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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

More Thoughts on Teacher Compensation in Wisconsin



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Robert Costrell has an interesting analysis of Wisconsin teacher compensation at the Wall Street Journal:

The showdown in Wisconsin over fringe benefits for public employees boils down to one number: 74.2. That’s how many cents the public pays Milwaukee public-school teachers and other employees for retirement and health benefits for every dollar they receive in salary. The corresponding rate for employees of private firms is 24.3 cents.

Gov. Scott Walker’s proposal would bring public-employee benefits closer in line with those of workers in the private sector. And to prevent benefits from reaching sky-high levels in the future, he wants to restrict collective-bargaining rights.

The average Milwaukee public-school teacher salary is $56,500, but with benefits the total package is $100,005, according to the manager of financial planning for Milwaukee public schools. When I showed these figures to a friend, she asked me a simple question: “How can fringe benefits be nearly as much as salary?” The answers can be found by unpacking the numbers in the district’s budget for this fiscal year.

Costrell reviews the non-wage components of teacher compensation, including FICA taxes, state pension benefits, supplemental pension benefits, and health benefits. Teachers contribute nothing to two separate supplemental pension programs, and nothing to their health premiums:

• Health care for current employees. Under the current collective- bargaining agreements, the school district pays the entire premium for medical and vision benefits, and over half the cost of dental coverage. These plans are extremely expensive.

This is partly because of Wisconsin’s unique arrangement under which the teachers union is the sponsor of the group health-insurance plans. Not surprisingly, benefits are generous. The district’s contributions for health insurance of active employees total 38.8% of wages. For private-sector workers nationwide, the average is 10.7%.

• Health insurance for retirees. This benefit is rarely offered any more in private companies, and it can be quite costly. This is especially the case for teachers in many states, because the eligibility rules of their pension plans often induce them to retire in their 50s, and Medicare does not kick in until age 65. Milwaukee’s plan covers the entire premium in effect at retirement, and retirees cover only the growth in premiums after they retire.

As is commonly the case, the school district’s retiree health plan has not been prefunded. It has been pay-as-you-go. This has been a disaster waiting to happen, as retirees grow in number and live longer, and active employment shrinks in districts such as Milwaukee.

For fiscal year 2011, retiree enrollment in the district health plan is 36.4% of the total. In addition to the costs of these retirees’ benefits, Milwaukee is, to its credit, belatedly starting to prefund the benefits of future school retirees. In all, retiree health-insurance contributions are estimated at 12.1% of salaries (of which 1.5% is prefunded).

Overall, the school district’s contributions to health insurance for employees and retirees total about 50.9 cents on top of every dollar paid in wages.

I boldfaced a key item in the above text: that the union is the sponsor of the health insurance plan. Teachers don’t have the option of joining the broader health plan for state employees, which would save money for teachers and taxpayers without meaningfully affecting benefits, but would reduce revenues to union leadership. These are the kinds of inefficiencies that union rules engender, above and beyond conventional measures like wages and benefits.

Now, if you believe that taxpayer funding of union electioneering is worthwhile for its own sake, you may not be concerned about this. But from a standpoint of fiscal efficiency, there is much doubt that the current arrangement is optimal.



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