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Walker’s Act 10 to save Milwaukee taxpayers $110 million a year, study finds

By   /   July 18, 2013  /   2 Comments

By Ryan Ekvall | Wisconsin Reporter

MADISON — By 2020, Gov. Scott Walker’s controversial public-sector collective bargaining reform law will save Milwaukee Public Schools more than $100 million a year, according to a new report.

The report, released Thursday by the Thomas B. Fordham Institute, a conservative-leaning education think tank, calculates some of the less talked about savings due to provisions in Act 10, which gave school boards’ the authority to “make substantive changes” to post-retirement health benefits for employees.

Those Other Post-Employment Benefits, or OPEBs, include health insurance premiums, doctor and prescription co-pays for retirees that were previously covered under collective-bargaining contracts. Because teachers typically retire before age 65, when Medicare becomes the primary health insurance coverage, taxpayers and employees pick up the tab.

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HIGH MARKS: A new study finds the Milwaukee Public Schools will save $110 million by 2020 thanks to Act 10. But MPS’ past promises could mean big fiscal trouble ahead, according to the Thomas B. Fordham Institute study.

Taking pension costs and retiree health together, the Fordham Institute calculates Act 10 will save MPS $1,588 per pupil by fiscal year 2020, wrote Robert Costrell and Larry Maloney, the study’s authors.

MPS counts about 78,000 students.

Instead of retiree costs rising by $1,652 per pupil, to a total of $3,512 per student, Costrell and Maloney now project an increase of $64 per pupil, to a total of $1,924 per student.”

That works out to about $110 million annually in savings, or about 10 percent of MPS’s current budget.

And the study projects Act 10, loathed by public-sector unions, will save more than 1,000 jobs, or about 25 percent of MPS teaching positions, by the year 2020.

While the savings are projected to be substantial, the report concludes the largest school district in the state “is not out of the woods yet.”

Those retiree health benefits were promised, but not budgeted for in advance. The flaws of the pay-as-you-go financing system were hidden during a time of growing student enrollment and tax revenues. But with a declining student population and payroll, the school board would have to raise taxes or cut educational services to meet the district’s promises to retirees.

“On retiree health insurance, the problem is that these costs are projected to continue to follow a pay-as-you-go basis,” Costrell, a professor of education reform and economics at the University of Arkansas, told Wisconsin Reporter. “The measures the board took did cut the unfunded liability. But it’s still quite large and unfunded to a large extent.

“Those bills are ultimately going to have to be paid.”

Unencumbered by collective-bargaining contracts, the school board increased employee contribution rates, raised the eligible retirement age and increased time of service to receive benefits. Even with the changes, MPS teachers still can retire at an earlier age with less time on the job and fewer contributions made to health insurance premiums than their private-sector counterparts.

The MPS  Board of Education’s finance committee voted to discontinue retiree health care coverage for new employees, but that measure was rejected by the full board.

Jeff Spence, a school board member, said the district’s $1.4-billion unfunded Other Post-Employment Benefits liability is a “very serious problem.”

“What it does, is it actually decreases the amount of money you’re putting in the classroom. … We need to catch up.  It’s hard, we need to pay our current employees, but at the same time, we have an obligation to past employees.  There is a liability problem,” he said.

The board’s moves cut close to $1 billion in actuarially calculated future costs. The board also moved to fund future OPEB costs on a partially pre-funded basis, stepping beyond pay-as-you go.

Costrell said those moves don’t go far enough to address coming future costs. The costs lurking beyond 2020 won’t be met unless the district increases contributions, cuts positions or a combination of those approaches.

The study found MPS spent 43.3 percent of its $1.27 billion budget on salaries and 11.5 percent on retirement benefits in fiscal year 2011.

“Retirement costs were therefore 26.5 percent of salaries on average, far higher than the comparable standard of 5 percent in the private sector. In per-pupil terms, MPS spent about $16,200 in FY11, of which $1,860 went to retirement costs,” the authors note.

Spence said he recognizes the financial peril the district finds itself in from making such expensive promises. Act 10 loosens the noose, according to the study’s findings.

“In the past, you had to bargain all of those elements, which would make it hard to change the structure of the program,” Spence said.  “We want to give employees good benefits, but balance this and the debt problem. We need to be honest and say, ‘This is what we can afford,’” he said.

For the foreseeable future, MPS and its taxpayers, will have to pay for past decisions.

“We’d like to think as a public entity, that there can be ways we can reduce benefits but not harm our employees. We have a fair number of employees that are not full time that we gave full benefits to.  There is widespread recognition that we can’t continue that,” the school board member said.

Contact Ryan Ekvall at rekvall@wisconsinreporter.com

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Ryan Ekvall uncovers government waste, fraud and abuse for Wisconsin Reporter. His work has appeared at Reason, Fox News and Human Events.

  • roy

    “We’d like to think as a public entity, that there can be ways we can
    reduce benefits but not harm our employees. We have a fair number of
    employees that are not full time that we gave full benefits to. There
    is widespread recognition that we can’t continue that,” the school board
    member said.
    True that.

  • EndGame

    the collapse is coming!!!

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