Letter: Malloy’s Proposal that School Districts Share Funding Teacher Pensions Long Overdue

Letter to the editor from Sean Goldrick, received March 7, 2017

Governor Malloy has proposed tough action to close a looming $1.7 billion state budget deficit, a key element of which is a proposal that local school districts begin sharing responsibility for funding teacher pensions.

It’s a reform that is not only necessary, but long overdue.  But in order to understand why, it’s important to understand the unique structure of Connecticut’s government.

Connecticut is one of a tiny handful of states, including Massachusetts and New Jersey, in which the state government shoulders 100% of the responsibility for funding public school teacher pensions.

In most states, local school districts are required to fund teacher pensions, while a couple of states, including California, share the responsibility with local school districts.  Maryland used to fund teacher pensions at the state level, but beginning in 2012, shifted responsibility to the local school districts.

So Governor Malloy’s proposal to require local school districts to begin paying a portion of teacher pensions would begin to bring Connecticut into line with the pension structures of most other states.

Why make the change now?  One critical reason is that funding teacher pensions has become a considerable burden for the state government to shoulder alone.  Until Governor Malloy took office, no governor had fully funded the annual required contribution (“ARC”) for teacher pensions.  Despite that failure, by 2000, buoyed by strong capital market performance during the Clinton years, Connecticut’s teacher pension system’s fundeding stood at a healthy 83% of liabilities.  But failure of the Rowland-Rell administrations to fully provide for pensions combined with the disastrous performance of capital markets under the Bush administration to push the funded ratio below 50%.  Since 2008, total unfunded liabilities have doubled to $13.2 billion, while the required annual contribution to the teachers pension fund has risen two and a half times to $1.3 billion.  The result is that the ARC now comprises 7% of the entire state budget.

Are teachers to blame for the rising cost of funding the pension system?  No.  In fact, according to the report by Boston College’s Center for Retirement Research, Connecticut teachers contribute a higher proportion of their salaries to the normal cost of their pensions than the national average (6% versus 5.6%), while the government’s contribution to normal cost comes to just half the national average.  The increase in the ARC is overwhelmingly the result of underfunding during the Rowland-Rell years and poor investment performance.

Further, Connecticut is one of just sixteen states whose teachers are not permitted to receive Social Security.  Connecticut teachers are also subjected to unfavorable pension requirements, including ten-year vesting, substantially longer than the national average.  The long vesting period means that nearly half of all Connecticut teachers never receive a pension.  So teachers’ retirement benefits are not generous, and those benefits are not to blame for the ill-health of the pension fund.

Governor Malloy has done his best to shore up the pension fund, fully funding the ARC every year during his tenure, while reducing the expected rate of return.  But the looming $1.4 billion annual expense for 2018 needs to be shared with municipalities in order to tackle the state budget deficit caused by sluggish growth in tax receipts.

Governor Malloy’s plan asks school districts to help out by paying 30% of the cost of funding their teachers’ pensions, amounting to just over $400 million.  But the plan is being rolled out in connection with reforms of the educational cost sharing plan, with more funding to be directed to lower-income communities struggling to fund their school systems.  Taken together, 31 economically hard-pressed communities will receive greater overall funding from the state next year.

Were the state’s tax receipts growing faster during this recovery, perhaps Connecticut could maintain the old system of state-level funding for all teacher pensions.  But with a $1.7 billion deficit looming, and a similar deficit the following year, asking municipalities, particularly the wealthiest towns, to shoulder some of the burden that is considered normal in virtually every other state is necessary.

Governor Malloy is tackling the state’s budget deficit in a rational manner.  He’s protecting and supporting school systems that need greater funding by reforming the educational cost sharing system, implementing long-overdue structural funding reforms for public school teachers retirement system, while safeguarding public school teachers’ retirements.

Sean Goldrick served two terms as a Democratic member of the Greenwich Board of Estimate and Taxation.  He lives in Riverside.

 

  • Jodi Weisz

    I agree with Mr. Goldrick’s analysis and with Governor Malloy’s vision here.
    Governor Malloy is spot on when it comes to shifting educational costs to municipalities because the State of CT has the worst achievement gap in the nation and, this makes our state unsustainable and anti-growth and hostile to new citizens moving in. Without Governor Malloy’s forward thinking on this, our state would essentially become a 3-3 exit state, right now for every 3 houses that are being sold, 2 out of 3 of the sellers are moving out of CT. If we do not reform education, partly, in the way that the Governor is doing, the middle class and higher middle class citizens will become the “3” out of 3 and we will not have any net positive legal immigration or transmigration into CT from other states.
    Finally, I call for an investigation into who is in charge of investing the Teachers’ pension fund. The stock market is on a tear, with small caps up, 30%, the teachers’ pension fund should be in the black. What kind of fees and who is managing the teachers’ pension funds. It has nothing to do with who was the Governor at the time.

    The teachers’ pension fund absolutely needs to be shifted back to municipalities.
    CT should be known across the entire nation as having the highest performing Teachers’ pension funds. And, if we are not, then herein lies a serious embarrassment for a State that is home to the best investment advisors in the country, or are we not home to such?
    Give me the Teachers’ pension fund to watch over. I’ll make sure it performs 20% a year and I will not charge any fees.
    Mr. Goldrick you are wrong in suggesting that it matters what party is in the Governor’s Mansion when it comes to the performance of the CT Teachers’ pension.

    URGENT: It is time to pass a bill in Congress to let CT teachers buy-into Social Security retirement benefits.

  • Jodi Weisz

    Local municipalities need to be accountable for these costs for another reason: oversight, or, if a failure of oversight, than localized financial repercussion. Between fiscal 2008 and 2016, the required state contribution for CT Teachers’ pension has nearly DOUBLED from 518.6 million to 1.01 BILLION.
    Sorry to say, (fact is more painful than fiction) but the State’s return on its investment in the two years preceding 2016 (Thomas, J and Phaneuf, K. “Teacher Pension Costs to Surge, Widen Hole in Next State Budget,” CT Mirror, 11/1/2016 accessed on:3/11/17) was–are you ready–
    1.5%.
    Let me state this again, the CT State Teachers’ Pension Board return on investment was 1.5%!
    This is painful for me to write as a citizen of the Nutmeg State. My own quick look back at my Vanguard fund has me at a ROI of 15.7 for these same years.
    This is beyond reprehensible, folks.
    Now, I turn to a recent article in the Greenwich Times, in the article entitled, “Greenwich BOE Grilled About McKersie’s ‘Surprise Raises’ by BET HR Committee,” Emilie Munson writes, “The Board of Education, which employs the superintendent, was not consulted about the raises or informed of them before they were given, several board members said.”

    The Director of Pupil Personnel Services received a whopping 5% raise with no oversight from the Board of Education.
    McKersie reflecting back (seemingly oblivious to massively underfunded Teachers’ Pension system), “I made these decisions with the long-term welfare of the district as a priority, while staying within the immediate budget limits.”
    Immediate budget limits???
    This is double speak or to coin a phrase in vogue right now, alternative facts.

    The fact of the matter is: if municipalities have Boards of Education that do not properly oversee such things as in-the-dark raises and, even, sadly admit to such as they wring their hands, than such fiscally irresponsible oversight needs to come out of local dollars.
    That is yet another reason why Malloy is “right” about shifting the cost of the Teachers’ pensions back to municipalities.
    It is no secret that I am a stark conservative. Here I am championing Malloy because rationalism is the sane and right move no matter what political party is in power.

    Now we need to address this 1.5 Return on Investment.

    Paul Tudor Jones can you please get on this!
    Heck, if you are too busy here’s my memo to the State’s Pension Board…
    Vanguard’s S&P 500 index fund.
    “Thursday, Sherr told the committee the superintendent will have to present salaries greater than town employee targets to the Board of Education for review…”
    It’s not the teachers’ fault folks.
    A teacher managing his or her own retirement would surely get a highter rate of return than 1.5% from 2014-2016.
    I cringe to think what the State Teachers’ Pension return YTD.

    Please don’t tell me its 3% or I might have to run for the Board of Education.

  • Jodi Weisz

    No, we can not afford to raise the salaries of educational administrators 10% in two years, 5% in one year (with no oversight from a local Board of Education), when the Teachers’ Pension Fund is underfunded by more than 10,000,000,000.
    That is 10,000,000.000 BILLION DOLLARS folks.
    Frankly, if I was being told my 177K salary was going to be raised 5%, without any oversight from the citizens, while I knew the Teachers’ Pension Fund was so precariously funded as to inevitably cause a massive increase in taxes on the backs of the children I “served” on the families of the Town I was administrating, I would say, “Thank you, but, I can’t accept this because it is not ethical.”
    The State of Connecticut has the 4th worst unfunded pension liabilities per teacher in America.
    Now, if you were an administrator surely you would know this.
    We can’t afford to have these salaries beefed up in the dark any longer.