Financing Education

Atlanta Public Schools is much like any other Georgia school system so I use it as the example. DeKalb Co. School Board’s Financial Statement is not readily available. All Georgia State School teachers retirement plans are supported and administered by the Teacher’s Retirement System of Georgia. Georgia Public Teacher’s have 4 “buckets” of retirement dollars

1) Unpaid,unused sick leave and vacation
2) 403(b) plan that is funded by the employee (much like a corporate 401(k)) and
3) A pension.
4) Other Post Employment Benefits (OPEB), aka retiree health care.

The third, the pension, is where the outsized, yet unreported, costs occur. A teacher is required to put away 6% of his/her salary in order for the State to contribute 12.28%. Georgia teachers get a 2:1 contribution to a pension. A teacher making $60K/year is getting an additional $7200/year in a pre-tax variable annuity like investment, That’s a tax equivalent yield of $10,250 and is rarely included in state employee union salary disclosures.

APS generates $808M per year in annual tax revenue. 60%, or $463M, of that goes to “Instruction” which includes about $46M in pension contribution. $38M goes to the guaranteed match and another $12M annually goes in because it’s a Defined Benefit plan. In other words, the Georgia Teacher’s Retirement System mandates a 7.5% rate of return in their pension because they have “defined” an unobtainable future benefit. If the investments don’t get there, the deficit comes from the general fund, or $12M annually.

Think about the differences in normal 401(k)’s and legacy Defined Pension plans. Corporate 401(k)’s are defined contribution. The contribution is “defined” by the employee. The “benefit” in a Defined Benefit is ‘defined’ by the employER and guaranteed. Defined Benefit plans are administered by Insurance companies with expensive contracts, limited investment options and high fees.

The APS DB plan is only 18% funded. A normal funded ratio is around 65% because not everyone retires in the same year. This is shortfall is unsustainable. Adding insult to injury, the Georgia Teacher’s Retirement System of Georgia owes Post-Employment Benefits (aka retiree health care). Last year $50M came from Revenue to pay it. Therefore, 20% ($90M of $463M) is wasted on an outdated, expensive Pension Plan and medical care for retired school teachers. These ratios can be extrapolated over the entire Georgia State Employee Cost Structure. Most municipal employees get the exact same employee pension and OPEB (retiree medicare). Collectively, the pension plan costs across Georgia run into the hundreds of millions. These dollars should be spent on taxpayer services, new schools and student improvement.

Our teacher’s and government employees are stuck with an outdated, unaffordable pension plan run by high cost insurance companies. The state pension plan should be eliminated for all new employees in favor of a more lucrative contribution to the teacher’s 403(b) plan OR the investment rate of return should be reduced to 5%. Georgia would immediately reap the cost savings to be used for new transportation, schools and our children. The unfunded nature of this liability proves it is unsustainable long term. Teacher’s and other state employees could control his/her own investments in a low cost retirement plan like all of their private enterprise counterparts. Finally, the taxpayer pays a more competitive rate for educational services.”

It will take a Republican in HD80 to get that done. It is a job for me.