Philadelphia Schools Struggle to Avoid Detroit’s Fate

Philadelphia Schools Struggle to Avoid Detroit’s Fate
August 21, 2013

Loren Heal

Loren Heal (loren.heal@gmail.com) is a research programmer at the University of Illinois at Urbana-... (read full bio)
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Philadelphia schools opened on time September 9 after city officials agreed to supply the district at least $50 million more than previously allocated. Although the district laid off one in five employees, or 3,783 people, unions have declined all cuts in pay or benefits to save jobs and schools.

Philadelphia schools face a shortfall of $304 million this year, in a budget totaling approximately $2.3 billion, said schools spokesman Fernando Gallard. The biggest hole-digger is their pension system.

“The pension is going to continue to be a problem,” Gallard said. “There isn’t enough money in the fund to meet future amounts. As to why there isn’t enough, I do not know.”

Robert Costrell says he does know: “The pension piece of Philadelphia’s problem was created by the Commonwealth of Pennsylvania, by the state’s irresponsible pension policies over the last decade or so, for teachers and other public employees.” The education reform and economics professor at the University of Arkansas recently coauthored a study examining the schools’ fiscal woes.

Across the nation, government pensions are drastically short of money. Pennsylvania’s pension shortfall is $29.5 billion—one-third of its obligations—and among the worst in the country. School districts such as Philadelphia’s shoulder part of pension costs, which are set to increase rapidly.

Philadelphia is one of many major cities, including Detroit and Chicago, facing massive school budget deficits. The district’s credit rating is at junk status.

Pension Woes
In May, the district asked Philadelphia to cough up $60 million and requested another $120 million from the state, also asking unions to commit $130 million to backfill this year’s budget.

“Superintendent Hite's and Mayor Nutter’s plan was for everyone at the table to bring something, including the [Philadelphia Federation of Teachers]. All complied except the PFT and Philly House Democrat delegation,” said Stephen Miskin, spokesman for Pennsylvania House Republicans. “So what did the Philly House Democrats and the PFT bring to the table? Nothing, nada, zilch.”

When Pennsylvania enacted pension reforms in 2010, it lowered costs for future employees, but its problem is current employees. Reforms in Ohio and Wisconsin, by contrast, brought more immediate relief by raising employee contributions, among other measures.

In Pennsylvania, “the legislature has failed to adequately address the problem,” Costrell said.  

The pension mess was “exacerbated by former Governor Rendell’s deferments of payments to the state pension funds and, ‘as a cost-saver’ to school districts, allowing the districts to defer pension payments,” Miskin said.  

Education Spending Controversy
Local leaders are hoping for a state bailout, but state lawmakers aren’t keen on the idea.

“Education funding over the last couple of years in the Corbett administration has taken about a billion from public education statewide, so in a big city like Philadelphia with high poverty rates, aging infrastructure as far as school buildings, these kind of cuts have a real negative impact on our ability to provide our kids with an adequate public education,” said George Jackson, a spokesman for the Philadelphia Federation of Teachers.

Pennsylvania spends about $22 billion each year on K-12 education, or $13,000 per student. Philadelphia spends $17,000 per student, according to the National Center for Education Statistics. By 2020, required tax contributions to past retirees will eat up $2,361 per student, according to Costrell’s analysis. This will crowd out the money every school district, including Philadelphia, has to pay for existing employees like teachers.

“While they will clamor the state's share is ‘not enough,’ that is always their answer,” said Miskin, “no matter what, including when the governor's office was occupied by spendaholic Rendell.”

To raise the $50 million, Philadelphia’s mayor proposed the city take on more debt. In the meantime, the union is negotiating on its contract, which expired August 31.

“What the district is proposing is anywhere from a 5 to 13 percent pay cut,” Jackson said, claiming teachers use their own money for most classroom supplies. “That’s why our members have been very clear that they are not taking a pay cut.”

 

Learn more:
“The Big Squeeze: Retirement Costs and School District Budgets,” Fordham Institute, June 2013: http://heartland.org/policy-documents/milwaukee-saved-act-10for-now

Image by George Smith.

Loren Heal

Loren Heal (loren.heal@gmail.com) is a research programmer at the University of Illinois at Urbana-... (read full bio)