund Savings redirected to reduce unfunded pension liability

Let’s face it, Act 46 is a dud. The people asked for property tax relief but got higher taxes. Frankly, the most hard-lined advocates of the education lobby would find it difficult to craft legislation more to their benefit. Act 46 squeezes school choice districts, centralizes bureaucratic power farther removed from taxpayers and parents, and allows property taxes to rise even more.

Just consider this contrast. This $300,000 consultant study just out on January 28th and paid for by the legislature says Vermont could spend $163.9 million less and still provide a top quality education for our children.  That’s a lot of property tax reduction.

VT EB Analysis 20.1 Executive Summary

Yet, this Joint Fiscal Office projection made on February 9th, just after the recent “tweaks” to Act 46 shows the on-the-ground reality of property taxes under Act 46. They’re going up another $19 million - $10.3 million for homeowners (lines 1, 1a and 1b) and $8.7 million for non-homestead property owners (line 2).

Preliminary Education Fund Outlook - S.233

Apparently oblivious to the above, the legislature is not eager this session to further address structural reforms to Vermont’s education funding system. But, here’s an approach they can enact with substantial benefit for property taxpayers and improved funding for the teachers’ pension fund.

Outside the tangled web of the Education Fund is the Teachers Pension and Retiree Health Benefit system, funded substantially by General Fund contributions. Of the Governor’s proposed $45 million general fund increase for fiscal 2017, he directs $12.3 million or 27 percent to the Teachers’ Pension and Retired Teachers Health Care funds, totaling $101 million - an amount greater than the $83.3 million in general funds he proposes for Vermont’s institutions of higher education (See page 771 and 780).

FY 2017 State of Vermont Executive Budget Recommendation

In effect, the General Fund and not the Education Fund bankrolls the retirement costs for Vermont’s most generous in the nation, less than 10, students to teacher ratio. The opportunity exists to leverage access to the Teachers’ Retirement Fund such that Vermont’s students to teacher ratio is more tax payer friendly, say a ratio of 12, while remaining the best in New England.

It’s important to note that the core cost drivers for teacher retirement benefits are not driven by state decisions, but by the salary and benefit contracts between local school boards and the NEA. While the Governor, legislators and Secretary of Education lament the excessive staffing in Vermont’s schools, they remain silent and paralyzed about the General Fund bankrolling the retirement benefits driven by Vermont’s lowest-in the-nation pupil to teacher ratio of less than 10 to 1. For perspective, recent data from the National Center for Education Statistics (2013) shows the national average students to teacher ratio at 16, Rhode Island at 14, Massachusetts at 13.5, New Hampshire at 12.7, Connecticut at 12.5, and Maine at 12.2. With General Fund budget pressures ranging from higher education to human services, it’s unfortunate that state house leaders won’t resolve these conflicting and costly policy tensions.

Here’s an outline of what the legislature might do: 

  • Establish a ratio of 12 students per teacher as a threshold for school districts to enroll new teachers in the retirement system. Existing teachers would be grandfathered. (Alternatively, a ratio of students to staff could be used upon developing a reliable counting system). Further, establish a threshold of spending per pupil to allow low cost districts more hiring flexibility than high cost districts.
  • Assign teachers (or staff as the case may be) employed at supervisory unions to local school districts similarly to how supervisory union budgets are now assigned to member district budgets.
  • Starting in school year 2018, phase-in the thresholds that inhibit the enrollment of new teachers into the retirement system if the sponsoring school district exceeds both the established pupil to teacher and spending per student thresholds.

The above system would be a powerful spending constraint targeted at the very cause of Vermont’s high education spending and property taxes. Unlike Act 46 which caps every district, leveraging access to the retirement system would target only districts with high staffing levels, leaving the rest alone. As school district’s trend toward lower students to teacher ratios, property taxes will fall. At a ratio of 12:1, over $88 million would be saved in salaries alone and more when including benefits. Further, general fund savings as calculated by the pension fund’s actuary can be used to restore the retirement fund’s fiscal health, now funded at only at 58.6 percent and not a great legacy for the Governor and certainly a red flag to bond rating agencies.

Here are the key Committees that should lead on this opportunity:

House Appropriations: http://legislature.vermont.gov/committee/detail/2016/9

House Ways and Means: http://legislature.vermont.gov/committee/detail/2016/21

Senate Finance: http://legislature.vermont.gov/committee/detail/2016/25

Senate Appropriations: http://legislature.vermont.gov/committee/detail/2016/23

As always we need your support and donations so we can continue our efforts to watchdog and attempt to influence the legislature and to help you to do the same.  A contribution of $50 or $100 dollars would be greatly appreciated and well used. We do recognize that not all of our supporters can afford this so a donation in any amount is valued. Thank you for all of your past support.  Please renew that support with a donation.

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Be Well,

Campaign for Vermont

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