Monthly Archives: September 2013

Will Pensions Sink the Philadelphia School District?

by Christopher Paslay

Retirement costs in Philadelphia will increase fivefold in the next seven years, growing from $73 million in 2011 to $349 million by 2020. 

There’s a hole in the bucket, dear Liza, dear Liza,


There’s a hole in the bucket, dear Liza, 


There’s a hole.

These lyrics, from a traditional children’s folk song that I first heard as a child on Sesame Street, played through my head this week as I thought about the crisis facing the Philadelphia School District.

We have a hole.  A giant hole.  Not just in terms of cash, but also in terms of resources, staff, and services.  Earlier this year, the District laid-off nearly 3,800 workers.  As reported by the Notebook in June:

The 3,783 figure includes 676 teachers, 307 secretaries, 283 counselors, 127 assistant principals, 1,202 noontime aides, and 769 supportive services assistants, in addition to smaller numbers of workers in other categories. . . . The School Reform Commission adopted a “doomsday” budget . . . that provides a principal and a core group of classroom teachers for each school and nothing else. It has already said it will lay off all counselors, librarians, art and music teachers, secretaries, and support personnel, including noontime aides, in the schools.

Although about a third of the staff was rehired at the end of August, the fact that the District could do so little with so much money is concerning.

Consider these facts: The Philadelphia School District’s budget for the 2008-09 school year was approximately $2.7 billion.  The current budget for the 2013-14 school year is approximately $2.7 billion, although the district may still fall short $100 million plus, depending on the outcome of the negotiations between the School Reform Commission and the Philadelphia Federation of Teachers.

The question here is how was the District able to run at full strength with $2.7 billion just four short years ago, and be in such dire straights now?

The answer may very well rest with retirement costs, which continue to go up at an alarming rate.  According to the Pennsylvania Independent:

Payments to retired teachers and public employees are a growing threat to government budgets everywhere, and it is no different in Philadelphia. A new report from the Thomas Fordham Institute, a conservative education nonprofit, estimates the district’s total retirement costs will balloon from $73 million in 2011 to $349 million by 2020.

On a per-pupil basis, that works out to $900 per pupil in the district for 2011, growing to $2,300 per pupil by 2020.

Robert Costrell, a professor of economics at the University of Arkansas and an author of the report, says that trend is unsustainable.

“We’ve only just begun to see how bad it is going to be,” Costrell said Thursday.

The report examines the pension costs of the Philadelphia School District. Costrell said the financial mess unfolding in Pennsylvania’s largest city is on par with what has been seen recently in Detroit and Chicago. . . .

Because pension costs for public school employees are split between the local and state level in Pennsylvania, the situation in Philadelphia is partially a symptom of the $30 billion unfunded liability in the state’s Public School Employees Retirement System, or PSERS.

Because of that split, the state now picks up about $450 of that $900-per-pupil price tag, but as the costs rise, it will hurt both the district’s and the state’s bottom line.

And when the district spends about $15,000 per pupil — but will soon have to spend $2,000 per pupil on payments to retired district workers — that means fewer dollars are available to cover the actual costs of education.

Lawmakers in Harrisburg must solve the crisis because the state runs the pension system. Little progress has been made toward that goal.

Changes to the pension system approved in 2010 affected only future hires, which does little to affect the pension obligations in the short-term, the report notes.

Since most of the cost growth in the next decade is due to deferred payments of benefits owed to current workers or those who are already retired, changing benefit structure for new employees has little effect, Costrell said.

This news is indeed troubling.  As education advocates continue to fight for more funding for city schools—at both the state and local levels—the looming crisis involving pension funding hangs above it all.  State funds allocated by Gov. Corbett already make-up 50 percent of the Philadelphia School District’s budget—about $1.3 billion annually—and as pension obligations increase, this may very well cut into money earmarked for education.

Something has got to give, and sacrifices will need to be made.  Educators undoubtedly want the best for their students.  At the same time, after contributing 7.5  – 10.3 percent of every check to PSERS (Public School Employees Retirement System), they don’t want to see their pension funds go up in smoke.

Which leads to the following question: Will pension reform take place before the District goes bust?

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Philly Schools Brought Financial Crisis on Themselves

by Christopher Paslay

State auditors have been warning the Philadelphia School District of accounting problems for decades. 

There was a very interesting and informative article published in today’s Inquirer by Eric Boehm of the Pennsylvania Independent:

State auditors warned of financial accountability problems at the Philadelphia School District in periodic audits since at least 1987, foreshadowing some of the issues that underpin the crisis in the district as it opens its doors to students Monday.

The district is running a $300 million deficit this year and was only able to ensure it would open its doors on time thanks to an emergency loan secured by the city of Philadelphia in August. The district is receiving more than $1.3 billion in state and federal aid this year.

But the district has had problems tracking students, accounting for state dollars and keeping accurate finances for much of the past two decades, according to audits conducted by the state auditor general’s office. The auditor general is required to audit all 500 school districts in Pennsylvania at least once every four years.

“The district was unable to provide us with the documentation necessary to verify that it correctly reported its membership and attendance data to the Department of Education,” wrote auditors in the most recent review of the Philadelphia School District, which took place in 2011. “A district’s failure to accurately maintain and report this data calls into question the legitimacy and appropriateness of the bulk of its state taxpayer funding.”

The auditors said they reported similar problems in each of the five previous audits of the Philadelphia School District. It was impossible to determine if the district received appropriate state subsidies for more than decade, they wrote. “These findings are particularly disturbing because in those ten years the district has received approximately $9.1 billion of state of state dollars,” they wrote.

Interestingly, these facts have been ignored by most of the Philadelphia education establishment.  Advocates continue to rally for more money from the state, but this only addresses the short-term symptoms and not the long-term problem.

Boehm’s article continues:

Repeated phone calls and emails to the school district and the state-run School Reform Commission, which was created to address some of the problems in the district, went unreturned over the past week.

But in 2011, in an official response to the state audit, district officials wrote that the district would pursue steps to address the problems identified in the report.

The district said it had new procedures in place to better track student attendance and state spending, beginning in the 2010-11 school year. Officials also tried to downplay the effect of student enrollment on state subsidies, claiming the inaccurate counts affected only 3 percent of state spending in the district.

In a second response, the auditors expressed skepticism that the district would get its fiscal house in order.

“It is imperative for us to emphasize that we have been citing the district since 1987 for inaccurate collection and reporting of child accounting data,” the auditors wrote. “The commonwealth’s taxpayers deserve to know that every dollar is accurately accounted for, and, to that end, no error rate is acceptable.”

Federal auditors encountered some of the same problems.

In 2010, the U.S. Department of Education’s Inspector General recommended that the Philadelphia School District be labeled a “high risk grantee” after a federal audit found the district did not maintain documentation for training and professional development expenditures.

State auditors said that finding highlighted the “pervasiveness of the district’s recordkeeping issues.”

But the district has continued to get more state funding, even while the financial situation at the district has spiraled downward in recent years.

The accountability problems at the school district were compounded by the state’s decision to cut education funding in the 2009-10 and 2010-11 state budgets, using federal stimulus funds to fill the gap. When the stimulus dollars expired in 2011, the state did not increasing funding to make up the difference.

In trying to deal with the funding mess, the school district laid off about 3,800 employees during the summer and closed 24 school buildings at the recommendation of the School Reform Commission, which cited the district’s declining student enrollment for the decision.

“By not taking action now, we would continue the deterioration of our public schools to the point where they become obsolete to the children that we have sworn to serve,” said Pedro Ramos, chairman of the School Reform Commission, in statement at the time.

Enrollment in the district totals about 190,000 this year, but overall enrollment is down 11 percent since 2008 and 29 percent since 2001.

This year, Philadelphia is slated to receive nearly $984 million in basic education subsidies.

That’s a significant increase in only the past few years. As recently as the 2008-09 budget year, the district received $932 million.

The district is counting on the $50 million loan from the city and another $45 million grant from the state to allow it to continue operating through the end of the year.

But the $50 million loan is tied up in a political struggle between the mayor and the city council, while the $45 million state grant also is on hold for now.

Negotiations, meanwhile, continue between the district and its main teachers union, the Philadelphia Federation of Teachers. State officials have said they will not provide additional financial assistance to the school district unless the teachers’ union agrees to about $133 million in concessions.

But things will only get worse, according to two reports that eye the future of the district.

A district report from August 2012 projects a cumulative deficit of $1.1 billion through 2017, and a study of the district’s pension obligations indicates the total cost of retiree payments will climb from $73 million this year to $349 million by 2020.

Tragically, these financial issues go well beyond something as simple as a “fair funding formula.”

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Are Philly Schools Headed the Way of Detroit?

detroit

by Christopher Paslay

It’s going to take more than a “fair state-funding formula” to save Philly schools.  

Tonight at 6:00 pm at the Licacouras Center, the Philadelphia Federation of Teachers will learn important updates on the current contract negotiations with the Philadelphia School District and decide what steps to take next.  PFT President Jerry Jordan has already proposed having teachers pay more for their health benefits, in addition to taking a pay freeze for one year.  The School District, however, wants more.  The School Reform Commission is asking for teachers to take pay cuts up to 13% percent for five years, among other things.

The Obama administration provided $45 million in debt forgiveness to Pennsylvania, and both sides are counting on Governor Corbett, who is holding the money hostage as a way to get the PFT to agree to pay cuts, to eventually release the cash to the School District.

The PFT may agree to pay cuts, or they may not.  Corbett may give the $45 million to Philly schools, or he may not.  In the long run, none of this will keep the Philadelphia School District from collapsing under it’s own weight; tragically, it appears that the PSD is heading the way of Detroit.

Pulitzer Prize winning Washington Post columnist Charles Krauthammer writes:

If there’s an iron rule in economics, it is Stein’s Law (named after Herb, former chairman of the Council of Economic Advisers): “If something cannot go on forever, it will stop.”

Detroit, for example, no longer can go on borrowing, spending, raising taxes and dangerously cutting such essential services as street lighting and police protection. So it stops. It goes bust.

Cause of death?  Corruption, both legal and illegal, plus a classic case of reactionary liberalism in which the governing Democrats — there’s been no Republican mayor in half a century — simply refused to adapt to the straitened economic circumstances that followed the post-World War II auto boom.

Corruption of the criminal sort was legendary. The former mayor currently serving time engaged in a breathtaking range of fraud, extortion and racketeering. And he didn’t act alone. The legal corruption was the cozy symbiosis of Democratic politicians and powerful unions, especially the public-sector unions that gave money to elect the politicians who negotiated their contracts — with wildly unsustainable health and pension benefits.

When our great industrial competitors were digging out from the rubble of World War II, Detroit’s automakers ruled the world. Their imagined sense of inherent superiority bred complacency. Management grew increasingly bureaucratic and inflexible. Unions felt entitled to the extraordinary wages, benefits and work rules they’d bargained for in the fat years. In time, they all found themselves being overtaken by more efficient, more adaptable, more hungry foreign producers.

The market ultimately forced the car companies into reform, restructuring, the occasional bankruptcy and eventual recovery. The city of Detroit, however, lacking market constraints, just kept overspending — $100 million annually since 2008. The city now has about $19 billion in obligations it has no chance of meeting. So much city revenue had to be diverted to creditors and pensioners there was practically nothing left to run the city. Forty percent of the streetlights don’t work, two-thirds of the parks are closed and emergency police response time averages nearly an hour — if it ever comes at all.

Sound familiar?  Here are some similarities between The Philadelphia School District and Detroit:

Corruption

Philadelphia has been governed by Democrats for half a century—there hasn’t been a Republican mayor in over 60 years.  Corruption of the criminal sort has also been legendary.  In 2007 Vince Fumo, a Democrat who represented a South Philadelphia district in the Pennsylvania Senate from 1978 to 2008, was the subject of a Federal grand jury that named Fumo in a 137 count indictment, including the misuse of $1 million of state funds and $1 million from his charity for personal and campaign use; he was found guilty in 2009 of all 137 counts (ironically, Fumo just got out last month and is now living in a West Philly halfway house).

This is a common theme in Philadelphia.  According to NBC 10:

You don’t have to look far to find other Philadelphia politicians who went to prison on corruption charges and came back for a second act.

In fact, there’s a whole vocabulary about it among city pols. They’ll say somebody “had a problem” and went away. Many of the city’s 69 Democratic ward leaders used to call the federal pen at Allenwood “the 70th Ward” – kind of the way celebrities talk about rehab. It could happen to anybody.

The late state Sen. Henry “Buddy” Cianfrani came back after his prison term and worked as a political consultant and powerbroker for many years. Former City Councilman Jimmy Tayoun, always the entrepreneur, started a political newspaper, the Philadelphia Public Record, which is still going and is read by city and state pols everywhere.

Former U.S. Rep. Michael “Ozzie” Myers, who went down in the Abscam scandal, is still influential in South Philly, where his brother Matthew is a ward leader.

As for current fraud, waste, and abuse: From 2008 to 2011, the Ackerman administration spent nearly $10 billion, with little to show for it other than a detailed audit of the PSD’s financial practices by the IRS (and this doesn’t include the usual antics from the usual suspects, such as Chaka Fattah jr., etc.).

Pensions

Although Philadelphia schoolteachers are not paid nearly as well as their suburban counterparts (we face harsher working conditions, have less resources, and spend thousands of dollars of our own money), funding teacher pensions has become a legitimate concern.  Unfortunately, the baby-boomers who were once contributing to the system are now taking from it, and this has called into question the sustainability of the entire system, prompting many of my generation to ask the question: will our pensions be around in 20 years when we retire?

Deteriorating Resources

It is true that Philadelphia public schools are looking eerily like the city of Detroit.  Instead of nonworking streetlights they are nonworking computers and heating units; instead of closed parks there are closed schools; and instead of long response times from police and fire fighters, there are long response times from counselors, school security, and nurses—because they are woefully lacking.

Tax, Borrow, Spend

Like Detroit, Philadelphia continues to borrow, spend, and raise taxes.

As reported in March of 2012 by phillymag.com:

Counting the previous increases in the parking tax, hotel tax, sales tax and property tax, Nutter is on course to raise taxes all five years he has been in office. . . . Nutter is on course for a tax-hiking legacy unmatched since Mayor Rizzo’s fiscal insanity drove the city to the brink of bankruptcy.

In a city that already had one of the highest overall tax burdens in the country, five years of additional tax hikes could take a generation to undo. The result is an even more uncompetitive city.

Last year alone, the city borrowed $300 million to run the schools, and still faces a $1.1 billion budget deficit over the next five years.

Solution?

Tragically, the Philadelphia establishment continues to turn a blind eye to this situation, and continues to blame Governor Corbett, who’s been in office less than three years, for the mess they find themselves in.  Sure, Corbett’s funding formula has put Philadelphia in a pinch financially (although he’s given Philly Schools nearly $1.3 billion in funds this year alone), but fixing this formula is only a small part of stabilizing the PSD as a whole.

What Philadelphia needs is a paradigm shift—a total change in attitude and culture.  At the core of this is the need for everyone—parents, students, teachers, administrators, etc.—to go from passengers to drivers.  We need to stop being victims and start being captains of our own ships.

How do we do this?  Stop being sheep.  Stop groupthink and continuing to vote for the status quo.  Embrace individual achievement over stagnating collectivism.  Parent your children (that means you, fathers).  Pay your property taxes.  Get involved in your children’s educations.  Hold one another accountable.  Meet deadlines.  Speak out against corruption (yes, blow the whistle and snitch!)  Show up for work, on time.  Enforce current policy—gun laws, student discipline, truancy, etc.—before enacting new, unenforceable (dog and pony show) regulations.  Give no more than a second chance to anyone.

Nothing is free.  There is no perpetual motion machine.  Debts and deficits, at the local as well as the federal level, are real and mean something.  The fantasy that there exists some unlimited amount of money out there in limbo that some rich, (perhaps racist), miserly politician or one-percenter is hoarding (and that we need to rally or march to extract) is just that—a fantasy.  As Philadelphians we need to work together and make do for ourselves.  We need to sacrifice, and make do.

A new state-funding formula is just the first step in saving city schools.  If we don’t change our culture, the Philadelphia School District will end up just like the Motor City.

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