{"id":1801,"date":"2015-04-21T11:24:12","date_gmt":"2015-04-21T17:24:12","guid":{"rendered":"http:\/\/admin.patheos.com\/blogs\/janetheactuary\/?p=1801"},"modified":"2015-04-21T11:28:17","modified_gmt":"2015-04-21T17:28:17","slug":"charter-schools-and-legacy-costs","status":"publish","type":"post","link":"https:\/\/www.patheos.com\/blogs\/janetheactuary\/2015\/04\/charter-schools-and-legacy-costs.html","title":{"rendered":"Charter Schools and Legacy Costs"},"content":{"rendered":"\n<\/head>

Many years ago, in studying for actuarial exams, I recall a reading on public pensions, which argued that fully funding (or even funding at all) such pensions was unnecessary because, unlike private plans, a public entity would never \u201cgo out of business\u201d or even see a decrease in its overall size, so that legacy costs, such as shrinking employers such as General Motors face(d), were a non-issue. \u00a0Any given state might not grow at the same pace as any other state, but no state was going to actually shrink, or, at any rate, not to the degree that it\u2019s pension obligations would be unsupportable on a pay-as-you-go basis.<\/p>\n

And, of course, we know that that\u2019s exactly what did happen with Detroit. \u00a0Even disregarding the mismanagement of their pension funds, and, well, everything else, any degree of underfunding in their pensions became magnified by the fact that a city of 700,000 was supporting pension obligations accrued when the city was twice as large.<\/p>\n

And the schools? \u00a0The Detroit Public School system is a separate legal entity from the city of Detroit, and it\u2019s their turn to restructure their debts now. \u00a0According to today\u2019s Detroit News<\/a>, Michigan\u2019s Gov. Snyder is preparing a plan to restructure the school system into an \u201cold\u201d entity with the debt, and a \u201cnew\u201d entity with the actual ongoing operations. \u00a0Unlike the prior city bankruptcy, the debt wouldn\u2019t be cancelled; rather, the state would kick in more funds, and the whole system would be restructured with an entirely different \u201ccharter school-like\u201d legal structure.<\/p>\n

And why are Detroit\u2019s schools so heavily in debt? \u00a0That\u2019s a long story, and the recent articles don\u2019t give too much background, but, getting back to pensions\/legacy costs, there\u2019s this, from an earlier report<\/a>,<\/p>\n

The school district\u2019s budget calls for about $100 million in payments to [the pension fund for teachers] \u2014 nearly 1 in every 7 dollars the district spends annually.<\/p><\/blockquote>\n

And in what respect are these \u201clegacy costs\u201d? \u00a0According to\u00a0this article<\/a> (yeah, I posted these on facebook a while back), DPS\u2019s enrollment\u00a0dropped from 150,000 to 47,000 in the course of ten years. \u00a0Why such a nosedive? \u00a0True, there\u2019s been an exodus of inhabitants from the city, in general. \u00a0But, beyond that, in 1994, Michigan instituted a system of charter schools and \u201cschools of choice\u201d that dramatically changed the educational landscape<\/a>. \u00a0Kids in Detroit now have a multitude of options \u2014 not only with charter schools, but neighboring school districts have opened their doors to Detroit schoolchildren (collecting the state per-student funding, which more than covers the receiving school\u2019s marginal costs whenever they\u2019d otherwise have an empty seat). \u00a0According to charterschools.org<\/a>, 55% of school-aged students in Detroit, or 59,000 students, were enrolled in charter schools in 2013-2014, compared to 48,000 in the DPS system. \u00a0(Students attending parochial or non-DPS public schools seem to be wholly excluded from this figure.)<\/p>\n

What does this mean?<\/p>\n

On the one hand, I\u2019m all for parochial schools, and other sorts of school choice. \u00a0But at the same time, even a proponent of Schools of Choice has to recognize that the difficulties that the DPS had faced in any case, are magnified by the enrollment implosion. \u00a0They retain the least motivated students (or, that is, the children of the least-motivated parents). \u00a0And even under ideal management, they\u2019d still struggle to downsize their workforce at the right pace, and to close schools effectively \u2014 and, even when they do so, they still have to manage the empty buildings.<\/p>\n

And pensions? \u00a0Certainly I think that public pensions should be defined contribution or, at any rate, multi-employer (that is, like certain union plans, managed by the employees collectively), with the state or local employer paying in during the employee\u2019s working lifetime. \u00a0But, failing that, they are the poster child for why unfunded or underfunded pensions are just asking for trouble.<\/p>\n<\/body><\/html>\n","protected":false},"excerpt":{"rendered":"

Many years ago, in studying for actuarial exams, I recall a reading on public pensions, which argued that fully funding (or even funding at all) such pensions was unnecessary because, unlike private plans, a public entity would never \u201cgo out of business\u201d or even see a decrease in its overall size, so that legacy costs, […]<\/p>\n","protected":false},"author":2209,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1801","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"yoast_head":"\nCharter Schools and Legacy Costs<\/title>\n<meta name=\"description\" content=\"Many years ago, in studying for actuarial exams, I recall a reading on public pensions, which argued that fully funding (or even funding at all) such\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, 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