Saturday, January 25, 2014

Supplemental Materials for the January 27, 2014 School Board Meeting

Here are the supplemental materials for the January 27, 2014 meeting of the School Board, to be held at 7pm at Memorial Middle School.

I'm happy to report that the supplemental materials for School Board meetings are soon going to be posted on the District website.  Thank you Dr. Marschhausen for making this happen. Perhaps at some point, documents from prior meetings will be posted online as well, but until then the materials I've posted - going back to June 2012 - will remain available here.

As I noted previously, we're in the process of going through the three readings of new and changed policies, the documents which govern the operations of our school district. This meeting will be the second reading, and if all goes according to schedule, we'll be voting to put these policies into effect at the next meeting.

Please take the time to read the new proposed language of Policy CBA, the "Qualifications and Duties of the Superintendent."  This has been significantly overhauled with input of the School Board, Dr. Marschhausen, and Dr. Bill Reimer of the Education Services Center (ESC) of Central Ohio. This policy is much more "alive" than the prior policy, and I'm excited to observe Dr. Marschhausen already spreading its philosophy through the District.

Please also give some attention to the proposed IGBEA-R, which describes how our district will deal with the Third Grade Reading Guarantee. I understand the motivation behind the Guarantee, but I think it places unnecessary burdens on school districts which have demonstrated success without it. After all, we're not in the business of producing 3rd-grade graduates, it's 12th grade graduate which is our goal. If a kid catches up in the 5th grade, why isn't that a good and acceptable thing?

I wish our public education system could be redesigned to adapt to the developmental growth rate of each kid, and not try to shove them through 13 years of school like it is an assembly line in which each age cohort is homogeneous in their ability. We certainly do that at the college level - each individual is free to go at the pace in which they can succeed (and afford).

Meanwhile, we're going to have some drama because of this law and the policies it demands. There are going to be kids who have to repeat 3rd grade who might be better served with other solutions. The parent meetings will be challenging, and as Dr. Marschhausen says, everyone will be crying.

Item E1f is the approval of supplemental salaries for coaches and leaders of the Spring activities for Davidson/Weaver and Bradley/Memorial. The Darby/Heritage numbers will be brought for approval at the next meeting.

I hope you're a regular reader of Dr. Marschhausen's blog, "Get Connected."  His most recent story talks about how the decision is made to close the district on snow days. He also closes with a word of caution to the students to be careful what they post on social media sites. Increasingly often, these posts are examined by important folks, like college admissions officers and potential employers. And they don't necessarily disappear from the search engines just because a post, or even a whole account, is deleted...

Thursday, January 16, 2014

Whoops! Spreadsheet Error: STRS Still in Trouble

I've been writing for a few years about the ticking time bomb which is Ohio's State Teachers Retirement System.  I first became aware of this issue when I came across a blog written by Kathie Bracy, a retired Columbus Public teacher.

This week, STRS was again in the news when The Columbus Dispatch reported that a consulting firm the STRS management uses had a "programming error" in their actuarial evaluation of the investment fund. It turns out that the problem is bigger than was thought.

Pension funds are simple in concept.  Employees and employers pay into a fund during the employee's working career. That money is invested. When the employee retires, the combination of employee and employer contributions, plus the earnings on investments, are used to pay out retirement benefits to the employee.

Pensions have been around for a while, but became popular during the last half of the 20th century as employers competed for workers in the post-WWII boom economy. The best thing about this component of compensation - from the perspective of the employers - is that it was a promise to pay something in the distant future, and not an immediate hit to profits.

Then someone got the bright idea to start increasing the pension benefits so that a retiring worker would receive not just the money he had contributed, plus that contributed by the employer on his behalf, plus the earnings on those contributions accumulated over the years - but also a share of that which was being contributed by active workers, and by the employer on those workers' behalf, plus the earnings generated by those contributions.

Some would call that a classic Ponzi scheme - a kind of con game where the first investors are paid off using money collected from newer investors, who are paid off with money from still newer investors. Ponzi schemes collapse when new investors become hard to find, and there's no money to pay off the earlier investors. This is what happened with the now infamous Bernie Madoff scandal, but there have been many such swindles over the years.

STRS is an agency created by the Ohio law, and governed by a Board which includes officials appointed by the Governor, the Speaker of the House, and the President of the Senate, plus five actively working teachers, and two retired teachers. They don't share exactly the same goals.

Working teachers would like to contribute less, have the employer (ie taxpayers of school districts) contribute more, be able to retire earlier, and have confidence that their eventual payout will be both generous and secure.

Retired teachers want to be sure that they get all that they were promised, and that their benefits won't be reduced, or made less secure, by increasing demands from working teachers, or because of risky investment decisions by the retirement fund managers (unless they pay off).

And the politicians?  They want to get re-elected of course. So they listen to the lobbyists who provide the most in the way of campaign contributions and votes.

What about the voters - the taxpayers - the folks who foot most of the bill for this retirement system?  In politics, the ignorant, the apathetic, and the quiet get ignored. Sadly, this seems to be the majority - the so-called "Silent Majority."

STRS needs more fixing. This actuarial mistake reveals that the current STRS benefits scheme is still designed to pay out more money than can be supported by the current size of the fund, its projected investment earnings (which are still overly aggressive in my opinion), and expected future contributions. Some or all of those parameters need adjustment.

The only way to fix it is to increase contributions and/or reduce benefits. You could of course get even more aggressive in the investment strategy. Rare coins anyone?

Two classes of folks have an interest in the benefits side of the equation: teachers already retired, and teachers who are yet to retire. The latter group has the greater political clout, primarily because of the power of the Ohio Education Association - one of the largest unions in the country. The working teachers also have more seats on the STRS governing board than do the retired teachers. So for now, future retirement benefits are prone to be protected at the expense of the benefits to current retirees. This is what Kathie Bracy and her cohorts have been fighting about.

On the contribution side, the two parties are the working teachers and the employers - the taxpayers. For a number of years, the teachers have contributed 10% of their salary, and the taxpayers 14%. In the last round of adjustments, the teacher share is gradually being raised to 14% as well.

So what's next?

STRS invests heavily in the stock market.  They probably had pretty impressive returns in the past year or so (the 2013 report is not yet out). They've also had some pretty spectacular losses, like in 2007 when they lost nearly half their money - on the order of $30 billion. They're not expecting those kinds of losses again, but they are making assumptions about investment returns which many - including me - believe are overly aggressive. That's means they think they're better off than they really are.

I don't know what comes next, but I remain steadfast in my belief that the taxpayers shouldn't be expected to bail STRS out. Our 14% share seems like it should be enough to fund reasonable benefits, given reasonable contributions from the working teachers. Remember that the while the percentage is constant, the underlying compensation isn't.  If compensation goes up 5% per year, then the taxpayer contribution will go up at 5% per year as well.

If the STRS members want to gamble with that money in hope of getting even bigger retirement benefits, that's okay by me. But if the bet doesn't pan out, it's the STRS members who have to take the haircut.

Not the taxpayers.

Friday, January 10, 2014

Supplemental Materials for the January 13, 2014 School Board Meeting

Here are the supplemental materials provided in preparation for the regular meeting of the School Board, to be held Monday January 13, 2014 at 7pm at Ridgewood Elementary School. Note that this meeting will be preceded at 6:45pm by our annual organization meeting, during which officers will be elected, committee assignments made, and various annual resolution passed. Andy, Lisa and I will be sworn in for the new term.

Item C3 is the acceptance of the Treasurer's Monthly Report for November.

Item F1 is a resolution to authorize the President and Treasurer to sign a contract for the sale of 100 acres of the parcel on Cosgray. The buyer is Help All Kid's Play, Inc. (HAKP), and the price is $3.5 million, or $35,000/acre. These are the folks who want to build soccer fields there, and are who we hoped to sell the property to in the first place. Unfortunately, the first time around, they wanted the school district to provide the financing, and we could not accept their offer on that basis. This is a simple cash offer.

We've decided to retain title to 24 acres of this parcel just in case it makes sense to build a school there at some point in the future. In the meantime, it will be leased to HAKP for use as part of their athletic facility. This is an annual lease with automatic renewal unless either party gives 90 days notice.

The agreement includes a rider which states: "No portion of the Property shall be sold, leased, licensed, authorized or otherwise used for residential or multi-family housing or any related uses (the “Use Restriction”). The Use Restriction shall run with the land. No residential or multi-family housing building or structure shall be erected or constructed on the Property."   Besides the obvious desire to limit new residential development, this also keeps the buyer from just "flipping" the property to a developer at a tidy profit. We accepted a price lower than the $40,000/acre that Rockford Homes thought it was worth only because HAKP agreed to this condition.

A new set of Policy updates are getting their first reading. I've not reviewed them yet, but will be doing so before the next Board meeting. I encourage you to read these as well, and let one of us know if you have any feedback.