Teachers pensions next: Sorry, we can’t pay you! Deficits too high!
A recent study by the conservative Manhattan Institute and the right wing Foundation for Educational Choice (the right wing Milton and Rose Friedman foundation), was released by the Manhattan Institute on April 30, 2010. It has claims that teacher pension liabilities for all 50 states now total almost $1 trillion; almost triple the cost of what state officials have on their balance sheets. This, the report says, is an unfunded public burden that could bankrupt state budgets including education programs (Study Finds Teacher Pension Funding Gaps are Three Times Greater Than States Report April 30, 2010 http://www.edchoice.org/newsroom/ShowNewsReleaseItem.do?id=20142, http://www.edchoice.org/research/ShowResearchItem.do?id=10124)
The report, entitled “Underfunded Teacher Pension Plans: It’s Worse Than You Think,” was put together by conservative, free market authors Josh Barro and Stuart Buck. According to Barro and Buck, the report reveals Enron accounting practices of public pension funds and argues that we simply cannot afford more government spending. The report claims that it:
“reveals the major disparity between what states report and the true value of unfunded liabilities for teacher pensions. States put the price tag at teacher pension liabilities at $332 billion. The study shows the red ink is actually $933 billion when applying private sector-style discounting” (ibid).
Highlights of the study include:
- All 59 pension funds studied face shortfalls.
- California, the most populous state, has the largest unfunded teacher pension liability: almost $100 billion.
- The worst funded plan is West Virginia’s, which we estimate to be only 31 percent funded.
- The four states whose plans have the next-worst funding gaps are Illinois, Oklahoma, Indiana, and Kansas; are all less than 40 percent funded.
- Five plans are 75 percent funded or better: teacher-dedicated plans in the District of Columbia, New York State, and Washington State and state employee retirement systems in North Carolina and Tennessee that include teachers (ibid).
This is good news for such think tanks as the so-called libertarian Cato Institute, The Manhattan Institute and other right wing think tanks whose existence is simply to create an echo chamber of cat-calls for cutting public workers and pensions.
Working within the cradle of the ruling class, out to decimate any notion of public institutions as well as public life, the Manhattan report spokesperson Robert Enlow, president and CEO of the Foundation for Educational Choice, stated:
“Every dollar in the red ink column for pensions is one less dollar that is used to educate children” (ibid).
Divide and conquer strategies by the capitalist class has always been at the forefront of assuring that worker collectivization and mobilization to demand that social contractual and collective bargaining agreements be honored are to be framed as the fight between “greedy teachers and unions” — “kids and parents”. This is handy for the corporate media who then feeds this red meat to an aghast but ignorant public.
Pitting teachers against children is definitely not the issue. The issue is very clear: cities and states are broke due to the neo-liberal economic policies of governments throughout the nation over the last thirty years that have either partnered or invested in Wall Street to the tune of billions and now find themselves incarcerated behind huge budget deficits with no revenue available to pay retirees. They have also been busted by the practices of running up local budgets in the interest of capital investment. This is done by using the government as a private tool to deregulate in the interest of capital, re-regulate in the interest of capital, pump money into capital construction projects, design free enterprise zones to protect capital from taxation and assure that capital pays little taxes, if any at all.
The report is good for right wing pundits and the corporate media who wish to cavalierly promote cutting the contributions from governments for teacher pensions, increase contributions by workers for the same pensions, raise the teacher retirement age, and cut rights and benefits for future teacher hires and in the case of Colorado, for current workers. It is also an attempt to move public pension funds into the private sector.
Libertarians who consistently lambaste government take delight when public institutions fail or suffer financial burdens. They can then point to the government’s hemorrhaging in an effort to make the point that government fails and that the private sector should be the guardian of the pension funds. They also use the financial crisis to demonize teacher unions and their workers, blaming them for the financial crisis’ that has encompassed the United States. This is convenient for such propaganda is useful in managing citizen perceptions in the interest of capital and not teachers.
What the authors of the report proposed in the public release at the National Press Club in Washington, was a recommendation based on their findings. The authors stated that they:
“….recommend reforms states adopt to prevent the gap from widening beyond repair including an honest accounting of the current cost of future benefits. Under current laws, states and cities can estimate the funds needed to meet future pension obligation on higher-than-expected returns on the performance of stock investments. That allows sponsors to cut their contribution rates. Public pension funds also are able to set aside fewer assets in their accounts to cover pension payouts” (ibid).
The pension funds have indeed valued their funds based on projected investment profit returns they thought they could get from the demolished capitalist marketplace. According to the report:
“They recommend reforms states adopt to prevent the gap from widening beyond repair including an honest accounting of the current cost of future benefits. Under current laws, states and cities can estimate the funds needed to meet future pension obligation on higher-than-expected returns on the performance of stock investments. That allows sponsors to cut their contribution rates. Public pension funds also are able to set aside fewer assets in their accounts to cover pension payouts” (ibid).
There is no doubt that a lack of transparency, non-disclosure and tightly held secrets plague realistic public pension fund obligations and that rosy future forecasts are a joke begging for tears. This is the Enron accounting I spoke of in my article, Cuckolded: public pension funds part two, http://dailycensored.com/2010/06/20/cuckholded-public-pension-funds-part-two/). As I argue, what is missing from the libertarian think tanks is the history of economic policies that have left the funds bereft of revenues.
Why are the pension funds broke?
Not surprisingly, what is missing by the research-reporters is that over thirty years of Reagaonomics the rich and the corporations paid little if no taxes to public coffers. Lowered capital gains taxes, now an absurd amount, 15%, allows those in the leisure class to sit by the pool and transfer their profits into capital gains so they pay little if no taxes. This has assured that governments have little monies to contribute to pension plans.
Setting up tax havens all over the world to ignore tax obligations at home in the United States is another favorite trick that is used by the ruling class corporations to hide their earnings and thus avoid taxation for public investment.
Moving factories overseas under the hideous NAFTA has left state and local governments working with fewer monies than they enjoyed in the past, as well.
Allowing ‘fixers’ to invest teacher pension funds into private sector toxic derivatives and toxic assets has resulted in double digit losses for the teacher public pensions.
Pushing for charter schools and privatization has led to less teachers paying into many teacher pension funds. KIPP schools, for example, allow their employees to opt out of State Teacher Pension Funds and pay instead into social security and invest in 401K plans tied to Wall Street and mutual funds.
This has all meant that the amount of revenue flowing to the public sector has been staunched, while the value of assets has declined. With less money flowing to teacher pension funds, contributions to the pool have dried up and the future of retirees, both those working and those hired in the future, will face either draconian cuts or see the necessity of organizing for and in their interests to protect the hard won benefits and pensions teachers have fought for over the years.
What is being proposed by the right-wing in face of the massive bleeding of teacher pension funds?
To begin with, it is important to see how the policies mentioned above have decimated public pensions. Workers who had engaged in collective bargaining with their public employers for contracts now find that these contracts, in the case of Colorado especially, but within all states generally, are in jeopardy. This is good news for those seeking to eliminate government services and workers for through disaster economics the case can be made that they are no longer affordable. This argument resonates with private sector workers, most non-union, who have been told that government is bad, government workers greedy and public unions “special interests” out to steal their taxes.
Secondly, conservative ideologues know that teacher pension funds offer teacher unions the ability to invest and use funds for political purposes. They do this to assure teachers have an arsenal to fight those who wish to privatize education, destroy teacher tenure, force teachers to work longer hours for less, attack teacher competence, reduce programs for kids, and diminish teachers to ‘at will’ employees in the service of ‘testing’ so they do not have strong unions capable of confronting capital. This of course would thus render teachers vulnerable to the new school turnaround artists, who see essential control of teachers as ‘associates’ as one of their main business objectives.
What the right wing has managed to do historically over the last thirty years or more, and what is left out of analysis and of course the press release and right wing report, is to promote and apologize for policies that bankrupted the pension funds – like ideologically encouraging that the funds to be invested into Wall Street toxic assets and real estate scams. This is because these think tanks are servants for the private sector and operate as propaganda sources for the uncritical and cheer leading corporate news media to which the think tank reports are eventually fed.
This is fruitios for capital due to the fact the debate over the teacher pension funds is now shifting between two draconian poles. Right wing pundits from the think tanks are arguing that if teachers continue to be ‘greedy’ and demand that cities and states honor pension fund payments, they will be taking pedagogical food from children’s mouths. In essence, the argument is that the greedy teachers are now demanding that students pay for their broken pensions when nothing could be further from the truth. Teachers argue that they have earned these pensions; that to take them away or cut them would be and is a breach of contract.
The report sets out a game plan for the capitalist class. It is part and parcel of a corporate public relations move to convince citizens that the problems caused by Wall Street are problems that should be blamed on public workers and thus the cost shifted on their backs. This is clever sophistry and has and is being used for other defined contribution plans like Social Security and Medicaid. It is the growing rhetoric of market fundamentalists out to destroy all pensions and all entitlements.
All of this is also part and parcel of a concerted movement to privatize pension funds by forcing workers to shift to defined benefit packages and 401K programs that would be invested in Wall Street.
The report is salient here in offering both analysis and strategies for capital. According to Howard Husock, vice president of policy research at the Manhattan Institute:
“This report makes clear that it will be even more difficult than previously thought for states and school districts to honor pension benefit promises to teachers - without putting actual classroom services at risk. Taxpayers and beneficiaries alike need to know the extent of that unfunded liability, however - and this report is an important contribution to that understanding” (ibid).
The “important contribution” put forth by the conservative Manhattan Institute seems to be:
“Going forward, states can prevent future unfunded liabilities by shifting to defined-contribution retirement plans especially on behalf of new and young employees or consider hybrid options like cash balance plans and TIAA-CREF, which has provided saving for employees of public colleges and universities for decades. Current teachers are legally entitled to the future benefits owed to them and states must pay these costs over time, at taxpayer expense. However, there needs to be more accountability when promising benefits to future workers – although higher wages are visible and in the present, the promise of future retirement benefits is also a very real cost of hiring teachers, one just as real as paying current teachers’ salaries” (ibid).
And just what is TIAA-CREF? It is a public investment company that takes teacher pension funds and invests them in for-profit Wall Street:
“For over 90 years, TIAA-CREF has been helping those in the academic, medical, cultural and research fields plan for and live in retirement. We do this with a full array of financial products and services to help them live to and through retirement and invest for life’s other goals along the way. In keeping with our strong nonprofit heritage, we offer low fees, a long-term approach to investing, and a full line of financial products and services provided by consultants who never receive commissions.2 Instead; they are compensated primarily on how well they serve you, not what they sell you (http://www.tiaa-cref.org/public/about/index.html)
Pursuing consistent growth requires strategies that filter out short-term market noise and concentrate on the fundamental factors that can make a stock, a bond or real estate property add value to a portfolio over the long term. Decades of experience in the retirement market have taught us that adhering to sound fundamental principles — in both stable and volatile markets — benefit our participants over the long run.
Market history demonstrates that volatility may be a portfolio’s greatest hazard — one that does not necessarily decrease over time. While some investors assume that a longer time frame guarantees a positive result, experience has shown us that consistent growth is only achieved by careful pursuit of sound principles, day in and day out.
While there is no way to guarantee investment results, we believe that wise diversification, careful research, a long-term perspective and close attention to costs offer the best opportunity to pursue consistent growth with minimum risk” (http://www.tiaa-cref.org/public/about/how-we-invest/consistent-growth/index.html).
What the Manhattan Institute and the Friedman Institute understand is that in order to shift teacher retirement funds into market investments they need to take control of them. They do this by playing Chicken Little, screaming the funds will dry up, causing havoc within cities for parents, teachers and kids if the responsibility for the pensions is not moved to the private sector. For after all, it is only the private sector that can clean up the financial mess, right?
Hardly, instead it is the economic and predatory practices of the banksters and corporations on Wall Street that have destroyed economic life in the US through greed. To turn over teacher pension funds to them for investment and control would be suicide.
Yet this is the right wing drum-beat that we can expect to hear as the rhetoric is ramped up and the paid reports are issued by the right wing echo chamber. Meanwhile, teachers, both current and prospective, are not only seeing the imposition of Race to the Top on their profession (the loss of seniority, the in your face panoptic testing regimes, the loss of collective bargaining to at-will associate status, decreased participatory power in day to day decision making at school sites, and the surrender of the conception of teaching to ‘chop shop’ private companies that operate for a profit by providing dummied down curriculum), but they now face the potential loss or cuts in their hard earned pensions as material conditions emerge for serfdom or work for life.
Teachers throughout the nation are now facing the ‘death of a million cuts’ as they are forced to fight off multiple attacks on their profession. Organizing within teacher unions is now more crucial than ever, for the leadership is nothing by a capitulating force. July 7th at the American Federation of Teachers national conference this issue must be a priority.
Joining with the mobilizations and organizing of all public and private unions is also now essential. For only in solidarity can we stand up to both the rhetoric and murderous practices aimed at reducing teachers to little more than the cost of doing business in a decrepit and failing empire.