School District Describes $13 Million Increase in Spending As Budget Cut
Lake Orion K-12 budget goes up, superintendent claims reductions
In her May 25 blog, Lake Orion Public Schools Superintendent Marion Ginopolis said the district made $19 million in reductions since the 1999-2000 school year.
Teachers have not received lucrative step increases for two years and teachers are now paying 10 percent of their health care premiums. Yet, Lake Orion’s expenditures — adjusted for inflation — increased from $65.3 million in 1999-2000 to $78.2 million in 2011-12.
A major factor for the increased spending was the higher costs of the Michigan Public Schools Employees Retirement System (MPSERS). School districts pay a percentage of its total payroll for pension and retirement health care benefits.
Lake Orion’s contribution to MPSERS in 1999-2000 was $3.6 million. At the time, the district paid 11.66 percent of total payroll. By comparison, the district paid $4.4 million in health care costs that same year.
But in 2011-12, the MPSERS contribution rate increased to 24.46 percent and the district had to contribute $9.9 million. The MPSERS cost had almost equaled the district’s $10.3 million health care tab.
"With approximately 82 percent of our budget allocated to personnel, these increases in retirement costs and health care have had a significant impact on our expenses,” Ginopolis said in an email.
Michael Van Beek, the Mackinac Center for Public Policy’s director of education policy, said school districts have known about these expenses.
"Sure, MPSERS rates are determined by the state, but school districts (or at least the associations that represent them), by and large, have never been serious about making the system sustainable,” Van Beek said.
A Mackinac Center for Public Policy study in 2010 found that MPSERS was not likely to be affordable long-term.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.
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House GOP Hides Behind Rigged 'Study'
Michigan House Republicans have declined the invitation extended by the state Senate to close the school employee pension system to new hires, a transformational reform that would gradually eliminate the state’s 50-year pattern of chronic pension underfunding.
Reportedly they have also watered down other Senate-passed reforms, such as one requiring current retirees to pay a little more for their own optional health insurance benefits that successive Legislatures have generously allowed taxpayers to provide.
As part of their cop-out, House Republicans have ordered up a "third-party study" to look at the consequences should they eventually find their way to accepting that one real and permanent reform. Unfortunately, the proposed study is rigged to make that outcome less likely, creating a victory for the state “Pension Industrial Complex” bureaucrats who may well have contributed to the biased procedures it is required to follow.
Specifically, the rigged study requires that the "normal costs" of the school employee pension fund — the amount deemed necessary to prefund future pension benefits earned by current employees in a given year — be compared to the costs of very generous 401(k) plan contributions that are now provided to all state employees hired since 1997.
However, the obvious benchmark is the optional 401(k) system that the House voted on for school employees, a plan with smaller employer obligations. In addition, the employer contribution rates in a defined-contribution system are flexible and legislators can set whatever terms they want.
Even more egregious is the fact that this "study" is also required to ignore the fact that the current pension system has been a lemon, and treats those "normal cost" estimates as if they honestly represent the system’s total costs. They do not. If they did, Michigan taxpayers would not be burdened with a $22.4 billion unfunded pension liability.
An honest study would compare the predictable and controllable costs of a 401(k) system to what really happens when politicized government defined-benefit systems fail to meet their overly optimistic investment assumptions. This failure is the largest reason that Michigan's unsustainable and unaffordable school pension system is so underfunded.
The House GOP's call for a biased study is an extra reward to the entrenched pension bureaucrats who have succeeded (for now) in stalling the only guaranteed real and permanent reform for this system, which is gradually eliminating it.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.
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