Don't Force Charter Schools Into State Pension Plan

Doing so would rob money from low-income families

Michigan Capitol Confidential recently asked Ann Arbor Public Schools Board President Christine Stead about the impact of rising pension costs on her district’s budget. While the budgetary concerns she raises are real for her district and many others around the state, her proposed solution to this problem — forcing charter schools to foot some of the pension costs — is misguided.

The statewide school pension system today presents taxpayers with a $27 billion unfunded liability. This is the difference between what school employees have earned in benefits and what the state has saved to cover these costs. Most of what school districts pay into the system today goes to cover past responsibilities.

Forcing charter schools to pay for these pension costs is inappropriate for a number of reasons. First, charter school teachers do not benefit at all from the state’s pension system. That’s because they are typically offered 401(k)-type, defined contribution retirement benefits that do not create any liabilities for future taxpayers. Why should we take money away from today’s charter school teachers to fund pensions earned by yesterday’s school district employees?

Second, while most school districts serve some at-risk students, charter schools serve a disproportionate share of them. About 70 percent of charter school students come from low-income backgrounds and the vast majority of charters serve Michigan’s urban populations. Meanwhile, only 21 percent of students in Ann Arbor Public Schools qualify as low income, or half the statewide average for conventional school districts in Michigan. Should we really take money away from schools serving poor families in Detroit, Flint and Grand Rapids?

Finally, charter schools are typically among the lowest-funded schools in Michigan, with the vast majority of them receiving the minimum foundation allowance of $7,511 per pupil. This means that every charter school in the state receives a smaller foundation allowance than the $9,230 per student Ann Arbor Public Schools receives.

Plus, charter schools face their own unique budgetary challenges. For instance, unlike school districts, charter schools cannot raise revenue from local property taxes to pay for capital costs, such as school buildings. Instead, that money has to come out of their foundation allowance, leaving less money available for operating costs, such as paying teachers.

Stead is right to highlight the damage that the state’s underfunded and poorly managed school employee pension system is causing to school districts’ budgets. But the blame for this unfortunate state of affairs rests at the steps of the state Capitol, not at the charter schoolhouse door. Forcing charter schools to pay for the state’s failure to properly fund its pension system would be unfair and inappropriate.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.