Earlier this year the Milwaukee Public Schools (MPS) announced plans to freeze salaries and increase employee health care contributions as part of a plan to reduce their $2 billion plus unfunded health care liability substantially over the next thirty years. Just last week, the MPS board voted to stop giving a second pension to new teachers. Both of these changes take effect July 1, 2013.
Why July 1, 2013? That is the day after the current MTEA/MPS contract expires, and the first day the MPS board can invoke Act 10 and stop collectively bargaining anything aside from base wages.
Like other financially harmful policies in the MPS teacher contract, the second pension actually made some sense when it began in 1982. According to MPS, its original purpose “was to offset the [Wisconsin Retirement System] early retirement penalties to incent retirements at a time when there was a surplus of teachers to avoid teacher layoffs.”
In other words, MPS had a surplus of teachers because older teachers were not retiring so as not to lose state pension benefits. Hence, a second pension to offset any loss was created. However, since 1982 the early retirement penalty for teacher has been reduced or eliminated, turning the second pension into an additional benefit which MPS states it had “no intent to establish.”
The survival of the second pension long past its justifiable usefulness is a result of a collective bargaining process that rarely gives back established benefits (see, for example, MTEA’s 2011 rejection of concessions that would have saved teacher jobs). Former MPS superintendent Howard Fuller, school choice advocate George Mitchell, and former WPRI staffer Michael Hartman did a good job documenting in a 2000 book chapter (see figure one) the dramatic growth of the MPS/MTEA contract from an 18 page document in 1965 to a 232 page document in 1997. The most recent published contract? 258 pages.
The moves by the MPS board last week and earlier this year show a willingness to make necessary changes to move the district in a more fiscally sustainable direction. Freezing the second pension for new hires will reduce the district’s overall $133 million unfunded liability for the second pension by $20 million over the next five years. The change will also reduce MPS’ annual contribution to the second pension by $5 million, meaning another $5 million a year will be available to spend on something else, like education.
Despite these moves, MPS’ fiscal picture remains hugely challenging. In thirty years, a billion-dollar unfunded health care liability is still projected to remain. However, collective bargaining reform has enabled MPS to reverse several negative fiscal trends for the first time in years.
Admittedly, the topic of unfunded liabilities and the details of collective bargaining can be eyes-glaze over boring. However, the ability of MPS and other districts to make decisions that shift resources from legacy costs to classrooms can go along way to making public education a more sustainable and more successful institution.