New York City: A deal at any cost

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by Kate Walsh

In principle, innovation is generally something to applaud. It is the end result of all sorts of wonderful human qualities, such as creativity, optimism and courage.

I wish it were possible to be more upbeat about the innovative spirit emanating from New York City last week, with the much heralded announcement of its teacher pay-for-performance plan. The city brokered a deal with the local union that will provide bonuses for student gains to teachers working in some of the city's neediest schools. The price of that deal was to allow teachers to retire with full benefits after 25 years of service, 5 years earlier than the current cutoff for many teachers.

It's hard to figure out what part of this deal is going to improve the quality of teachers in New York, which we thought was the point of performance pay. But school officials wanted it so badly that they were willing to pay a king's ransom.

Let's focus first on just the merits of the pay plan. An op-ed in the New York Times may have said it best: if incentives were insulting to Joe Torre, why wouldn't teachers be insulted? We can demonstrate our commitment to keeping great teachers in our district by providing higher salaries in recognition of their consistently strong performance, or we can take the Hank Steinbrenner approach: "maybe you're worth the money, maybe you're not."

You can argue that investment bankers don't find such incentive systems insulting, but they're also not told that they'll only be eligible for a bonus if everyone else in their division does a great job too, as will be the case for New York's teachers. An investment banker operates under the rule "close a sweet deal, the bonus is yours, baby," without qualification.

To be fair, an incentive system is a nice little perk. It is probably not even a waste of money, as there isn't anyone who doesn't appreciate getting a monetary thank you for a job well done.

However, it almost certainly won't motivate a teacher to change schools. The gamble the district is asking teachers to make is just too great. What teacher is going to give up a comfortable position to go to a tougher school on the off chance that, once there, the whole school's test scores will improve so much that she'll technically qualify for, but perhaps not actually receive, a $3000 bonus--depending on the decision of a four-member committee?

Let's move on to the pension part of this deal. While the media seems fairly uninterested in its cost, we aren't. It is beyond the pale. While there are as many as 6,000 teachers who could be eligible for retirement within the next five years, let's assume that only 1,200 teachers choose early retirement next year. They alone would add an additional $67 million each year to what the pension system must pay out. An additional 3,000 teachers carries a five-year price tag of $825 million.* That's an awfully high price to pay just to get the UFT to agree to let the district pay more money to some of its members. More importantly, it's a deal that New York is stuck with for the long haul (though perhaps not that long since the entire public pension system stands ready to disintegrate at any time)--long after the $20 million of private donations for the pay plan runs out.

Here's the real humdinger. To pay for this pension plan, the union agreed to a 1.8% deduction from teacher paychecks, effectively wiping out a recent pay increase. Instead of looking for ways to persuade younger teachers to stay in the profession a few more years, the union relies on a benefit that only their older members are likely to appreciate. Arguments by union officials to the contrary are either disingenuous or oblivious to current workforce realities. Younger workers just aren't interested in a single career (nor do they ever think they will grow old). And as the study below shows, the profession continues to backload all of its benefits at a far higher rate than other professions. In truth, the pay deduction is a tax, benefiting older teachers on the backs of new teachers.

Michael Bloomberg is a very smart man, as is Joel Klein. I would like to assume they know something we don't, such as that the pension deal was inevitable or that they can see a bigger picture, that an imperfect program may lead to something better. Perhaps they are anxious to encourage older teachers to leave, to draw in new blood. Let's hope there is more to this than meets the eye.

*Our calculation is conservative. There are over 6,000 teachers in New York who are at Step 22 or above, meaning that they are all eligible to retire in at least the next five years, the majority sooner. Almost all of them are earning a current salary of $93,416 and will earn at least half that much each year of their retirement. They also are entitled to full medical benefits ranging from $3,700 to $9,000 per year, depending on if they are single or have a family.