Renewed call for pension reform

Someone watching State Sen. Joe Simitian’s annual education presentation in Palo Alto from an adjoining room last week passed along a comment. “I’m for more money for schools; I support the governor’s tax initiative,” the person wrote, “but I won’t vote for it unless the Legislature passes pension reform.”

How representative is this not-so-silent minority? Gov. Jerry Brown no doubt has been wondering, too, and increasingly calling on lawmakers to pass his 12-point pension reform plan.

“Please take up the issue and do something real,” he told the Legislature in his annual State of the State address. And Brown has come back to the issue repeatedly during speeches and media appearances around the state.

“The numbers just don’t add up,” Brown told the Los Angeles Area Chamber of Commerce. “Benefits, contributions, and the age of retirement don’t reflect today’s realities, putting taxpayers on the hook for huge costs in the future. The cracks are showing and this dam will burst unless the Legislature gets serious and takes urgent and decisive action.”

Simitian, a Palo Alto Democrat who’s one of six legislators on a conference committee charged with coming up with a solution, didn’t offer much assurance. “It’s not clear to me what the Legislature or the conference committee is prepared to do,” he said.

Then, predicting that voters would take the issue into their own hands if lawmakers don’t act, he said, “We’d better find a common sense answer that is fair, affordable, and sustainable or this gets done for us by those not interested in those three (qualities).” Simitian compared pension reform with Proposition 13, in which “the state was slow to act,” and so voters did. It could happen again, with a result that “would not serve us well.”

That probably won’t happen this year. Two initiatives filed by Californians for Pension Reform haven’t attracted big donors. The proposals would go farther than Brown’s 12-point pension reform plan in cutting costs to taxpayers and shifting the burden to public employees. If the initiatives can’t draw enough signatures in the next two months to make the November ballot, some of the pressure will be off the Legislature to act this year. (I followed up with Simitian after the meeting, asking him why the Legislature might not act. See his answer in the accompanying video. )

But reports last week from the California Public Employees Retirement System (CalPERS), the nation’s largest public pension plan, and the California State Teachers Retirement System (CalSTRS), number two behind CalPERS, should serve as a sober warning to legislators not to run from the issue. CalPERS reported a meager 1.1 percent return on investments in 2011, while CalSTRS reported a tad better at 2.3 percent – far below the 7.75 percent rate of return that both pension funds need to meet payouts to retirees. Though CalSTRS had a spectacular fiscal year that ended June 30, its investment portfolio then fell $7.9 billion in the six months ending Dec. 31, to $144.8 billion.

CalSTRS’ 10-year return was 5.4 percent, and, as writer Ed Mendel noted in his latest post in Calpensions, many financial analysts are predicting another decade of low returns. A failure to make the rate of return will add to both pension systems’ unfunded liability, which is the taxpayers’ burden.  For CalSTRS, currently only 71 percent funded, the unfunded liability is $56 billion. Lowering the expected rate of return in line with what experts are predicting would immediately result in higher contributions from the state and school districts, in the case of CalSTRS. Either way, districts and the state face laying out billions more per year in coming decades to keep CalSTRS solvent – money that will be diverted from the classroom. On Thursday, the CalSTRS board will consider a staff recommendation to drop the investment forecast 1/4 percent, to 7.5 percent; the impact would raise contributions by the state and districts by $500 million per year.

Higher retirement age, lower benefits

Brown’s plan would significantly decrease benefits for new public employees, and lower the risk for governments, by raising the retirement age from as early as 55 to 67 for all new public employees except safety workers. It would cap the amount of salary qualifying for a defined benefit, affecting mostly higher paid administrators in the case of CalSTRS, and it would end spiking, the practice of raising salaries and benefits in the last few years to jack up an employee’s pension.

In the biggest change, it would replace  a significant portion of a defined benefit plan for new employees with a defined contribution plan similar to a 401(k). At the last hearing of the conference committee this month, CalSTRS’ deputy chief executive officer, Ed Derman, offered a variation of the defined contribution plan that would offer security to employees, while reducing costs and risk for employers. Under a “cash balance plan,” workers would contribute a portion of their earnings, matched by the employer. CalSTRS, not the individual, would manage the investment, and would guarantee only the rate of return equal to a long-term Treasury note, plus the principal. If the rate of return by the time of retirement turns out to be greater, the employee wins. CalSTRS already offers this option as a retirement supplement to members.

A cash balance plan may be more palatable to employees than a straight 401(k), but unions are expected to resist the higher retirement age and switch to a defined benefit program. And this is an election year, when Brown is counting on union support to underwrite the campaign for his tax increase. So far, the conference committee has gotten little done, and three months after introducing his 12-point plan, Brown has yet to flesh out details. That’s expected to come this month.

Compounding the challenge, two-thirds of the Legislature must approve putting an initiative before voters, because it will amend the state Constitution. And, as Simitian noted in the video clip, five out of six members of the conference committee must agree on a package to present to the Legislature.

That’s a tall order for any proposal, and this one will require bipartisan support. Will voters withhold their support for a  tax increase for failure of action on  pension reform? Legislators may not want to put that question to a test.

Pension reform’s impact on teachers

Under Gov. Jerry Brown’s plan to rein in pension costs, future teachers would work years longer before they could retire with smaller pensions. Current teachers and administrators would soon pay about 1 percent more out of their paychecks toward their retirement. And both current and future educators would be unable to retire, then turn around and return to the classroom full time.

Brown’s pension reforms would uniformly apply to all public employees, state and local, municipal and school. They would significantly decrease benefits, especially for new workers, and lower the risk for governments, by raising the retirement age from as early as 55 to 67 for all new non-safety employees, and by replacing a significant portion of a defined benefit plan with a defined contribution plan similar to a 401(k).

“This is a decisive step forward,” Brown said at a press conference. “The plan will make the pension system more sustainable and fair to taxpayers and the employee.”

Brown’s plan would reduce the state’s pension costs by billions of dollars over the next 30 years. What it would not do, because it applies primarily to new workers, is solve the current huge unfunded liability facing most pension plans. That  includes CalSTRS, the nation’s largest pension fund for educators, which is currently only 71 percent funded and could run out of money in 30 years unless the state pays in hundreds of millions of dollars more per year. Nothing in the plan would address the unfunded liability issue, and Brown indicated he doesn’t intend to do so next year.

Here’s how Brown’s 12-point plan would appear specifically to affect to CalSTRS members. The governor has presented only an outline; details aren’t clear on a lot of important aspects, such as terms of early retirement. Brown also indicated he favors a cap on defined benefits, affecting higher-paid administrators and superintendents, though he didn’t specify what the level would be.

  • A shift to splitting the contributions of annual normal pension costs between educators and the state/school districts. Current teachers pay 8 percent of their pay toward retirement; districts pay 8.25 percent, and the state 2.017 percent. That adds up to 18.25 percent. (The state pays another 2.5 percent into a cost-of-living fund.) But the key word is normal costs, says Ed Derman, CalSTRS Deputy Chief Executive Officer for Plan Design. That means ­the annual contributions needed to meet actuaries’ assumptions of pension payouts and revenues not funded by investment returns. That, he says, is currently 17.7 percent. A split of that would be 8.85 percent, so CalSTRS members can expect to pay about 1 percentage point more of their pay, phased in. (Update: School employees who pay into CalPERS– non-classified workers like custodians and secretaries – would be affected more, Sheila Vickers, Vice President of School Services of California, reminds me. They current pay 7 percent of their pay to retirement, while the district contributes 13 percent. Under the 50-50 split, which would be phased in, districts would save money, while employees would pay more.)

However, if the CalSTRS board lowers its expected rate of return on investments, now 7.75 percent, as critics have called for, the contribution rate would increase. Again, this doesn’t take into account the additional payments needed to meet a $56 billion unfunded liability. Based on court decisions, that would be entirely the state’s burden and could raise the state’s contribution by 14 percentage points to 32.25 percent of payroll – a whopping extra burden on taxpayers.

  • A new hybrid plan for new teachers that introduces a defined contribution component. Because CalSTRS members do not pay into or receive Social Security, the defined benefit plan would cover two-thirds of the pension benefit and the defined contribution would cover a third. The target pension that teachers/administrators would receive would be 75 percent of their salaries after 35 years of work (with a cap for some higher-paying jobs). That would be less than currently received under CalSTRS. Teachers who retire at age 64 with 35 years in now can retire with 84 percent of final pay, with an additional 2.4 percent for every year beyond that.
  • A higher retirement age for new teachers. Saying, “We have to align retirement ages with actual working years and life expectancy,” Brown’s plan would raise the retirement age to 67, the current age for full benefits under Social Security. Currently, teachers who retire at age 60 after working 35 years  receive 70 percent of full salary (2 percent times 35 years). Under Brown’s  plan, they could not draw full retirement for another seven years, saving the system $364,000 for a teacher who made $70,000 a year.
  • Anti-spiking protections for new employees. To avoid perks thrown in during the final year to boost pensions, pensions would be based on the average of an employee’s final three years. Bonuses, unused vacation, and sick pay would no longer count toward compensation.
  • No more double dipping. Raising the retirement age will discourage a revolving door of having public employees, including teachers and superintendents, retiring one day and returning the next in a new full-time job. Brown would restrict retirees on public pensions to working 960 hours or 120 days per year for a public employer – about two-thirds of a school year.
  • Bans on retroactive pension increases and the purchase of additional retirement service credit for time not actually worked., known as “airtime.” Districts had offered this as a way of encouraging early retirement.

Hurdles, resistance in Legislature

Brown wants to put the uniform changes on the November 2012 ballot as a constitutional amendment. That would require a two-thirds vote of the Legislature – a formidable hurdle, given expected union opposition to the biggest changes, like raising the retirement age, and to circumventing negotiations via the ballot.

“We simply cannot stand for imposing additional retirement rollbacks on millions of workers without bargaining,” Dave Low, representing a coalition of public employee unions, said. The California Teachers Association, still examining the plan, didn’t issue a statement Thursday.

But Sen. Joe Simitian, D-Palo Alto, one of three senators chosen to serve on a new conference committee to deal with pension reforms, called Brown’s plan “substantive and significant” and credited him with making it comprehensive.

Simitian worked for two years, without success, to get an anti-spiking bill passed, and that should have been the easy piece. Now, he said, “with more moving parts, it will be more difficult to develop consensus.” The two-thirds requirement to get it out of the Legislature will be difficult but doable, he said.

Brown will have to thread the needle to win over Democrats who will side with labor and Republicans who will charge he didn’t go far enough with his reforms. Reacting to the proposed hybrid plan, Senate President pro Tem Darrell Steinberg told the Sacramento Bee, “I believe in defined benefit, because I don’t think that retirement should be based on the ups and downs of what occurs on Wall Street.” (Never mind that when Wall Street tanks, and public pension plans don’t make 7.75 percent returns, taxpayers are left holding the bag.)

But Brown cautioned that voters want pension reform, and implied that a failure to put it on the ballot will hurt chances to pass higher taxes. “Legislators would be well advised to take (pensions) seriously, get it all enacted and get it on the ballot when there are things they will be particularly interested in,” he said.

The case for/against CALPADS

For all of the shortcomings in its implementation, the data system CALPADS has always had plenty of supporters. Gov. Jerry Brown is clearly not among them. He’s proposing to kill funding for it and CALTIDES, a related database yet to be built. I’ve asked five longtime backers to argue why both systems should be saved, and an opponent – a teacher who shares Brown’s skepticism toward standardized tests and statewide databases – to make the case for defunding them. Brown has called for stripping funding for the two systems as part of an overall look at how data can best be used at the local level and whether the state is putting too much energy and attention on standardized tests.

CALPADS (California Longitudinal Pupil Achievement Data System), which came online last fall and is scheduled to be completed next year, collects data on student achievement, enrollment, teacher assignment, and other statewide student information like dropout and graduation rates. CALTIDES (California Longitudinal Teacher Integrated Data Education System) would become the central repository for information on the state’s teacher workforce.

Arun Ramanathan: Kids no longer forgotten

Having kids has forced me to look at the world differently. Back in my twenties, I worked with adults with mental illness and addictions, and with very troubled adolescents. I looked at them and saw people who had made adult choices.

Now that I have kids, I look at people who have “fallen down” and see them as the children they used to be. I imagine the paths they’ve taken and think about the unnecessary sorrows they’ve lived through. Twenty, even 10  years ago, a child could “fall down” academically or in school attendance, and one person might know and be able to help. Today, we are lucky to be able to collect the kind of data that allows us to identify and help the kids who have fallen down and pick them up with targeted supports and interventions.

The problem in California is that this work only happens in isolation in forward-thinking districts and charter schools scattered around the state. As a result, millions of our children fall through the cracks and end up in places like our justice system. With a statewide data system that tracked these students and eventually linked into other government data systems, it wouldn’t have to be this way. We could focus on treating symptoms instead of the resulting diseases.

That’s the promise of CALPADs and CALTIDES. They are the statewide foundation upon which we can build a better future for our children, especially the millions of California’s youth who are low income, highly mobile, or stuck in places such as our foster youth system. Fully funding these systems is an adult decision that we ask our leaders to make on behalf of California’s children.

Arun Ramanathan is executive director of The Education Trust—West, a statewide education advocacy organization.

Joe Simitian: For well-informed choices

Both CALPADS and CALTIDES were created to serve two primary purposes: 1) Report required testing and accountability data to the state and federal governments; and 2) Provide state and local policy makers with accurate longitudinal data in order to meaningfully evaluate education policy and investments.

Longitudinal data, the ability to link data from year to year for each individual student and teacher, is important.  It allows educators and policy makers to see changes over time for individual students, groups of students, or teachers.

In the past, school districts would submit aggregate reports summarizing certain student and teacher statistics for a particular point in time. These aggregate reports provide useful ‘snapshot’ data, but the data from one year’s report often can’t accurately be compared to the data from another year, because each snapshot is of a different cohort. For example, under the current system, when the state compares the achievement of English language learners from one year to the next, it can’t accurately distinguish progress because aggregate data doesn’t distinguish between the old and new sets of students.

Longitudinal data will enable policy makers to compare the achievement from year to year, and more accurately evaluate which programs improve student performance and which ones don’t. Similarly, longitudinal data could also be helpful in evaluating the outcomes of teacher credential programs, or the effectiveness of certain professional development activities.

Policy makers don’t yet have the information needed to make smart, well-informed choices for schools and kids. Taking an extended time-out on funding for CALPADS and CALTIDES won’t help solve the state’s budget problem. The $3.5 million targeted for elimination is one-time federal funding.

It has been a long, slow haul, but California has made significant progress with CALPADS and CALTIDES over the past few years. Now is not the time to stall out or forfeit our gains. If anything, the difficult decisions that the budget crisis presents can only underscore the value of meaningful data to the policy and decision-making processes, and to millions of California students.

State Senator Joe Simitian (D-Palo Alto) is the author SB 1614, which authorized the creation of CALTIDES; SB 1298, which established a process for schools and universities to report data using existing unique statewide student identifiers; and SB 885 (currently pending) to take the next step toward establishing a statewide education data system.

Margaret Gaston: Critical data on our teaching force

In 2001, the Center for the Future of Teaching and Learning and SRI International compiled and distributed data showing that over 42,000 members of California’s teaching workforce lacked even the minimum requirements to teach, and that vastly disproportionate numbers of those underprepared teachers were assigned to low-performing schools serving economically disadvantaged children of color. That information, which documented a severe shortage of fully prepared teachers and pervasive inequities among schools, garnered headlines and drove policy changes to strengthen California’s teacher development system. The revelation of this stark data also challenged the common practice of assigning the least prepared and novice teachers to schools where students arguably need accomplished veteran teachers the most.

Today, policymakers and educators would not have access to that same data. Last year’s veto of funding for the CALPADS system by then-Gov. Arnold Schwarzenegger badly damaged California’s ability to collect and analyze data about the status of teaching and student learning. And now, with the further loss of funding for the CALPADS and CALTIDES data systems, the gap in the availability of reliable information upon which sound policy decisions can be made would be even wider.

We support Gov. Brown’s proposal to reform the state’s data collection systems, making them less bureaucratic and more helpful to school- and district- level decision-making. But we would argue for using what has been developed and paid for thus far as a base for further improvement.

CALPADS is also designed to collect and house critical data on the teacher workforce. That information is essential to developing an adequate pool of teachers with the training, knowledge, and skill necessary to ensure all students are able to reach the high academic goals Californians have set for them. It also reveals the subject matter areas – like math and science – and assignments where teachers are needed most. In times of tight budgets, this data is even more important: Legislators, policymakers, and educators must have the current and accurate information necessary to help them target and leverage limited resources in ways that make every nickel count. Without CALPADS and CALTIDES, California is once again flying blind in its quest to strengthen public education.

Margaret Gaston is president of the Center for the Future of Teaching and Learning.

Rick Miller: Statewide data does matter

Before transitioning to CALPADS and a statewide student identifier system, if a school reported that a student transferred in-state, there was no way to verify the information. But several years ago, after years of infighting, California finally established a unique identifier system and now tracks students between schools and districts. Now, when this data is published, if a district reports that a student transferred to another school and the student doesn’t show up, the student is classified as a dropout on the originating district’s watch. As a result, schools throughout California have tracked down and re-enrolled many of these students. Real-life students have returned to further their education. Statewide data matters

CALPADS is also designed to provide critical information about students: Do they need special education? What courses have they taken? Have they taken the CELDT? With a statewide data system, all of this information can follow the student, saving time and avoiding unnecessary retesting. When the data in CALPADS is linked to CALTIDES, California will be able to measure effectiveness of teacher preparation programs and other educator workforce trends. Ideally, California will eventually have a statewide data system that allows us to track programs across the state so we can judge effectiveness and better broker expertise.

These are all common-sense uses of a statewide data system that the governor’s shortsighted budget proposal puts in jeopardy, without saving one cent for the state, as the system is 100 percent federally funded. If we consign the collection and use of student-level data to districts and schools, we abandon the ability to learn from each other and leverage successful approaches throughout the state. We need information to know what is working well and what is a waste of time and money. In this era of scarcity, using a high-quality data system to inform and foster a continuous learning cycle  – and using federal dollars to do it — just makes sense.

Rick Miller is a principal at Capitol Impact, an education policy advisory firm.

Ted Lempert: Save, fix, and expand it

Gov. Brown is right in asking questions about how CALPADS will support education in California, but wrong in taking an action that will waste millions and undermine progress made thus far.

Ninety-nine percent of districts are successfully using CALPADS to report enrollment. Eliminating funding for the data systems now is the technological equivalent of repealing class-size reduction on the second day of school. Eliminating this funding would create unnecessary turmoil for districts, which would need to retool in the next few months in order to comply with basic federal reporting requirements. It would further undermine basic data functions that CALPADS will fulfill, including:

  • Providing the minimal system needed to effectively manage over $50 billion in educational programs.
  • Efficiently monitoring student mobility, dropout, and records transfer when students move between districts.
  • Ensuring compliance with assurances that California gave when securing $4.9 billion in federal stimulus money.

CALPADS provides efficient uses of data, including automated matches to certify 1.4 million students as eligible for free school meals without further application; it ensures the timely transfer of student records, eliminating delays while identifying at-risk students; it eliminates redundant assessments for English learners as well as those with special needs; and it consolidates several major data collections into one.

Advocates agree that simply meeting No Child Left Behind reporting requirements will never provide the most meaningful benefits that CALPADS can provide. Largely because the original scope of CALPADS has been restricted since its inception, it does not currently provide more robust data linkages, warehousing, dashboards, and reporting needed to fully support state and local needs.

However, CALPADS has finally provided California with the technological equivalent of an advanced operating system; it can readily support more robust data functions when the governor is ready.

Ted Lempert is president of the advocacy group Children Now.

Anthony Cody: Put more faith in teachers, not data systems

We do not need CALPADS. We already have far too much money, time, and energy spent on student performance on tests. The emphasis on these tests has led to a profound distortion of instruction, consuming huge amounts of learning time and vast resources. The bottom line is that these tests are blunt instruments compared to the fine work of a dedicated and intelligent teacher, working in collaboration with peers. The limited information from these tests does not grow in usefulness simply because it is developed in ever finer and more sophisticated detail. Rather, this lends a false air of mathematical certainty to decisions that are much better made by the human beings in direct contact with students.

If not CALPADS, then what?

We have placed far too much faith in data systems, and far too little in the capacity of our teachers and students in responding to the learning challenges they face. California is a huge and diverse state. We can tap the creative potential of our teachers best when we actively engage them in designing curricula and assessments that correspond to the interests and needs of their students. There is so much phony rhetoric about how important and precious teachers are. It is time to give teachers real responsibility – not just for preparing students for tests, but for the complex challenge of life in the 21st century.

An 18-year veteran teacher, Anthony Cody coaches science teachers in Oakland Unified. His blog, Living in Dialogue, is published by Education Week.