2018 School Pension Underfunding Expense Enough To Fix The Roads

Decades of officials shortchanging pensions cost taxpayers $2.1 billion last year

By Tom Gantert | June 5, 2019

The state of Michigan incurred $2.1 billion in what amounts to extra interest expenses in 2018 due to past underfunding in its (now closed) defined benefit school pension system.

The amount almost equals the sum Gov. Gretchen Whitmer says is needed to fix Michigan’s roads. Whitmer has proposed a gas tax increase of 45 cents per gallon that would provide for road repairs.

The state-run school pension fund is $32.7 billion short of the amount actuaries say it should have available to meet its promised pension payouts to teachers. The state has assumed that over the coming decades, the pension fund will earn annual returns on its investments of either 6% or 7.05%. But to make up for past underfunding, those same rates must be applied to the shortfall each year, and the resulting amount contributed to the pension fund. (The different rates apply to different classes of pension beneficiaries.)

This is the pension underfunding “interest” expense that must be paid each year, and it comes out of revenue collected from Michigan taxpayers.

Lawmakers have made reforms to the Michigan Public School Employees Retirement System several times over the past 10 years, but the pension debt has grown larger.

The governor has recommended a state budget that would allocate an additional $1.9 billion to road repairs, contingent on lawmakers increasing the gas tax, which is expected to raise another $2.5 billion.

The state-run pension system was fully funded in 1997, which means in that year, the state would not have paid what amounts to expensive interest charges on pension underfunding. That was the only year in the past 45 years, the Mackinac Center for Public Policy has found, that the plan was fully funded.

The pension benefits are paid for by contributions from members — school employees — and by the public school system that employs them. Members contributed $393.1 million in 2018. The employer contributions that year were $2.8 billion, and the pension plan paid out nearly $5 billion in retirement benefits.

State taxpayers have paid a total of $19.5 billion to cover pension underfunding “interest” expenses since 2006.

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.

Anti-Choice State Board Rejects Funds from Top-Rated Grant Application

No defense for vote to refuse federal charter school funds

By Ben DeGrow | June 4, 2019

Michigan’s State Board of Education recently voted to reject federal funding from a grant program aimed at helping low-income students through public charter schools.

On May 14, four of six Democratic members on the State Board of Education put a halt to $47 million in federal funds designed to help public charter schools open and grow. Michigan secured the five-year funding award with the highest-scoring application of any state, but now that money might be off-limits.

A primary objective of the particular U.S. Department of Education grant program is to boost "the number of high-quality charter schools serving at-risk populations." It aims also to provide more diverse academic and grade level offerings. Funds pass from Washington, D.C., through the state education department to schools that meet the program's criteria.

Opponents of accepting the money did not point to the formidable strings that naturally will accompany it. After all, the State Board has not stood up against the far larger amount of federal funds taken in by Michigan schools. Charters serve 10% of the students here and an even larger share of those who are low-income, yet they only take in 6% of the state's federal education dollars. Counting all funds, charter schools receive 20% less per student than conventional districts.

Meanwhile, State Board member Michelle Fecteau said the state should not accept the funds because some past grant money went to charter schools that never opened. Yet the grant competition that Michigan aced includes thorough assurances of state oversight and transparent information reporting. These assurances ought to assuage concerns about how funds are used.

Another point made by opponents isn't grounded in facts at all. Defending her “no” vote, State Board president Casandra Ulbrich complained about the number of new charter schools that have opened in Michigan since 2008. Despite declining student enrollment, she wrote, "Michigan’s public education system continues to expand." However, not only are there fewer schools in 2019 than existed a decade earlier (3,408 vs. 3,690), but the average enrollment size is slightly larger.

There aren't more public schools than a decade ago, but there are more public schools with independent boards and added flexibility — charter schools — which must attract parents to exist. As parents demand new options that boost their hopes for their children's prospects for a quality education, state leaders should welcome their partnership in helping to improve the state's lagging academic performance.

It's fitting to refresh readers with some highlights from the positive track record established by Michigan charters during their 25 years:

Despite representing a disproportionate share of students in poverty, charter school students have closed all or most of the gap with their district peers on the nation's math and reading test.
Receiving substantially less funding per student than its neighboring district, the average charter school is 32% more cost effective in boosting student achievement.
A 2013 report from Stanford University's CREDO, the best available research, found that attending a Michigan charter school resulted in two or more additional months of learning in math and reading.
A 2018 University of Michigan study found that the state's 48 charter schools operated by National Heritage Academies provide significant benefits in math achievement.
The eight open-enrollment Detroit high schools that send the most students on to college are all public charter schools.

Public charter schools remain an important part of Michigan's educational landscape, and a lifeline for many families.

Voting to turn down the grant funds sends the wrong message and could end up depriving students of helpful learning options. The state board should change course and stand up for families, rather than standing in their way.