Pay cut story highlights pension absurdities

Pay cut story highlights pension absurdities

Fresno schools Superintendent Larry Powell has been getting the hero treatment in the national media for his reportedly selfless decision to give up his annual salary/benefits of $290,000 a year and instead take $31,000 in salary only. He’s doing it for the kids, he said, to save the district significant funds in these tough economic times, but there’s far less here than meets the eye.

The ABC News headline proclaimed: “California School Superintendent Takes $800,000 Pay Cut Over Next Three Years.” I hate to come across as a curmudgeon who questions the rare good-news story, but Powell isn’t giving up much. Despite widespread media reports, he’s certainly not taking an $800,000 pay cut over three years, but rather is shifting which taxpayer-backed pool of resources from where he is receiving his $200,000-plus income. This will save the district money at the expense of the teachers’ pension fund.

This isn’t Powell’s fault as much as the media’s, but this story needs to be put into perspective. Powell is just another government employee who has figured out a way to play the absurd pension rules to achieve what he wants.

In this case, Powell wants something good —- more funds for the school programs he cares about, while still receiving a handsome retirement and pay package. His intentions are better than most, but he isn’t a hero. The story should focus our attention on the absurdities of the government pension system.

All that has happened: a) Powell decided to take his salary from the retirement system rather than the school system; b) Powell chose not to game the rules to grab every penny that he could have grabbed under the system. As the Fresno Bee reported, “By retiring now, Powell said, he can avoid risking part of his pension if the state reforms the system.”

Powell doesn’t think such reforms are likely, but one of his rationales involved hedging his bets on the inevitable pension reform.

Perhaps it’s so rare to see a government employee —- or anyone, for that matter —- give up anything that this explains why this has become a national story. Most of the news regarding pensions these days is focused on tales of greed.

Powell, in the ABC story, made references to the unconscionable greed in the city of Bell, where officials ran up their pay and benefit levels: “I was particularly disappointed in what happened in Bell because I also happen to be a Baptist minister, and ethics and treating people well is important to me and I wanted to make a sort of a statement. … There are some of us out there that will do things differently than others did.”

Powell hasn’t shared all his financial details, but we know a few things.

First, he earns almost $290,000 a year including benefits. He will take only $31,000 a year and then contribute that to charity. Second, he will now take his retirement. His retirement income will be based on his last highest year, plus he could take advantage of various pension-enhancing gimmicks. His retirement pay will be somewhere close to his salary, and he no doubt gets a tax advantage in giving away the $31,000.

Third, he will be giving up his health care plan —- but he will still get health benefits from the system. His wife is retired from the school district, where she, too, is looking at a large pension, complete with cost-of-living adjustments. Under the deal, he doesn’t have to pay Medicare or his 8 percent retirement contribution. He still loses some money, though.

Basically, we’re looking at a couple with multimillionaire pensions (if you calculate their values over their lifetimes) and the best-possible benefits. They are school administrators, not entrepreneurs or risk-takers. They are part of a government-run school system that has been providing dismal educational results. Yet they —- and the myriad assistant superintendents and other bureaucrats —-are entitled to pension packages worth many times what average Americans receive.

The public can’t afford this generosity. And, while people who know him say that Powell is a wonderful man, it’s a bit hard to take as he basks in the media glow. I’m sure Powell did this for the right reasons, but the media got carried away and he didn’t seem to discourage the attention.

This story proves that the retirement systems are too generous. Powell wants to keep working. He no doubt likes his job and it sounds like he is good at it. But the retirement system pays him to retire before he would otherwise choose to do so. So he is “saving” the school money by shifting the bulk of his salary to the retirement system, which is awash in unfunded pension liabilities. That means he is spreading his costs from one set of taxpayers to another set.

“Instead of simply delaying retirement to help a fund (California State Teachers’ Retirement System, or CalSTRS) avoid insolvency, he’s drawing a pension and continuing to work,” said Marcia Fritz, president of the California Foundation for Fiscal Responsibility, which advocates pension reform. “He’s continuing to work in a job he loves. And his wife gets a six-figure pension, too. Something’s really wrong when taxpayers pay more for folks to retire and they are considered national heroes if they continue to work!”

Keep in mind that the public-education retirement deals are far less generous than those received in many other government professions, especially public safety. This offers a hint at why the state is facing large pension debts and why governments are being forced to cut back on services.

Real reform will come when the public schools are subjected to competitive pressures. Show me the superintendent who successfully champions system-wide pension reform and school choice, and then we can talk about heroes.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.