Miserables Love Company

It’s been an exciting couple of days for this Thinker—I got to meet another Thinker and have been challenged to a debate by one of my favorite Limited Thinkers.  The other Thinker is E. Carlton James whose letter to the Tulsa World about health care policy put my previous posts on the same subject to shame, namely Looking for Mr. James, Not An Old Geezer Yet, Dennis Not The Menace, and A Spoonful of Sugar.  He invited me to his Downtown Kiwanis Club lunch meeting where we heard an update about Up With Trees, an organization started long ago by former Street Commissioner Sid Patterson that has made a huge difference in Tulsa’s urban environment.  We also discovered that Mr. James and my father, both engineers, worked for many years together at Douglas Aircraft.

Even though I look to the Oklahoma Council of Public Affairs for silly things they say to correct as the inspiration for many of my posts, being a shy Thinker I really haven’t made a great effort to share my posts with them so they can improve their thinking—until now.  Using the OCPA contact email address I made them aware of my post Shooting Fish in a Tank which was a critique of their research fellow Steve Anderson’s recent blog about the OCPA’s school finance data tool.  In response Saturday afternoon he commented:

“I would love to debate you on these items in a public format because I see your understanding of sources and uses of fund is not very developed and the public really should know the full story behind these items. There was not enough time or room to fully develop the issues with those items and a good debate would be very informative to listeners.  I believe OCPA will make time available on their radio show for a good exchange of information. Will look forward to your response. Steve Anderson”

I replied that I’d be happy to have a discussion with him.  We’ll see what develops.

Meanwhile, I can’t resist piling on by critiquing another post by Steve Anderson, especially since he’s waded into my favorite Thinker topic—the Oklahoma Teachers Retirement System (OTRS).  His April 12 post on the OCPA site is “A Teacher Recruitment Tool for School Administrators”.  In it he correctly points out that about a billion dollars annually is paid over to OTRS from teachers and other covered employees, their school district employers and dedicated state revenues.  That is a lot of money and Mr. Anderson wants to play with it.  Before describing his Teacher Recruitment Tool though he gives a shout out to another Oklahoma Tank, The 1889 Institute, and its recent report on teacher pay.  I appreciate the referral because now I have another source of limited thinkers upon which to base posts, including this one as you will soon see.

Back to Mr. Anderson’s Tool:  his bright idea is to allow school districts to offer new teachers the option of opting out of OTRS, keeping 4% of the 7% required contribution that otherwise would have gone to the retirement system, and letting the school districts use the remaining 3% and all of the 9.5% required employer contribution, to adjust new and old teachers’ compensation or for other district needs.  You can read it yourself if that wasn’t totally clear.  He seems to be focused on a pool of potential teachers out there who want to teach in Oklahoma for just a few years so aren’t interested in giving up 7% of their salary to a retirement plan they will never enjoy.

His Tool is lacking in many ways.  He expresses satisfaction, with his Tool, that it will allow the new teacher to put money into an IRA.  I’m not sure he understands that the 7% teachers put into OTRS is available to them upon ending their teaching employment in Oklahoma, plus interest earned (now at 4%), which withdrawal, I think but am not certain, can be rolled over into an IRA.  So if the teacher’s goal is to set aside a portion of her salary for an IRA that can already be done, sans Tool, though admittedly without the same flexibility.

More importantly his Tool demonstrates Mr. Anderson’s misunderstanding of the purpose of the bulk of the payments into OTRS.  Here are the OTRS 2017 facts as I have presented before and taken from the most recent OTRS actuarial report.  (Here are my earlier OTRS-related posts: Fouling Our Nest….Egg, What’s Up Doc? or Should Teachers Eat A Carrot?, Lies, Damned Lies, and Statistics, and Hello World)  The last entry under the UAAL column in the top chart is $7.6 billion.  That is the debt the State of Oklahoma (not local school districts despite GASB’s silliness) owes to us OTRS Geezers and current teachers that past legislatures have failed to fully fund.  You don’t have to take my word for it because the Oklahoma Supreme Court in its Baker decision and others since has made it perfectly clear.

What also is made clear by the annual actuarial reports is shown in the bottom chart (OTRS 2017)—that the $1 billion annual payment into OTRS that Mr. Anderson wants to play with is made up of two parts.  The first part is the “normal cost” which is the amount going into the system’s reserves to pay for the current year’s active members’ additional retirement benefits earned for working the additional year.  If that “normal cost” had been faithfully paid into the system every year since its inception then there would be no UAAL, unfunded actuarially accrued liability.  But it wasn’t and so the State has a $7.6 billion debt to current and future retirees.  That’s the bad news; but here’s the good news.  Recent legislatures have put a plan in place that is on track to fully fund OTRS and here’s how it worked with the $1 billion (see the $1,019.88 in the bottom chart) in 2016.  $445.48 million went to pay for the “normal cost” and thus was a direct benefit to the contributing teachers that year.  It is also 10.47%, or about 10.5%, of payroll.  Where does that money come from—7% from the teachers’ required contributions and 3.5% from their employer school districts required 9.5% payments into OTRS (average is 10.24% because more is paid for those financed with federal funds).  Specifically, the amounts were $294.46 million from teachers and $151.02 million from their school district employers.  What happened to the remaining $284.52 million paid in by employers and the $289.88 million paid directly by the State—that total of $574.4 million went to pay down the $7.6 billion UAAL, i.e. the debt owed by the State to fully fund its past promises to teachers, both retired and active.

So here’s the bottom line:  if Mr. Anderson or anyone else, like Representative Randy McDaniel (oh how we miss our midtown McDaniel, Jeannie) through the retirement bills HB 1162 and 1172 filed but hopefully dead this session, wants to play with newly hired teachers’ contributions to OTRS, then the most of what is theirs is 10.5% of payroll, made up of their 7% and 3.5% from the employer.  McDaniel wanted to give them more; Anderson wants to give them less.  But neither one faces up to the reality that the remaining 6% (of the 9.5%, actually a little over 10%, from employers) is needed to pay off the State’s debt to OTRS, i.e. the UAAL.  If they play with that part of it then they are kicking the can further down the road at best and jeopardizing the financial security of us now and future Geezers at worst.   And if they play with that part of it they need to have an actuarial analysis done on any proposed changes so they and all of us are fully informed about the financial consequences.

So much for Mr. Anderson’s Tool, the first “Miserable” thought I’m addressing in this post.  The second Miserable is what I allege is a huge factual error in the teacher salary report by The 1889 Institute referenced by Mr. Anderson.  The report’s authors are Baylee Butler and Byron Schlomach (makes my thoughts wander to the famed Slomo of Pacific Beach in San Diego).  Their report does a couple of things, trying to reach the conclusion they started with that pay for Oklahoma’s teachers is just fine, namely it determines an actual average compensation that includes benefits as well as salary, and it adjusts that amount to compare with other states’ averages adjusted for cost of living.   I may come back to other aspects of the report in future posts but now am going to address just one part.  Here it is:

“The latest federal statistics on teacher salaries that allow comparisons across states come from the National Center for Education Statistics (NCES) for the 2015-16 school year. These indicate that Oklahoma’s average teacher salary is $44,921.  … This rate of pay, however, does not include the value of benefits. When benefits are included, pay increases considerably, by about 47 percent, or $21,113 for a total average cost per teacher of $66,034.”  (footnote 4)

When I read the first part it didn’t surprise me, the $44,921 average, not saying it is fully accurate, but based on ten years’ experience dealing with school district payroll for over three hundred teachers it seems a high, but plausible number.  But the final number, $66,034, is wrong and most certainly misleading—hence another Miserable.  I anxiously looked at footnote 4 for an explanation and found this:

Author calculations based on Digest of Education Statistics, National Center for Education Statistics, Table 236.5, https://nces. ed.gov/programs/digest/d15/tables/dt15_236.50.asp, and Oklahoma School Finance: Technical Assistance Document (Oklahoma City: State Department of Education, 2014).”

I have not worked with the NCES data base very much but I think it is just the source of the starting point of $44,921.  I am very familiar with the SDE Technical Assistance Document and haven’t a clue how the authors chose to misunderstand what is there.  Here’s how I do the math, again based on ten years’ experience working hands-on with school district payroll costs.

Salary:                                                                          $44,921

Employer Social Security Burden 7.65%:                  $3,436

OTRS Employer Burden 9.5%:                                    $4,267

Health Insurance, $526.88 x 12:                                $6,323

Dental and Life (district only):                                   $400

Total District Benefits Cost:                                        $14,426

Total District Payroll Cost:                                          $59,347

A couple of notes about my numbers:  the health insurance amount is too large, but not by much and I don’t want to complicate the calculations any more by explaining: and the Dental and Life is an approximate amount that my school district added to benefits which is likely part of the Salary amount calculated by NCES anyhow, but giving the authors the benefit of the doubt.

So how do they get to $66,034?  I’m guessing, and here’s where it ties in to the rest of this post, that they attribute the State’s direct contribution, the 6.81% from the OTRS 2017 bottom chart, to each teacher, which would add another $3,059 to the total “cost”.   But that makes the total $62,406, still shy of their eye-popping total.  Until I see the “author calculations” I can’t explain their number and bet they can’t either.

Here’s the rest of the story.  Show me a teacher whose actual salary is $44,921 and I can make a case that the total “cost” attributed to or connected with that teacher under our current system for financing education is the $62,406 I came up with, or something very close to that.  But if the question asked is what is the total economic benefit to the teacher then my answer would be very different, namely I would take out all of the employer’s OTRS burden except the 3.5% that, along with the teacher’s 7%, pays for the “normal cost” to OTRS of having that teacher employed the additional year.  That amount in our example would be $1,572, and, after removing the State’s $3,059 that doesn’t benefit the teacher either, the total, salary and benefits, for our teacher making $44,921 is $56,652, almost $10,000 less than the Miserable number the report’s authors have incorrectly posited.

As always lunch on me for the first to ID the photo location.

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