This post is an overview of spending on New York City’s Department of Education, based on New York City budget documents, with a spreadsheet provided as an attachment to this post. Residents of New York City and their parents are going to hear a great deal about budget cuts in the next few months, with the teacher layoffs and early point of controversy in the budget. But in fact total spending on the Department of Education increased 14.8% from FY 2008, before the start of the recession, to FY 2011, and its personal services spending increased 9.7%, while the consumer price index increased 4.3%. In exchange the number of teachers was reduced by 5,000. According to the FY 2012 budget proposal, total spending will once again increase by 4.5% and personal services spending will increase 2.2%. Still the number of teachers is proposed to be reduced by another 6,000. For a total teacher reduction of 13.8% — in exchange for an increase of spending on personal services of 12.1% over the four years. So what happened?
In early 2008 Mayor Bloomberg and the United Federation of Teachers cut a deal, the state legislature passed it, and Governor Spitzer signed it, to allow New York City teachers to retire at age 55 after working 25 years. It was the third major pension enhancement deal benefitting teachers since 1995. Those teachers now approaching retirement were originally promised an opportunity to retire at age 62 after 30 years of work, after having contributed 3.0% of the pay to the pensions throughout their careers. I estimated that to pay for what had orignially been promised, the City of New York should have been putting taxpayer funds equal to 8.8% of payroll into the pension funds each and every year (11.8% total). Because it didn’t in the late 1990s, using the stock market bubbles as an excuse, it in effect borrowed money from the future that would have to paid back later. I also estimated that the enriched pensions retroactively provided to NYC teachers had a taxpayer cost of 22.3% of payroll – from the start of their careers. All that money that wasn’t put in also has to be made up.
We have not yet begun to pay for those pension deals, even with pension spending proposed to rise to 32.8% of payroll at the Department of Education next year, because the NYC Teacher pension fund is one of the most underfunded in the country among state and major city plans, according to an independent actuary. I had guessed that the city would have lost 25.0% of its teachers to shift money to the retired in order to keep the pension plan from being emptied entirely, which would pretty much mean the end of public education in NYC as the 1970s were repeated. Just because that cost isn’t being paid doesn’t mean it is going away.
Amazingly, the United Federation of Teachers and the Mayor claimed those pension enhancements would cost nothing, even though by allowing teachers to retire seven years earlier the city would be paying for their health insurance for ten years in retirement before Medicare picked up some of the tab rather than three. Yes, those teachers would have received health insurance if they were still working, but their replacements would not have, because the city would not have had to replace them. (Except that now we cannot afford the replacements, either.) In any event, Department of Education spending on fringe benefits increased 22.1% from FY 2008 to FY 2011, compare with an overall increase of 14.3% for all city agencies, and is proposed to grow 4.9% next year, compared with an overall increase of 0.7%, presumably because of more spending on retirees. Because you can lay off workers, but retirees still have to be paid for.
The other interesting thing about the Department of Education budget proposal is the large increase in agency OTPS (Other Than Personal Services, payments to contractors and purchases of supplies), by 25.0% from FY 2008 to FY 2011 compared with 12.2% overall, and 7.5% next year under the proposal compared with a decrease of 4.7% overall. I though the Mayor claimed he would be getting a better deal from contractors?
There are two possible explanations for this. The best case is that the proposed increase isn’t real, and the Mayor is hiding money with the proposed OTPS increase of $460. That would mean if and when the City Actuary admits that much more money is needed for the pensions, the phony OTPS money could be shifted there instead of having more taken out of the classroom.
The worst case explanation is that the Budget Summary is including Charter School payments in OTPS, not in other categories such as Personal Services. In that case, the regular public schools would have gotten 12.1% more money for personal services over the past four years to teach a smaller number of students (because some shifted to charter schools), all while providing less in education. That would make the deal the children were getting from the regular schools even worse.
With more and more money going to the early retired, Department of Education spending on wages and salaries increased just 2.3% from FY 2008 to FY 2012. With NYC teachers getting raises of around 4.0% per year, the number of such teachers had to go down. But next year even as total Personal Services spending is expected to rise 2.2%, wages and salaries are proposed to fall 3.2%. According to press reports, the United Federation of Teachers is demanding wage increases of 4.0% per year in its next contract, over and above rising pension and fringe benefit costs. Which would mean the number of teachers would fall by 4.0% per year even if total teacher wages and salaries could be held constant.
That’s where we are and where we are going. But how does NYC school spending compared with spending elsewhere in the U.S. and state? In the 1990s and before, the city’s school spending, staffing and pay were very low compared with the U.S. average, once the cost of living was taken into account, and far below the extremely high spending schools in the rest of the New York State. But by FY 2008 that had changed according to education finance data from the U.S. Census Bureau (and, in particular since the 2008 pension deal, my attitude changed with it).
As I discussed here (and showed in an attached spreadsheet with data for every school district in NY State), In FY 2008, total public school expenditures averaged $12,279 per child in the U.S. and $16,842 in Upstate New York, compared with an adjusted (for the cost of living) figure of $15,840 in New York City, $16,171 in the Downstate Suburbs, $15,616 in New Jersey, and $12,369 in Massachusetts. The unadjusted figures were $21,085 per student in New York City, $21,526 in the Downstate Suburbs, $18,637 in New Jersey, and $14,801 in Massachusetts.
New York City spending outside the classroom has always been very low, even back in the 110 Livingston Street days, and it still is. What has changed over the years is New York City’s instructional spending. With adjustments where applied, FY 2008 instructional spending per student totaled $6,211 in the United States, $10,164 in New York City (64 percent higher!), $9,720 in the Downstate Suburbs, $9,525 in Upstate New York, $8,039 in New Jersey, and $6,940 in Massachusetts. That New York City’s instructional spending was higher that the suburbs or New Jersey in FY 2008 is a huge change from a decade or more earlier. The unadjusted instructional spending per student in NYC was $13,529, or $270,580 for every 20 students and $162,348 for every 12. This Census Bureau category includes spending in the classroom only – on teachers and teaching supplies.
NYC’s instructional salaries per child remained lower than the rest of the state, but were well above the U.S. average even after adjustment for higher local wages/living costs, at $6,133 per student vs. $4,205. The unadjusted total was $8,184 per student in New York City, meaning that for every 20 students the City of New York spent $163,680 on teacher pay, and for every 12 students it spent $98,208. The comparable figures, adjusted where applicable, were $6,742 in the Downstate Suburbs, $6,350 in Upstate New York, $5,291 in New Jersey, and $4,494 in Massachusetts. Needless to say, NYC class sizes are much higher and most teacher’s wages are much lower than that, a function of the amount of time during the school day spent out of the classroom or out on leave.
What really set New York City apart, however, is high spending on instructional employee benefits, such as health care for workers and retirees, and pension contributions. Adjusted spending in this category totaled $2,949 for New York City, more than double the $1,249 in the U.S., $2,441 in the Downstate Suburbs, $2,610 in Upstate New York, $1,086 in Massachusetts, and $1,171 in New Jersey (where they haven’t been funding their pensions).
Since FY 2008, the wages paid to Department of Education employees have barely increased, and with those employees getting wage increases, fewer of them are and will be on the job providing services. But pension and fringe benefit spending, which were already far above the U.S. average, have soared. They might have soared in the rest of the country too, of course, as the pension disaster is now a national issue. But nowhere do public employees put as little into their own pension funds, almost nowhere are benefit payments a higher share of what is left in the pension funds, and nowhere to taxpayers put more into the funds, than in New York City, as I showed here using other Census Bureau governments data. And while politicians in lots of places foolishly put in retroactive pension enhancements in exchange for support from public employee unions during the stock market bubble, few did so in 2008 eight years after it burst.
The United Federation of Teachers would say it “won” the enhanced pensions, even as more and more Americans lost their own retirement benefits and savings. What they won’t say is who they defeated, and what those defeated will lose as a result of that defeat. It certainly wasn’t the politicians they negotiated the deals with. They and their personal staffs benefitted from many of the same pension deals, and they will not have to pay for them. We’ll find out who lost what over the next few years. Mayor Bloomberg implies it is those who benefit from other public services, because as he said in his budget presentation, everything else has been cut to pay for education. But we’ll check on everything else in future posts.
The United Federation of Teachers might also say that rich pensions help attract quality teachers. But the public employee unions always try to negotiate lower pay and benefits for future workers in exchange for more for those cashing in and moving out, so the existing employees can claim they owe less to the people because (the new employees are) underpaid. And, as we will see, the work citizens receive from public agencies varies in proportion to cash pay.
Are the remaining teachers going to work harder, or for less, to make up for all the extra money going to the retired, because they feel an obligation in exchange for the pension enhancements? I don’t think so. They may agree to lower pay and benefits for future teachers, in exchange for less work from all. That was the result of the 1970s fiscal crisis, which left New York City with among the lowest paid teachers in the metro area once those hired under more favorable terms required. And the worst schools. The experience of the past decade, with a host of measures to improve the schools from Mayoral Control to rising standards to all kinds of data to higher wages for teachers to the Campaign for Fiscal Equity lawsuit will show, in short order, that things are hopeless.
Three years ago and prior to a 14.8% increase in Department of Education spending, according to Census Bureau data, NYC instructional (teacher) pay and benefits cost $12,090 per student, $241,800 per 20 students and $145,000 for 12 students. Even if one assumes that level of per student teacher compensation (plus 15 to 20 percent by next year) is a fair price to charge the people of New York City for education, is it being divided up in a way that any teacher would want? Or do they prefer teaching 30 to 35 students each for as little as $45,000 per year in cash pay, because so much money goes to the retired, teachers out of the classroom, etc?
What that 25/55 pension deal said to me is, I was a fool to be in favor of more funding for public education in New York City, because the more we put in the more those who aren’t actually providing education will suck out. Welcome back to the 1970s, if not next fiscal year then soon, because that is what the United Federation of Teachers believes city residents deserve, and all the politicians were willing to go along with in deals that are now irrevocable unless they are willing to ask something of someone other than future hires.