With news that a $75 million teacher performance pay experiment in New York City yielded no positive results, it’s worth remembering the deal that Mayor Michael Bloomberg struck just to put the plan in place. All the way back in 2007:
If union members agree, the number of years of service required for a teacher to earn a full pension would be reduced to 25 from 30. In exchange, current teachers would have to agree to a 1.85 percent increase in their pension contributions. A 1.85 percent increase in contributions will also be required from future teachers, who will have to work at least 27 years — instead of 30 — before being able to retire with a full pension.
In announcing the pension changes, Mayor Bloomberg assured the public that the deal would save taxpayers “tens of millions” of dollars in the long run, but the math just doesn’t work in his favor. To achieve those savings, Bloomberg is assuming the pension plan will pick up the entire tab of retirees’ pension and health care costs, so the city exchanges one older worker, with higher compensation, for one younger worker, with lower compensation. That’s not a safe assumption, because, sooner or later, the pension costs trickle back to the city.
More importantly, while the merit pay plan died a quiet death last year, the new pension benefits, on the other hand, are permanent. The state of New York, and indirectly New York City, will be paying for expanded teacher benefits forever. New York State’s Constitution prohibits any reduction in benefits for current employees, even those benefits that are merely potential. Reducing the benefit calculation would be impermissible if it resulted in a single participant receiving one single dollar less than they would have received under the old formula, even if the benefits have yet to be earned. These restrictions can be removed only through changes to the state’s constitution.
The merit pay study was written by Harvard professor Roland Fryer, and it’s being published by the National Bureau of Economic Research, so I trust it’s of high quality. Look for more analysis on that later, but for now, just remember that Michael Bloomberg traded a young, largely untested prospect (merit pay) for thousands of grizzled veterans (all those retiring teachers).