Charles Chieppo: In Mass. and elsewhere low returns imperil public pensions

In June, I wrote that public-sector pension plans were facing an existential crisis. Even though many states have adopted reforms, a sampling by the Center for State and Local Excellence of systems that cover 90 percent of the nation's state and local government pension-plan members found that in the last year the plans had on average of 74 percent of the money needed to fund their liabilities -- only a slight uptick from the previous year's figure of 73 percent.

That news was particularly troubling in light of a McKinsey Global Institute reportearlier this year suggesting that pension funds were likely to see lower investment returns going forward. Those McKinsey folks are looking awfully smart: A recent report from the Wilshire Trust Universe Comparison Service found 20-year annualized returns for U.S. public pension systems at their lowest point in the nearly 15 years the service has tracked the statistic.

A look at public pension fund performance in Massachusetts suggests just how bad things might get and underlines the need for far more fundamental reforms if we are to pay for pensions without having to raise taxes or shift money away from core government functions. According to a recent Boston Business Journal report, in fiscal 2016 the state pension fund achieved a mere 1.14 percent return on its investments, just a fraction of the 7.5 percent assumed annual return on which the fund's financial projections are based.

And the state fund's performance looked pretty good compared to other Bay State public pension systems. Including the state fund, the 107 funds averaged returns of less than 1 percent. Twenty-two of the Massachusetts systems actually saw negative returns last year, and 20 have less than half of what they owe to current and future retirees. The pension system for Springfield, the state's third-largest city, is only 26 percent funded.

State officials have tried to put the pension funds on a path to solvency. In 2011, Massachusetts enacted reforms that included increasing the minimum retirement age and limiting the degree to which large salary increases just prior to retirement can boost pension payouts. But the impact of those reforms has been marginal.

Increasingly, it looks like sustainable pension programs will require reforms more likethose enacted earlier this year in Arizona, whose Public Safety Personnel Retirement System had in just over a decade gone from being fully funded to having less than half the assets needed to cover its liabilities. The fund's outlook is a lot better in the wake of a series of bold reforms. The maximum salary for purposes of pension calculations was reduced from $265,000 to $110,000. Current and future pension costs will be split evenly between employers and employees. And to reflect the shared risk, the number of labor representatives on the fund's board was increased.

Under the reformed system, new employees will choose between a defined-contribution plan and a hybrid that combines defined-contribution elements with those of traditional defined-benefit plans. While those new employees can't begin to collect retirement benefits until age 55, they can retire at any time. This important change makes pensions portable, so employees wanting to move on no longer have an incentive to stick around just so they can vest in the retirement plan.

The overhauled system will be so much less expensive that new employees will likely be required to make smaller pension contributions than current employees. In all, 30-year savings are expected to be more than a third of accrued liability.

Comprehensive reforms like those that Arizona has produced become all the more important in an era of paltry pension fund investment returns. While officials in other states may feel that they've already enacted politically difficult pension changes, it's become clearer than ever that the time for more sweeping action is upon us. And we know that nothing does more to add to the pain of necessary reforms than procrastination.

Charles Chieppo is a research fellow at the Ash Center of the Harvard Kennedy School and the principal of Chieppo Strategies, a public policy writing and advocacy firm. This piece first ran on governing.com. Charlie_Chieppo@hks.harvard.edu

Charles Chieppo: Teacher-development programs a waste

BOSTON Given that it's become a truism that teacher quality affects student learning more than any other variable within the four walls of a school, the results of a new study of teachers' professional-development programs are particularly troubling. There are two main takeaways from the report by TNTP, a nonprofit formerly known as The New Teacher Project: Taxpayers invest a lot more resources in teacher-development programs than previously thought, and there is no link between these programs and improved classroom performance.

That second finding, in particular, will have a positive impact if it prompts school districts to clearly define what teacher effectiveness looks like and to measure professional-development programs in terms of how they help teachers get closer to that goal.

The study, entitled "The Mirage," was based on surveys of 10,000 teachers and 500 school leaders, along with interviews with more than 100 staff involved in teacher development. The surveys and interviews were conducted in three large school districts and a mid-sized charter-school network.

Improvements in performance that were found seemed to stem more from learning the job, almost invariably coming in the first few years of a teacher's career. The difference in effectiveness between the average fifth-year teacher compared to a rookie was more than nine times greater than the difference between the average fifth-year teacher and those in their 20th year.

There is plenty of room to improve. Using multiple measures such as teacher evaluations, classroom observation and student test scores, TNTP rated about half the teachers in their 10th year or beyond as below "effective" in core instructional practices such as developing students' critical thinking.

For this to change, districts need to begin by improving communication with teachers about their performance and areas where improvement is needed. The vast majority of teachers studied received ratings from their districts or charter operator of "meeting expectations" or better. Amazingly, fewer than half the teachers surveyed agreed that they had any weaknesses in their performance. Even among the few teachers who earned low ratings from their own school districts, 60 percent gave themselves high performance ratings.

The line from the study that jumps off the page is that the findings suggest "a pervasive culture of low expectations for teacher development and performance."

The problems are certainly not due to a lack of resources. The districts and charter-school network that were the focus of the study spent nearly $18,000 per teacher per year on professional development. They also dedicated 19 full school days, about 10 percent of a typical school year, to the programs. Based on these findings, TNTP estimates that the 50 largest U.S. school districts alone spend about $8 billion annually on teacher development, far more than was previously thought.

TNTP makes several common-sense recommendations for fixing the problem. In addition to giving teachers a much better picture of their own performance and progress, districts must explore alternative approaches to professional development. They should evaluate the effectiveness of all teacher-development programs based on the programs' ability to yield measurable progress toward a clearly defined standard for teaching and student learning. Resources should be reallocated to the programs that yield the greatest improvement.

"The Mirage" is no outlier. Over the last decade, two federally funded studies of teacher-development programs reached similar conclusions. School leaders should heed TNTP's recommendations, which would make for a good start toward changing that "pervasive culture of low expectations."

Charles Chieppo (Charlie_Chieppo@hks.harvard.edu) is a research fellow at the Ash Center in Harvard's Kennedy School. This piece originated on the Web site of Governing magazine (governing.com).

Charles Chieppo: Can Mass. get its tax giveaways under control?

By CHARLES CHIEPPO 

BOSTON

A few months ago, I wrote about Massachusetts Gov. Charlie Baker’s plan to end the state’s film tax credit. Powerful opponents succeeded at killing the proposal, but if a pending piece of legislation becomes law, those special interests will have won the battle but lost the war.

Most states offer an array of business tax breaks that result in significant foregone revenue. In Massachusetts, the amount is in the billions. Legislation backed by state Auditor Suzanne Bump would give her office access to business tax returns solely for the purpose of auditing “tax expenditures,” as the various tax breaks are known.

Under the legislation, the auditor’s office would be able make sure businesses actually qualify for the breaks they receive; track whether state agencies are appropriately pursuing “clawbacks” that require businesses to reimburse taxpayers if the recipient fails to meet requirements of the tax-break agreement; and determine if commitments to job creation or other public benefits have been met.

Predictably, the bill has drawn howls of opposition from business organizations, and the legislature must indeed carefully craft any legislation to limit the scope of the auditor’s review of business tax returns to gathering tax-expenditure data. But the fact that 37 other states already grant the entity that performs their audit function access to this information demonstrates that it can be implemented without making a business that receives a tax break the victim of a public witch hunt.

Other Massachusetts agencies, including the Massachusetts Probation Service and the Department of Transitional Assistance, already have access to the returns. It seems appropriate that tools to make sure that people aren’t wrongfully collecting welfare benefits also should be available to government to ensure that businesses aren’t getting tax breaks they don’t qualify for.

Most business tax breaks are likely to be more effective than the film tax credit, which cost Massachusetts taxpayers about $88 million in foregone revenue during fiscal 2015. A Department of Revenue report found that state taxpayers paid nearly $119,000 for each job created by the credit in 2012.

And Massachusetts is hardly alone. A report from Maryland’s Department of Legislative Services estimated that, even assuming that every production filmed in that state would have gone elsewhere but for tax credits, state and local taxpayers would still recoup just 10 cents on every dollar awarded in credits between 2012 and.2016.

Government incentives to promote economic development are by no means always bad. But with one U.S. Government Accountability Office report finding that state and local tax revenues are not on track to return to pre-Great Recession rates as a percentage of gross domestic product until 2058, taxpayers deserve to know that any funds diverted from schools, transportation funding or other priorities are actually boosting the economy. Providing public auditors with the data to review those incentives is an important step toward providing that assurance.

Charles Chieppo (Charlie_Chieppo@hks.harvard.edu) is a fellow of the Ash Center at Harvard’s Kennedy School. This piece first ran at governing.com.

Editor’s note from Robert Whitcomb: Rhode Island House Speaker Nicholas Mattiello seems determined to raid the Rhode Island state coffers to give what are now called the Pawtucket Red Sox a stadium in Providence with massive tax giveaways as part of the deal. Of course those who don’t get the giveaways will have to make up the lost tax revenue.

Male public officials like to be associated with professional sports teams as an affirmation of their masculinity and a opportunity to meet present and future sports celebrities. Photo ops!

They think it's glamorous to be in bed with these rather rapacious  and  usually very profitable sports businesses.

That even Major League stadiums rarely make macro-economic sense for their communities, let alone farm teams like the PawSox  in cool climates, gets swept aside in what is really a psychiatric and emotional problem. It isn’t serious public policy.

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Charles Chieppo: Providence stadium bogus 'economic development'

  BOSTON

As long as governments are made up of human beings, we can't expect them to be perfect. But they should learn from their mistakes, such as the whopper that Rhode Island state officials made in 2010 when they plowed $75 million into 38 Studios, a now-defunct video-game company started by former Boston Red Sox pitcher Curt Schilling.

Fast-forward five years, and another proposal that combines baseball, business and politics is on the table in Rhode Island. The owners of the Pawtucket Red Sox, Boston's top farm team, are asking for millions of dollars in taxpayer subsidies as part of a plan to build a downtown ballpark in neighboring Providence.

Under the proposal, the owners would spend $85 million to build the stadium and a parking garage. The state would take out a 30-year lease on the stadium land, for which taxpayers would pay $5 million annually in rent. The team would lease the stadium back from the state for $1 million per year, leaving state taxpayers on the hook for $4 million a year, or $120 million over the 30-year lease term.

The team is also asking city taxpayers for help. They want Providence to sign an agreement that would exempt the land from property taxes for 30 years.

The owners are following what has become a well-worn script for teams looking for stadium subsidies, warning that they will likely leave Rhode Island if the deal isn't approved. They've also commissioned the requisite economic-impact study, which estimates that the stadium would generate $12.3 million a year in direct spending for the local economy and about $2 million annually in state tax revenue. As usual with such studies, the owners call the projections "conservative."

Perhaps Holy Cross College economist Victor Matheson said it best when he told The Atlantic that, when it comes to these impact studies, "take whatever number the sports promoter says, take it and move the decimal one place to the left. Divide it by ten, and that's a pretty good estimate of the actual economic impact."

Building a minor-league baseball stadium in Providence would add little net new money to the local economy. The majority of fans would come from close by, meaning that they would likely spend their entertainment dollars at an area movie theater or restaurant if they weren't going to a game

As for benefits to businesses around the stadium, they tend to be limited to just a few blocks. And with 72 home games, what happens during the other 80 percent of the year?

The last time that  Rhode Island leaders dabbled at the intersection of baseball, business and politics, it cost their constituents $90 million (the $75 million in principle invested in 38 Studios plus $15 million in interest). Some may conclude that such non-economic benefits as local pride or entertainment value would make a Providence stadium worth the investment, but they should know better than to view the proposal as genuine economic development.

Charles Chieppo (Charlie_Chieppo@hks.harvard.edu) is a  research fellow of the Ash Center at Harvard's Kennedy School.  This piece originated at governing.com.