Comparing Benefit Spending among States

An article I wrote was published a few days ago:

Detroit News: Michigan becomes leader in costly school benefits (08/30/07)

The idea for the article occured earlier this summer while I was having lunch with a well-respected columnist. We were discussing education funding, and how it is helping to drive the tax hikes proposed by Democrats and Governor Granholm.

I believe these tax increase are being proposed because school boards have let their spending -- particluarly on benefits -- rise in an uncontrolled way. This is compounded by a similiar uncontrolled rise in education retirement spending at the state level.

The reporter asked, "How does Michigan benefit spending compare with what they spend in other states?"

I couldn't rattle-off the numbers, so yet another research project was born!

Of course, trying to find the numbers is next to impossible. States are inconsistent in the way they report data. Some share data on their state websites, while others don't.

I finally found two places that had data for all of the states, although trying to decode and decipher this information is another Herculean task, given the confusing labels assigned to data, and poor descriptions of what the data represents.

The NCES Common Core of Data provides a utility (found here) that enables users to construct a data table. The most recent data they have on statewide benefit spending comes from the 2003-04 school year.

The US Census bureau gathers data on all of the taxes levied in a state -- both local and statewide -- and reports it here.

I combined the data, and here are some the results:

* Michigan dedicates 37.1% of it's tax spending on education. Nationally, the average is 32.3%.

* Michigan ranks 9th in the nation on benefit spending, dedicating $2179 per pupil compared to a nation average of $1559 per pupil.

* Michigan dedicates 20.3% of it's education spending to benefits, while the national average is 15.9%.

* A school's funding is usually a mix of both local and state taxes. When looking at all of these taxes, Michigan schools spend 7.53% of them on benefits. Nationally, the average is 5.1%.

The complete data tables are found in a PDF file found here.

In case the link to the Detroit News doesn't work, the article as originally written is pasted below:

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It's old news that taxpayer-funded Michigan educator benefits are excessive when compared to most private sector benefits. But further exploration now shows they're also excessive when compared to public educator benefits around the nation.

This merits continued attention because benefit levels are a leading cause of the budgetary crisis facing schools. Absent meaningful reform, school boards will drag the state down with them, or will instead force a tax increase.

The health benefits provided to Michigan educators cost on average 25 percent more than benefits provided to private-sector employees, according to an annual survey done by McGraw Wentworth - a Michigan benefit-consulting group. And retirement benefits, as chronicled recently by reporter Ron French in the Detroit News, are extremely generous.

Yet any attempt to explore benefit reform is met with protests that it'll drive Michigan teachers to other states.

Well, if 2003-04 spending data is any indication, it's unclear where Michigan teachers will go because our state funds benefits at levels far beyond most other states.

The U.S. Department of Education's NCES website (National Center for Education Statistics) consolidates benefit spending by state. The U.S. Census bureau compiles total state and local taxes. Linking the data paints an interesting picture of a state's financial commitment to education, and shows the spending priorities of education officials.

On average, states allocate 15.9 percent of their education spending to benefits. In Michigan, we spend 20.3 percent, ranking fifth in the nation.

Benefits spending in relation to total taxes is even more alarming.

For every $100 dollars Michigan collects in state and local taxes, $7.53 is used to pay for benefits. Nationally, it's $5.13 out of every $100. That difference represents over one billion dollars annually in above-average benefit spending in Michigan.

These statistics might be less troubling if Michigan was a low tax state, but it's not.

And the issue might be less significant if the state didn't spend heavily on education, but it does.

Despite what school politicians want you to believe, legislators support education. Michigan would rank sixth nationally if looking at the percentage of total state and local taxes dedicated to education. Nationally, the average is 32.3 percent, and in Michigan it's 37.1 percent.

Michigan legislators have made education a funding priority, but school boards have chosen to use those tax dollars to make benefits a spending priority.

Former State Superintendent Tom Watkins foresaw this in his 2004 report called "Michigan School Funding in the 21st Century." Had we started addressing the issue then, we might be reaping the savings now, instead of using political gimmicks and accounting tricks to balance the state's budget.

It's clear reform is overdue.

Legislators should change the educator retirement plan from a defined benefit to a 401(k) style defined contribution program. It's the predominant type of private sector plan, and is what's offered to other state employees.

And school boards - either voluntarily or through state oversight - should adopt reasonable changes in co-pays, co-insurance, and annual deductibles that'll help control costs without causing financial hardship on employees.

Perhaps creating a "Prevailing Benefit" law would be a good start. Schools would be required to keep employee benefits in line with those offered to the private sector taxpayers in the community.

These steps are needed to keep public education solvent and affordable. And they're also necessary if we hope to invest in education.

Currently, increased funding goes entirely to soaring benefit costs. Instead, it should be used to advance data-driven curriculum development, improve learning intervention programs, and support the newly enacted, globally relevant graduation requirements.

It's time for taxpayers to stop tolerating this nonsense, and start holding school boards accountable.