President Obama's budget is out (.pdf), and the first thing that strikes me as entirely sensible is indexing to inflation some of our established tax and spending programs. Instead of arguing eternally over whether or by how much federal Pell Grants should be expanded, they would now automatically rise with the Consumer Price Index (plus one percent, a concession to the ever-increasing costs of higher education). We've done this before with elements of our tax code, and it's an effective solution to policy gridlock.
Prior to the 1980s, our tax code suffered from what's called bracket creep. Our tax brackets were set as real dollar amounts, but inflation would cause salaries to rise into higher brackets than intended. Over time, people slowly paid higher taxes each year until we began indexing our tax brackets to inflation. Bracket creep has been essentially eliminated.
Other programs are not indexed to inflation and thus face similar problems. The Alternative Minimum Tax (AMT) is one such example that's causing problems in today's political climate. The AMT was a response to a 1969 IRS study showing that 155 individuals earning over $200,000 managed to avoid paying any income taxes whatsoever. The AMT targeted these individuals who were escaping their tax burdens, but since it was not indexed to inflation, it has ensnared greater numbers of people each year, to the point that it would have affected millions of taxpayers if Congress had not adopted patches each of the last two years. Those "patches" have replaced sound policymaking. Rather than finding an appropriate level and letting it move with inflation, we have to wait for Congress to debate on changes each year.
Obama's budget would begin indexing the AMT and Pell Grants, but there's no economic or political reason to stop there. The federal minimum wage could also be indexed to avoid the consequences that occur when Congress imposes changes over a short period of time. Republicans in power in the past let the minimum wage erode over time to inflation. Democrats, once back in power, quickly upped the rate. These cycles impose real costs on the economy as businesses adapt to radically higher rates. To keep the minimum wage's buying power at a steady level over time, we should be indexing it as well.
The budget will no doubt be a political ping pong ball in the coming weeks, but this is one provision that should stay. It will set controversial parts of the government on autopilot and avoid recurring debates. Who knows, it might even free up time and airspace to debate neglected policy.
Thursday, February 26, 2009
Wednesday, February 25, 2009
The Real 21st Century Skills
The question of so-called "21st Century Skills" has been subject to hot debate in education circles recently; you can read Elena Silva's thoughtful take here, a more skeptical perspective in a recent U.S. News & World Report column from Andy Rotherham here, the Partnership for 21st Century Skills web site, hostility to the whole idea live-blogged by Fordham here, and more. It's a tricky set of questions, whether new skills are really needed for the current era, whether they should properly be thought of as distinct from so-called "basic" skills, etc. Fortunately, we need worry about those questions no longer, because it's hard to imagine a more definitive dialogue than this:
Comparing Treatments
The recently-passed stimulus bill provides money for comparative analysis of medical treatments for various ailments. It's the first such authorization, and it will allow us to answer whether ailment X is best treated with pills, therapy, or surgery. These types of comparisons have long been absent in discussions of educational pedagogy, but yesterday's IES/ Mathematica report does just that. It looks at four common math programs that collectively control about 32 percent of the K-2 math curricula market. It found statistically significant scores for students using two of the four programs:
The study looked at 39 schools implementing new math curricula in the 2006-7 school year. Researchers added 71 additional schools for 2007-8, so we'll have expanded results next year. Math is a good place to begin this comparative process, though, because for too long we've relied on industry-created demonstrations of effectiveness. While this study is only preliminary, it's extraordinarily useful to have objective, comparative results on educational programs.
average math achievement of Math Expressions and Saxon students was 0.30 standard deviations higher than Investigations students, and 0.24 standard deviations higher than SFAW [Scott Foresman-Addison Wesley] students. For a student at the 50th percentile in math achievement, these effect sizes mean that the student’s percentile rank would be 9 to 12 points higher if the school used Math Expressions or Saxon, instead of Investigations or SFAW.One program (Saxon) offered one additional hour per week of instruction, which suggests its success may owe partially to additional time expenditures, but the two successful programs tended to offer more lessons per week devoted to word problems, addition and subtraction of facts with whole numbers, money, place value with whole numbers, fractions, probability, decimals, and percents.
The study looked at 39 schools implementing new math curricula in the 2006-7 school year. Researchers added 71 additional schools for 2007-8, so we'll have expanded results next year. Math is a good place to begin this comparative process, though, because for too long we've relied on industry-created demonstrations of effectiveness. While this study is only preliminary, it's extraordinarily useful to have objective, comparative results on educational programs.
Obama Draws the Line on Charter Schools
One of the most important education lines in President Obama's speech was "We will expand our commitment to charter schools." This is best understood not in terms of any particular public policies but rather in terms of the awesome power presidents have to define the boundaries of public debate. To see evidence of this in education, we need go no further than Obama's predecessor.
Education was one of the most important issues in the early pre-9/11 Bush presidency, with intense negotiations around the reauthorization of the Elementary and Secondary Education Act (which ultimately led to No Child Left Behind). As Nicholas Lemann described in a terrific New Yorker article, in mid-2001 the press was mainly focused on one issue: vouchers. This was understandable; the standard conservative Republican line on federal education policy had been, since at least the Reagan era, mainly about abolishing the U.S. Department of Education and privatizing K-12 schools through vouchers.
But Bush wasn't interested in that. Instead, he went the opposite way, empowering the feds and focusing on improving public schools through test-based accountability. Reasonable people can disagree about how well this worked, but it's very clear that it had the effect of marginalizing vouchers and privatization as national issues. Organizations like the Heritage Foundation, which are influential in many other areas, were completely shut out of the DC education debate. If you define yourself as being more extreme and conservative on an issue than a president who is widely seen as extreme and conservative, you don't leave much space on which to stand.
Obama's forceful position on charter schools is likely to have the same effect, but this time on those who want no forms of choice in public education at all, who reject the idea of letting independent, mostly non-profit organizations run public schools. If you believe, as some people do, that charter schools are nothing more than a stalking horse for the Wal-Mart-ification of public education, you're in for a long eight years.
Obama's Bold Goals for Higher Education
In his speech last night, President Obama said, "By 2020, America will once again have the highest proportion of college graduates in the world. That is a goal we can meet." Not long afterward, a friend emailed to ask if I though this was realistic. Answer: it depends, as these things often do, on exactly what the president means.
President Obama is almost surely referring to educational attainment statistics compiled by the Organisation for Economic Co-operation and Development. OECD statistics showing that America has lost its long-standing lead in the percent of adults with a college degree are frequently used in education policy circles as evidence that we need to repair various parts of our leaky education pipeline. (As someone who's written a lot about low college graduation rates, I was glad the president noted that this is substantially a problem of people starting college but not finishing.) The relevant statistics, if you're interested, can be found here, by clicking on "Indicator A1: To What Level Have Adults Studied?" and then selecting Table A1.3a on the spreadsheet.
Put another way: As long as we're the best of the biggest and the biggest of the best, we'll be okay.
President Obama is almost surely referring to educational attainment statistics compiled by the Organisation for Economic Co-operation and Development. OECD statistics showing that America has lost its long-standing lead in the percent of adults with a college degree are frequently used in education policy circles as evidence that we need to repair various parts of our leaky education pipeline. (As someone who's written a lot about low college graduation rates, I was glad the president noted that this is substantially a problem of people starting college but not finishing.) The relevant statistics, if you're interested, can be found here, by clicking on "Indicator A1: To What Level Have Adults Studied?" and then selecting Table A1.3a on the spreadsheet.
A glance at the table shows that there are two important questions to answer: Are we talking about just bachelors degrees ("Type A"), or bachelors and associate's degrees ("Type B")? And is the 2020 goal in relation to all adults, or just the newest generation of adults?
If we want to be #1 in the percent of adults age 25-64 with a bachelor's degree, that won't be too hard, because we currently trail only Norway, 31% to 30%.
If we want to be #1 in the percent of adults 25-34 with a bachelor's degree, it will be much harder. We're still at 30% on that measure--educational attainment in the U.S. has been steady for a long time--but Norway is at 40%, the Netherlands 34%, Korea 33%, Denmark 32%, and Sweden 31%, Israel 30%. This is the trend that has everyone so worried--the difference between the two age cohorts shows that we used to be much better than everyone else (we're far ahead in the 55-64 age bracket), but other countries have since caught up and moved ahead.
In terms of the percent of adults 25-64 with a bachelor's or associates degree, we're #3 at 39%, behind Canada (47%) and Japan (40%). In the 25-34 cohort, however, we're 12th (also 39%), and some countries like Canada, Japan, and Korea are so far ahead (55%, 54%, 53%) that catching up in eleven years is unrealistic.
This is further complicated by the fact that these aren't all apples-to-apples comparisons. Different countries choose to structure their higher education systems and define degrees in different ways. Norway, king of Type A degrees, basically doesn't offer Type B degrees. That's not necessarily a good thing; I think there's a lot to be said for diversity in credentialing so students can go to college for enough time to learn what they want to learn, and no longer. (I'd say that we should also have one-, three-, and five-year degrees, but what we really need is degrees that aren't based on how much time you were taught but what you actually learned, and no, I don't mean simple test-based certification but rather much richer processes that make learning goals and outcomes in higher education a lot more transparent than they are today.)
Also, if these numbers are going to be the basis for national policy, they need to be accurate. The American Council for Education, the leading higher education lobbying group in DC, uncovered inaccuracies in the 2006 OECD numbers recently. (The numbers cited above are correct.)
A decline in educational attainment relative to other countries is obviously cause for concern. But we probably shouldn't get too hung up on a few ordinal positions at the very top. America's great advantage historically has been to combine high attainment rates with size. If we end up in a position where we have much better college attainment rates than all other countries or population groups of comparable or larger size (i.e. China, India, the collective E.U.) and fall behind only a few countries that are far smaller, we'll still be in good shape. (When we identify our most fearsome economic competitors, I suspect Norway and the Netherlands aren't near the top of the list, and for good reason.)
Put another way: As long as we're the best of the biggest and the biggest of the best, we'll be okay.
Tuesday, February 24, 2009
No Cheese for You
Last week, the New York Times reported on the particularly hard hit historically black colleges and universities (HBCU’s) are taking in the current economic downturn. As the article notes, these institutions serve, often as a central part of their mission, a disproportionately large number of low-income students who are the first in their family to attend college. In other words, the goal of these institutions—historically and currently—is to expand college access. As a result, HBCU’s enroll a much higher percent of students receiving Pell grants and loans to pay for their college education—not exactly the best population for building a large endowment to float you through tough economic times.
In the NYT article, Dr. Marybeth Gasman, an expert on HBCU’s, is quoted as saying that, "At some institutions, you might be going from eating brie to cheddar, while at H.B.C.U.’s, you might not have any cheese left." As this recent report from the Delta Cost Project shows, it's not just HBCU's that might be left without any cheese—there is a large and growing wealth gap in higher education, and institutions serving anything but the most elite populations of students are at risk of significant cutbacks that threaten the quality of education students receive. HBCU’s may be getting the news coverage today, but they are the canary in the higher finance coal mine for many more colleges.
Particularly threatened are the public open access 4-year and 2-year colleges—those institutions serving students most like the populations at many HBCU’s. As the Delta Cost Project report describes, students at these institutions have been paying more in increased tuition, but have not been getting more (and in some cases less) as spending on education related expenses has stayed steady or declined.
Even during times of plenty, many of these institutions operated on thin budgets and actually cut costs even while tuition prices rose because of declining state contributions. Now that states are facing huge budget deficits, colleges will likely be asked to cut back further and increase tuition even more. Eventually, the constant cost cutting required as states ratchet down their investment in public higher education will result in less college access, poorer learning outcomes, lower graduation rates, and will reduce the ability of higher education to help fuel an economic recovery.
As the money from the stimulus bill begins to flow to states, increased college access and affordability for low-income students should be a top priority for state lawmakers. By supporting the colleges and universities that educate the largest numbers of students and ensuring that these students continue to receive a quality education, state lawmakers can utilize the stimulus money to help the U.S. economy get back on its feet.
In the NYT article, Dr. Marybeth Gasman, an expert on HBCU’s, is quoted as saying that, "At some institutions, you might be going from eating brie to cheddar, while at H.B.C.U.’s, you might not have any cheese left." As this recent report from the Delta Cost Project shows, it's not just HBCU's that might be left without any cheese—there is a large and growing wealth gap in higher education, and institutions serving anything but the most elite populations of students are at risk of significant cutbacks that threaten the quality of education students receive. HBCU’s may be getting the news coverage today, but they are the canary in the higher finance coal mine for many more colleges.
Particularly threatened are the public open access 4-year and 2-year colleges—those institutions serving students most like the populations at many HBCU’s. As the Delta Cost Project report describes, students at these institutions have been paying more in increased tuition, but have not been getting more (and in some cases less) as spending on education related expenses has stayed steady or declined.
Even during times of plenty, many of these institutions operated on thin budgets and actually cut costs even while tuition prices rose because of declining state contributions. Now that states are facing huge budget deficits, colleges will likely be asked to cut back further and increase tuition even more. Eventually, the constant cost cutting required as states ratchet down their investment in public higher education will result in less college access, poorer learning outcomes, lower graduation rates, and will reduce the ability of higher education to help fuel an economic recovery.
As the money from the stimulus bill begins to flow to states, increased college access and affordability for low-income students should be a top priority for state lawmakers. By supporting the colleges and universities that educate the largest numbers of students and ensuring that these students continue to receive a quality education, state lawmakers can utilize the stimulus money to help the U.S. economy get back on its feet.
Diminishing Funds = Diminishing Leverage
It's too bad the Washington Post reporter covering a new piece of higher education legislation in Virginia didn't read the bill's fiscal impact statement. If she had, she might not have portrayed the it as evenhandedly as she did. The legislation, which would force Virginia institutions to enroll at least 80 percent of their undergraduates from in-state, would impose almost $21 million annually in additional costs on the institutions. In exchange, state legislators have offered to appropriate about half that amount, $12.5 million, for this initiative while simultaneously cutting about $150 million from general fund appropriations to higher education. It's not exactly a fair trade.
This fight is mainly about coveted spots at the University of Virginia and the College of William and Mary. Legislators proposing the changes have heard from constituents that qualified in-state applicants are being rejected to these schools in favor of out-of-state students. The institutions now have in-state enrollment rates of 58 and 64.3 percent, respectively.
It's an admirable sentiment for state legislators to see the state universities as serving state residents. Unfortunately, the same legislators do not see their own obligations, namely, that it takes state revenue to do so. Prior to the current round of budget cuts, the state provided only 18 percent of William and Mary's budget and eight percent at UVa. Those numbers will likely fall in coming years, and with already low percentages of revenue coming from state coffers, the state has little leverage to demand changes in enrollment policies. The institutions got used to the current funding model in which out-of-state tuition heavily subsidizes in-state students. The state cannot easily rescind one half of that equation.
If legislators are successful in passing this bill, they should be mindful of another passage in the impact statement:
This fight is mainly about coveted spots at the University of Virginia and the College of William and Mary. Legislators proposing the changes have heard from constituents that qualified in-state applicants are being rejected to these schools in favor of out-of-state students. The institutions now have in-state enrollment rates of 58 and 64.3 percent, respectively.
It's an admirable sentiment for state legislators to see the state universities as serving state residents. Unfortunately, the same legislators do not see their own obligations, namely, that it takes state revenue to do so. Prior to the current round of budget cuts, the state provided only 18 percent of William and Mary's budget and eight percent at UVa. Those numbers will likely fall in coming years, and with already low percentages of revenue coming from state coffers, the state has little leverage to demand changes in enrollment policies. The institutions got used to the current funding model in which out-of-state tuition heavily subsidizes in-state students. The state cannot easily rescind one half of that equation.
If legislators are successful in passing this bill, they should be mindful of another passage in the impact statement:
Given that the additional general fund can cover only a portion of the lost revenue under this proposal, it is likely that these institutions would increase their tuition and fees to cover the difference.If and when this happens, legislators will have only themselves to blame.
Monday, February 23, 2009
College Dropouts
Matt Yglesias had an indirect hit on an important piece of data this morning. In the post, he uses Census data to show that a majority of Americans attend college. What he glosses over in the process, though, is that 17 percent of Americans in 2007 reported their highest level of educational attainment as "some college, no degree." In other words,
about a fifth of adult Americans are college dropouts (represented by the red slice in the pie chart above). We have almost as many college dropouts age 25 and up as we do adults with associate's, Master's, professional, and doctorate degrees combined.
Kahlenberg on KIPP
Rich Kahlenberg published a review of Jay Matthews' new KIPP book (Work Hard. Be Nice.) in the Washington Post Book World back of the Washington Post Outlook section yesterday. Rich spends the first half of the review giving Jay good marks before devoting the second half to warning readers that:
This is pretty close to the consolidated left-liberal attitude toward KIPP, so it's worth spending a little time unpacking the two "misguided lessons" Kahlenberg describes.
Per the second lesson, Rich notes that "KIPP does not educate the typical low-income student but rather a subset fortunate enough to have striving parents who take the initiative to apply to a KIPP school and sign a contract agreeing to read to their children at night." Again, there's doubtless some truth in this. But as the KIPP DC Web site notes, the first class of students arrived in Fall 2001 scoring at the 21st percentile in reading and the 34th percentile in math. In 2005, they were at the 71st percentile in reading and the 92nd percentile in math. Somehow, despite the magic power of having exactly the same "striving parents," those students were crashing and burning in the regular public schools four years before.
...there are also two misguided "lessons" that many readers may take from "Work Hard. Be Nice": that the KIPP example suggests that union-free charter schools are the key to closing the achievement gap and that poverty and school segregation are just excuses for teacher failure.
This is pretty close to the consolidated left-liberal attitude toward KIPP, so it's worth spending a little time unpacking the two "misguided lessons" Kahlenberg describes.
On unions, Rich notes that while it's true that most KIPP schools don't have unions, some do, and that some schools with unions have achieved KIPP-like success, and that many schools without unions are bad. All valid points. But this just serves to underscore the need to get beyond a top-level "Unions are good vs. Unions are bad" way of thinking and focus on the actual issues at play.
At KIPP, Kahlenberg notes, teachers "put in a longer school day (beginning at 7:15 and ending at 5 p.m.); teach Saturday classes and three weeks of summer school; and [are] subject to firing without due-process rights." Given that KIPP-like results have proven damnably hard to achieve, it's fair to assume that longer days and fewer work rules are an important part of the KIPP success equation. That doesn't mean those things are needed in every school, but they seem to be needed in these. So the union / KIPP question strikes me as pretty simple: if unions screw up the winning KIPP formula, they're a problem. If they don't, they're not. Union-free charter schools are surely not the only key to closing the achievement gap, but they're pretty clearly a key for thousands of students in KIPP schools today.
Per the second lesson, Rich notes that "KIPP does not educate the typical low-income student but rather a subset fortunate enough to have striving parents who take the initiative to apply to a KIPP school and sign a contract agreeing to read to their children at night." Again, there's doubtless some truth in this. But as the KIPP DC Web site notes, the first class of students arrived in Fall 2001 scoring at the 21st percentile in reading and the 34th percentile in math. In 2005, they were at the 71st percentile in reading and the 92nd percentile in math. Somehow, despite the magic power of having exactly the same "striving parents," those students were crashing and burning in the regular public schools four years before.
One could theorize that KIPP might not have been able to achieve the same results with a demographically similar group of students with parents who didn't give a damn. Maybe. And maybe, as Rich suggest, KIPP's results are further enhanced by students who can't handle the rigor and move back to other schools. But even if those things were true, so what? Nobody else was stepping up back in 2001 to help those students. Not enough people are stepping up now. This is a problem, all of sudden, organizations that have figured out to help disadvantaged students with parents who care about their children's future? KIPP stays under the microscope of suspicion until it proves that it can help every poor child, while thousands of public schools across the country stay open even though they've definitively proved unable to help any poor children?
Click here for the audio of a recent Education Sector event featuring Jay and others discussing the book.
Teacher Pensions
Call it the chart that launched a conference. In 2007 Michael Podgursky and Robert Costrell released a report called “Golden Peaks
The chart shows the retirement wealth accrual over time for teachers. The report’s title is evocative of the chart; namely, it demonstrates vividly the enormous financial pressure teachers face at various stages of their careers. Podgursky, Costrell, and others have since drawn similar charts for a number of states, and they all show how teacher retirement accounts grow slowly over time, only to spike dramatically at various ages determined by state pension plan formulas. Ohio’s, the first of the state charts and the one below, has two such spikes, one for an early retirement incentive and again at the “normal retirement age.” In the chart below, the hypothetical teacher who enters teaching at age 25 gains over $100,000 in future pension wealth at age 50, 55, and 60. Every year they choose to work past age 60, they forfeit pension wealth, meaning they’re actually losing money by working additional years.
California
Monthly benefit = (.02 X 25 X 50,000)/ 12
= $2,083.33
DB plans were once common in the private sector too, but their frequency has fallen since the mid 1970s. They have been replaced by defined contribution (DC) plans. DC plans, like their name, define the retirement contribution an employer makes on an employee’s behalf. In most DC plans, the employer contributes a certain percentage of an employee’s wages into a 401(k) account.
The conference at times devolved into a DB versus DC debate, but before I get into why that’s a false choice, I’ll take some time to weigh their strengths and weaknesses.
DB plans allow individuals to make predictable estimates of their retirement wealth. Since they are usually accompanied by cost-of-living adjustments, they should not erode significantly because of inflation. They last until the individual passes away. They pool risk, so that the fund can make wise, long-term investments. And when a recession hits, current teachers and all taxpayers bear the responsibilities of DB benefit promises. If their goal is to provide a secure retirement as a reward for a career of service, they do their jobs.
At the same time, DB plans transfer wealth from mobile workers to non-mobile ones (mobile workers contribute but never capture the full benefits that longevity assures), from young to old (the young pay into a system that backloads rewards), and from men to women (women live longer and thus earn benefits for more years). (As an aside on teacher quality, DB plans promise nothing to prospective teachers who want to try out the profession. If they leave before being “vested,” usually after five or ten years, they get nothing.) State-run DB plans are subject to interest group influence, which has caused rising payout rates and given teachers more generous pensions over time, especially when compared to private-sector workers. Worst of all, public sector DB plans are typically locked in. A state that increases pension benefits during boom times cannot rescind this offer during boom cycles. In fact, in many states, pension benefits can never be reduced from the time a teacher begins their career.
DC plans offer an alternative. They give every employee the same percentage of salary contribution. In this way, they make it much easier for employers to project future obligations. Individuals have choices; they can participate if they want to or not, invest as they please, and take the money with them when they leave. There is no “maximum” DC pension wealth, because the contribution stays the same regardless of age or service. If a teacher passes away prematurely, her heirs inherit what remains of the account.
Or, the money in a DC plan could run out. Individuals tend to do a bad job of investing, not saving enough, not diversifying their portfolio, investing in too risky or too conservative assets. DC plans are also subject to the whims of the business cycle, since an employee must reduce risk as they near retirement. All of these factors make DC plans less efficient; DB plans often earn investment returns one to two percentage points higher than DC participants.
Ultimately, the DB plans suffer from two main things. One is the aforementioned peaks, and the other is portability. Both are fixable.
The peaks of the current systems are a serious problem. They pull bad teachers to stay in the profession too long, just so they’re able to earn a full pension. And they push out teachers who want to stay in the profession, because of the severe financial penalties on teachers who opt to stay in after their “normal retirement age.” But peaks are not unique to DB plans. Employees with DC plans time their retirement decisions to coincide with high market values of their accounts. Alternatively, we’re now seeing stories of people delaying retirement because of current economic conditions. Of the two, DB plans are the ones that are not inherently linked to peaks.
Politicians like to reward active interest groups with tangible benefits, especially if those benefits are obligations only at some time in the future. Teacher pensions fit this precisely: their unions have significant influence on state politics, and a promise for pension benefits accrues to members slowly over time. Current politicians saddle future ones with the budget problems while satisfying an interest group. In an analysis of the actions of Missouri’s state legislature, which increased teacher pensions nine times during a ten-year period from 1991-2001 (netting each teacher about $75,000 in future benefits and imposing a $5.4 billion long-term liability to the state), researchers saw little evidence of any real analysis. The economy was running smoothly, so state legislators spent as if there were not going to be tech or housing bubbles looming in the next decade.
Other states have taken similar paths, making reform seem impossible, but two states have experimented with legislation that has introduced sanity to the process. Oklahoma and Georgia now have laws on the books requiring a two-year deliberation period before making any changes to the state pension plan. The state must create an analysis at the front-end of the impacts of the proposal, update the analysis after an additional year, and then pass the legislation. Legislators are no longer able to commit the state to large future budgetary obligations without two full years of deliberation.
The second problem with DB plans is interstate portability. Because benefits accrue slowly over time, a teacher who splits her years of service between two states will earn a significantly smaller pension than someone with the same number of years of service in only one state. Researchers at the conference found a hypothetical teacher with 15 years of service in each of two states would accumulate 35-65% less pension wealth than one who stayed put. Thus far, mechanisms to increase portability mostly fail. Teachers can cash out of the first pension program to purchase additional years of service, but in the process they often must forfeit all of the employer’s contributions in the process. These are substantial sums, since employers often contribute the majority of the fund. Some states even mandate the teacher forfeit any earned interest.
But these rules are not fixed in stone. In reality, these prohibitive rules are in place for nothing other than to enrich the state fund on the backs of teacher-leavers. States have no real incentive to fix them now, but they could form partnerships across borders to agree to more equitable rules for interstate movers. If this didn’t work, the federal government could threaten a pension fund’s tax-exempt status if it refused. Or, employers could begin offering a form of DB plan called cash balance (CB). CB plans guarantee individuals a (generally low) return on their investments and typically require the employer to contribute some percentage of the employee's salary. The account is in the employee's name, but the benefit--the interest rate and contributions--are guaranteed, placing the risk with the employer. An employee can choose whether to take the account balance as a lump sum payment or transfer it to a lifetime annuity.
Ultimately, the peaks and portability problems are the largest barriers to the status quo. Because while defined benefit retirement plans for government workers often come under scrutiny for being too generous(including and especially those of teachers), it's important to think about the goal of any retirement system. Defined contribution plans might be better if the goal is to minimize cost and risk to the employer while giving the employee maximum flexibility. But if it is to create a loyal workforce with the prospect of a secure retirement, then defined benefit plans are quite successful.
The chart shows the retirement wealth accrual over time for teachers. The report’s title is evocative of the chart; namely, it demonstrates vividly the enormous financial pressure teachers face at various stages of their careers. Podgursky, Costrell, and others have since drawn similar charts for a number of states, and they all show how teacher retirement accounts grow slowly over time, only to spike dramatically at various ages determined by state pension plan formulas. Ohio’s, the first of the state charts and the one below, has two such spikes, one for an early retirement incentive and again at the “normal retirement age.” In the chart below, the hypothetical teacher who enters teaching at age 25 gains over $100,000 in future pension wealth at age 50, 55, and 60. Every year they choose to work past age 60, they forfeit pension wealth, meaning they’re actually losing money by working additional years.
Monthly benefit = (.02 X 25 X 50,000)/ 12
= $2,083.33
DB plans were once common in the private sector too, but their frequency has fallen since the mid 1970s. They have been replaced by defined contribution (DC) plans. DC plans, like their name, define the retirement contribution an employer makes on an employee’s behalf. In most DC plans, the employer contributes a certain percentage of an employee’s wages into a 401(k) account.
The conference at times devolved into a DB versus DC debate, but before I get into why that’s a false choice, I’ll take some time to weigh their strengths and weaknesses.
DB plans allow individuals to make predictable estimates of their retirement wealth. Since they are usually accompanied by cost-of-living adjustments, they should not erode significantly because of inflation. They last until the individual passes away. They pool risk, so that the fund can make wise, long-term investments. And when a recession hits, current teachers and all taxpayers bear the responsibilities of DB benefit promises. If their goal is to provide a secure retirement as a reward for a career of service, they do their jobs.
At the same time, DB plans transfer wealth from mobile workers to non-mobile ones (mobile workers contribute but never capture the full benefits that longevity assures), from young to old (the young pay into a system that backloads rewards), and from men to women (women live longer and thus earn benefits for more years). (As an aside on teacher quality, DB plans promise nothing to prospective teachers who want to try out the profession. If they leave before being “vested,” usually after five or ten years, they get nothing.) State-run DB plans are subject to interest group influence, which has caused rising payout rates and given teachers more generous pensions over time, especially when compared to private-sector workers. Worst of all, public sector DB plans are typically locked in. A state that increases pension benefits during boom times cannot rescind this offer during boom cycles. In fact, in many states, pension benefits can never be reduced from the time a teacher begins their career.
DC plans offer an alternative. They give every employee the same percentage of salary contribution. In this way, they make it much easier for employers to project future obligations. Individuals have choices; they can participate if they want to or not, invest as they please, and take the money with them when they leave. There is no “maximum” DC pension wealth, because the contribution stays the same regardless of age or service. If a teacher passes away prematurely, her heirs inherit what remains of the account.
Or, the money in a DC plan could run out. Individuals tend to do a bad job of investing, not saving enough, not diversifying their portfolio, investing in too risky or too conservative assets. DC plans are also subject to the whims of the business cycle, since an employee must reduce risk as they near retirement. All of these factors make DC plans less efficient; DB plans often earn investment returns one to two percentage points higher than DC participants.
Ultimately, the DB plans suffer from two main things. One is the aforementioned peaks, and the other is portability. Both are fixable.
The peaks of the current systems are a serious problem. They pull bad teachers to stay in the profession too long, just so they’re able to earn a full pension. And they push out teachers who want to stay in the profession, because of the severe financial penalties on teachers who opt to stay in after their “normal retirement age.” But peaks are not unique to DB plans. Employees with DC plans time their retirement decisions to coincide with high market values of their accounts. Alternatively, we’re now seeing stories of people delaying retirement because of current economic conditions. Of the two, DB plans are the ones that are not inherently linked to peaks.
Politicians like to reward active interest groups with tangible benefits, especially if those benefits are obligations only at some time in the future. Teacher pensions fit this precisely: their unions have significant influence on state politics, and a promise for pension benefits accrues to members slowly over time. Current politicians saddle future ones with the budget problems while satisfying an interest group. In an analysis of the actions of Missouri’s state legislature, which increased teacher pensions nine times during a ten-year period from 1991-2001 (netting each teacher about $75,000 in future benefits and imposing a $5.4 billion long-term liability to the state), researchers saw little evidence of any real analysis. The economy was running smoothly, so state legislators spent as if there were not going to be tech or housing bubbles looming in the next decade.
Other states have taken similar paths, making reform seem impossible, but two states have experimented with legislation that has introduced sanity to the process. Oklahoma and Georgia now have laws on the books requiring a two-year deliberation period before making any changes to the state pension plan. The state must create an analysis at the front-end of the impacts of the proposal, update the analysis after an additional year, and then pass the legislation. Legislators are no longer able to commit the state to large future budgetary obligations without two full years of deliberation.
The second problem with DB plans is interstate portability. Because benefits accrue slowly over time, a teacher who splits her years of service between two states will earn a significantly smaller pension than someone with the same number of years of service in only one state. Researchers at the conference found a hypothetical teacher with 15 years of service in each of two states would accumulate 35-65% less pension wealth than one who stayed put. Thus far, mechanisms to increase portability mostly fail. Teachers can cash out of the first pension program to purchase additional years of service, but in the process they often must forfeit all of the employer’s contributions in the process. These are substantial sums, since employers often contribute the majority of the fund. Some states even mandate the teacher forfeit any earned interest.
But these rules are not fixed in stone. In reality, these prohibitive rules are in place for nothing other than to enrich the state fund on the backs of teacher-leavers. States have no real incentive to fix them now, but they could form partnerships across borders to agree to more equitable rules for interstate movers. If this didn’t work, the federal government could threaten a pension fund’s tax-exempt status if it refused. Or, employers could begin offering a form of DB plan called cash balance (CB). CB plans guarantee individuals a (generally low) return on their investments and typically require the employer to contribute some percentage of the employee's salary. The account is in the employee's name, but the benefit--the interest rate and contributions--are guaranteed, placing the risk with the employer. An employee can choose whether to take the account balance as a lump sum payment or transfer it to a lifetime annuity.
Ultimately, the peaks and portability problems are the largest barriers to the status quo. Because while defined benefit retirement plans for government workers often come under scrutiny for being too generous(including and especially those of teachers), it's important to think about the goal of any retirement system. Defined contribution plans might be better if the goal is to minimize cost and risk to the employer while giving the employee maximum flexibility. But if it is to create a loyal workforce with the prospect of a secure retirement, then defined benefit plans are quite successful.
Lessons from Grey's Anatomy?
Beyond the Bubble discusses how technology can provide opportunities to improve student assessment. The report briefly highlights iStan, a life-like, sensor filled mannequin used by medical and nursing schools to simulate patient interactions and responses.
Medical education is obviously very different from K-12. But, it's not so different that we can't learn from the practice. Examples from medicine and a variety of other fields show that we can think differently about how to assess students' knowledge and skills -- with profound implications for more personalized instruction. Here's one account from Oklahoma:
Medical education is obviously very different from K-12. But, it's not so different that we can't learn from the practice. Examples from medicine and a variety of other fields show that we can think differently about how to assess students' knowledge and skills -- with profound implications for more personalized instruction. Here's one account from Oklahoma:
“See one, do one, teach one’ is what we used to say,” [Dr. Rhonda] Sparks said. “Once I’d watch something and an instructor had talked to me about it, then I could perform that procedure. Then once I could perform that procedure, I was responsible to teach someone else.” She said some students wouldn’t gain as much experience as others because of random chance, poor mentoring or even simple shyness. The training center allows the university to standardize the learning experience for all students and even tailor the lessons to the students’ strengths and weaknesses.This is the world that we need to prepare our students to succeed in. It's not just doctors, but also nurses and physician assistants working both individually and in teams. Nor is it some distant future. This is the profession today -- in hundreds of hospitals, medical schools, and even on Grey's Anatomy...
Friday, February 20, 2009
A Little Knowledge
Ezra Klein links to the video of lunatic CNBC business reporter Rick Santelli going on what appears to be an entirely sincere rant about the stimulus package and the Obama administration's plans to help distressed homeowners. As Ezra notes, "Santelli sells himself as a sort of financial sector Howard Beale: He's mad as hell, and he's not going to take it anymore. The problem is he's on the trading floor of a stock exchange surrounded by the very masters of the universe who started this mess."
At one point in the video, the conversation turns to idea of helping homeowners in danger of foreclosure refinance at lower rates. Santelli is having none of this, despite the fact that higher-than-projected mortgage default rates are what led to the rapid devaluation of allegedly investment-grade securities held by large financial institutions whose staggering blindness to such risk led to insolvency, frozen credit, a great recession (if we're lucky) and the end of the financial world as we know it.
At one point in the video, the conversation turns to idea of helping homeowners in danger of foreclosure refinance at lower rates. Santelli is having none of this, despite the fact that higher-than-projected mortgage default rates are what led to the rapid devaluation of allegedly investment-grade securities held by large financial institutions whose staggering blindness to such risk led to insolvency, frozen credit, a great recession (if we're lucky) and the end of the financial world as we know it.
At that moment, the trading floor guy to Santelli's left turns and says "How about we all stop paying our mortgage? It's a moral hazard!"
The concept of "moral hazard" has itself become a hazard, I think. Like a lot of ideas rooted in economics, it's one of those insights into human behavior that isn't entirely obvious until somebody explains it to you, and then it seems like new window onto the world. Wikipedia defines it as "the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk." It's theoretically applicable to all kinds of situations: If drivers feel like airbags will protect them in a crash, they'll drive more recklessly, reducing the net injury-reducing benefits of airbags. If you forgive someone's debt, they'll borrow more recklessly, increasing the chance of future default. And so on. It's a useful perspective, something worth keeping in mind.
The problem is that "moral hazard" has for many people been elevated to the level of F=MA as an iron-clad law of the universe and as such is used to justify all kinds of cruel and spurious positions. It's aparently why we didn't bail out Lehman Brothers, which in retrospect looks like a catastrophically bad call. It's poorly understood by many as a catch-all justification for never offering any kind of helping hand. Empirically speaking, there's less evidence to support it than one might think--developing countries whose debt is forgiven don't actually have a horrible track record of subsequent reckless borrowing, for example. Air bags don't actually turn lots of safe drivers into reckless ones, because it still really sucks to crash your car.
There's an educational lesson in all of this: picking up conceptual bits and pieces here and there without understanding the larger theory and complexities thereof can leave you worse off than if you'd never picked up the bits and pieces to begin with, because you think you understand more when you really understand less.
The Sugar
If you drive away from the center of Washington, DC on East Capitol Street, around RFK Stadium and across the Anacostia River, you eventually come to the intersection with Benning Road, and a Denny's. For the last decade, the pancake emporium has been the only-sit down restaurant in Ward 7 and as such a symbol of the struggle to bring economic development and a decent life to the mostly low-income DC residents east of the river. This is one of the real dillemmas of urban development: people in low-income neighborhoods like Wards 7 & 8 may have little money per-capita, but they still have a fair amount of money collectively, since there are a lot people living there. And so businesses locate there to serve that market. But they tend not to be very good businesses from a quality-of-life standpoint; if you drive up and down Benning Road you see a lot signs for businesses that conveniently sell multiple things that are bad for you in the same place, e.g. "Checks Cashed, Instant Tax Refund" or "Lottery / Beer / Liquor" or "Burritos, Chinese Take-Out, Fried Shrimp."
The city of DC has been taking steps in recent years to try and fix this, as with a new government-subsidized shopping complex in Ward 8 that recently opened up, complete with a Giant supermarket, a Wachovia bank, and other sorts of businesses that one might find in the more affluent parts of the city and surrounding suburbs. And directly adjacent to the complex there's a brand-new IHOP that was filled with customers at 10:30 this morning, all eating at the first sit-down restaurant the area has had in a long time.
But there's another business thriving in the various run-down strip malls east of the river: dialysis centers. Wards 7 & 8 appear to have been struck by the diabetes epidemic that is afflicting communities nationwide. And the only two sit-down restaurants east of the river, parking lots full because these are the only options the free market provides, are in the business of selling their customers liquid sugar.
All of which is to say that it's complicated, this business of understanding and managing the intersection of market forces, private capital, consumer choice, public infrastructure, and multiple concerns of health, employment, and quality of life. And there are implications for public education, particularly as the public, non-profit, and private education sectors increasingly co-mingle. You'll see see more from us on this topic in the coming months.
Thursday, February 19, 2009
Love Your Children, Go To Jail
Via Eduwonk by way of DFER, the story of Yolanda Hill, a Rochester mother of five who has been shackled and thrown in prison for enrolling her children in a good school system:
This makes perfect sense when we start with a society that's unusually and increasingly stratified by income, with residential patterns to match, and say "Hey, let's draw lines around our gated enclaves of privilege and create school districts that look exactly the same!" In a decent society that takes educational opportunity seriously, it's utterly insane.
Greece [school district] officials hired a private investigator to look into Hill's claim that her children lived with their grandmother. According to his report, over four months this school year, Hill was seen driving her kids each morning from her home on Morrill Street [in an adjacent disrtict] to her mother's home, where they would board buses for various Greece schools. The school district says that the education provided for the children due to the filing of false paperwork was worth $28,000.
This makes perfect sense when we start with a society that's unusually and increasingly stratified by income, with residential patterns to match, and say "Hey, let's draw lines around our gated enclaves of privilege and create school districts that look exactly the same!" In a decent society that takes educational opportunity seriously, it's utterly insane.
This also raises some important points about "parental involvement," the lack of which is frequently cited as a reason to not expect too much from schools that enroll many poor and minority children. Ideally, it would be great if parents were able to invest a lot of time in helping their children learn. But if you're a single parent who didn't get a very good education when you were in school, and you have five children, and you're struggling to put food on the table by holding down multiple low-paying jobs (if you're lucky, given skyrocketing unemployment) then the best thing you can do for your kids--the best way to be parentally involved--isn't to spend three hours a night helping with homework or bake cupcakes for the PTA but to get your children into a good school, a school that has the resources and staff to give your children what you can't.
Wednesday, February 18, 2009
Questionable Odds
Nate Silver became justly famous for making the transition from sabermetrics to election predictioneering, but color me skeptical of this New York magazine article that includes his take on the upcoming Oscars. His statistical model, it says:
...involved building a huge database of the past 30 years of Oscar history. Categories included genre, MPAA classification, the release date, opening-weekend box office (adjusted for inflation), and whether the film won any other awards. We also looked at whether being nominated in one category predicts success in another. For example, is someone more likely to win Best Actress if her film has also been nominated for Best Picture? (Yes!) But the greatest predictor (80 percent of what you need to know) is other awards earned that year, particularly from peers (the Directors Guild Awards, for instance, reliably foretells Best Picture). Genre matters a lot (the Academy has an aversion to comedy); MPAA and release date don’t at all. A film’s average user rating on IMDb (the Internet Movie Database) is sometimes a predictor of success; box grosses rarely are.So that's the six major Oscars (the four acting awards plus picture and director) with five nominees per category multiplied by 30 years multiplied by, what, 10 categories of data? 9,000 discrete pieces of information, total? That's not a huge database, that's a medium-sized Excel spreadsheet. Which may explain the improbable odds, e.g. that Slumdog Millionaire has a 99.0 percent chance of winning Best Picture while The Curious Case of Benjamin Button has a 0.0 percent chance. That's just goofy; anyone who's watched the Oscars faithfully through the years, and yes I admit to this personal shame, knows that the academy is more fickle and unpredictable than that. Anne Hathaway has a 0.0 percent chance of winning Best Actress? Because Oscar voters are famously averse to giving awards to beautiful young actresses? Taraji P. Henderson is four times likelier than Viola Davis to win Best Supporting Actress, because Benjamin Button was nominated (but has no chance of winning) and Doubt wasn't (event though it produced three other acting nominations)? I know journalists are averse to numbers but this is an article that desperately needs a few sentences explaining the concept of "standard error."
Anyone who wants to give me 50-1 odds on Button and/or Hathaway, or 5-1 on Viola Davis, I can be reached at kevincarey1@gmail.com. Don't worry, it's a sure bet, Nate Silver's predictive models are foolproof.
Reassurance Needed
In addition to fully funding NCLB, the stimulus bill includes a gargantuan $54 billion fiscal stabilization fund for education. In many ways this money is best understood as not education-related at all, but simply a politically palatable way for the federal government to prevent pro-cyclical state and local budget cuts that would accelerate the current economic death spiral. If you have to choose public employees to not lay off, in other words, teachers are (delusions of magical poverty-driven school reform notwithstanding) a pretty good choice. They're not "government bureaucrats," they often play an outsized role in their local communities, there are a lot of them, most people feel pretty good about spending public money on education, etc.
Most of the fund is in a big general pot. States have to apply for this money, which is mostly a formality since the funds will be disbursed using a pre-established population-based formula, and there is exactly no chance whatsoever that state applications will be turned down. Given the gravity of the economic situation, even something like Illinois voters amending their state constitution to anoint Rod Blagojevich governor-for-life shouldn't be disqualifying. Heck, bribe money probably gets into the economic bloodstream as fast as anything.
Nonetheless, there are a few policy-related items in the stabilization fund section of the law. For example, in submitting the sure-to-be-accepted applications, state have to provide "assurances" of the following:
Most of the fund is in a big general pot. States have to apply for this money, which is mostly a formality since the funds will be disbursed using a pre-established population-based formula, and there is exactly no chance whatsoever that state applications will be turned down. Given the gravity of the economic situation, even something like Illinois voters amending their state constitution to anoint Rod Blagojevich governor-for-life shouldn't be disqualifying. Heck, bribe money probably gets into the economic bloodstream as fast as anything.
Nonetheless, there are a few policy-related items in the stabilization fund section of the law. For example, in submitting the sure-to-be-accepted applications, state have to provide "assurances" of the following:
- They will give K-12 and higher education (calculated separately) at least as much money in 2009, 2010, and 2011 as they did in 2006.
- They will establish longitudinal data systems to link up various student, school, university and teacher records.
- They will improve their standards and tests.
- They will support struggling schools
- They will, and here I quote directly, "comply with the requirements of paragraphs (3)(C)(ix) and (6) of section 1111(b) of the ESEA (20 U.S.C. 6311(b)) and section 612(a)(16) of the IDEA (20 U.S.C. 1412(a)(16)) related to the inclusion of children with disabilities and limited English proficient students in State assessments, the development of valid and reliable assessments for those students, and the provision of accommodations that enable their participation in State assessments" as well as "comply with section 1111(b)(8)(C) of the ESEA (20 U.S.C. 6311(b)(8)(C)) in order to address inequities in the distribution of highly qualified teachers between high- and low-poverty schools, and to ensure that low-income and minority children are not taught at higher rates than other children by inexperienced, unqualified, or out-of-field teachers."
In other words, in order to get the stimulus money, states have to assure the Department of Education that they will comply with federal laws that were enacted over seven years ago. Readers unfamiliar with the actual nature of federalism in the United of States of America might assume that compliance with the law is one of those things that are just kind of assumed and don't require additional bribes and written reassurances, but in the real world implementation of federal statute is much more a matter of negotiation. States have systematically chosen to ignore the above provisions with no real consequences, which unfortunately serves to highlight the generally toothless nature of the "assurance" process, in that it has less weight than the explicit statutes states have contravened. If history is any guide, the states will, in putting their applications together, cut and paste the above text out of the law, insert the words "We will" in front of each section, cash the checks, and be done. I would love to be wrong about this.
Much more promising is the $5 billion "State Incentive Grant" portion of the stabilization fund. That's still a lot of money, even in the present depressingly grand scheme of things. Because the states are broke, they will all apply for the money, and there will be a lot of pressure on Secretary of Education Duncan to disburse the funds in the much same way as the big pot of stabilization money: proportional to size, so everyone gets their "fair" share, and subject only to a set of vague and infinitely malleable reassurances. But as I read the statute, he has a great deal of discretion to be much more inventive and forward-looking in deciding who gets how much money and establishing bright lines in terms of eligibility and use of funds. Done right, the process could be the launching pad for a terrific multi-year agenda.
Tuesday, February 17, 2009
Beyond the Bubble (cont.)
Below, Chad highlighted my new Education Sector report on technology and the future of student assessment. In the report, I show how technology can help to both deepen and broaden assessment practice--by assessing more comprehensively and by assessing new skills and concepts.
Beyond the Bubble, of course, refers to the multiple choice question types that dominate NCLB-mandated state assessments.* But, it also refers to breaking through the static nature of the current policy debate around testing. You can hear me talk more about the current debate and discuss the implications of the report in this online interview.
*Disclaimer: Multiple choice question types can be an important part of a nutritious and well-balanced assessment diet.
Beyond the Bubble, of course, refers to the multiple choice question types that dominate NCLB-mandated state assessments.* But, it also refers to breaking through the static nature of the current policy debate around testing. You can hear me talk more about the current debate and discuss the implications of the report in this online interview.
*Disclaimer: Multiple choice question types can be an important part of a nutritious and well-balanced assessment diet.
Stalled at Launch
In K-12 education we have long debates about the purposes of public schooling, whether the focus should be on the basics or 21st century skills or if that's even a useful distinction, the best ways to assess student learning, how to contruct accountability systems that do more harm than good, etc. But underyling that discussion is a general consensus that it's possible to arrive at a reasonably accurate estimate of what students know, and that it's useful to compare students who attend one educational institution to students who attend other educational institution in this regard--or, at the very least, make the information public in a way that the people who attend the institutions and pay for the institutions can understand. In higher education, by contrast, no such agreement exists and indeed there are plenty of folks out there who find the whole idea puzzling and inappropriate. As such, higher education finds itself in a difficult spot: desperate for more public resources, but unable to marshall any convinving evidence of what those resources will produce in terms of how much college students learn. This is the subject of my new column in the Chronicle of Higher Education.
Beyond the Bubble
During the 2008 presidential campaign, candidate Barack Obama frequently made comments like this one from April, where he said too much time was spent, "preparing students for tests that do not provide any valuable, timely feedback on how to improve a student's learning. Creativity has been drained from classrooms as too many teachers are forced to teach fill-in-the-bubble tests." This is a good sentiment, but it's an unfortunate reality that our current accountability system is reliant on such instruments. In a new Education Sector report, Bill Tucker looks beyond the bubble:
Students today are growing up in a world overflowing with a variety of high-tech tools, from computers and video games to increasingly sophisticated mobile devices. And unlike adults, these students don't have to adjust to the information age—it will be all they've ever known. Their schools are gradually following suit, integrating a range of technologies both in and outside of the classroom for instructional use. But there's one day a year when laptops power down and students' mobile computing devices fall silent, a day when most schools across the country revert to an era when whiteboards were blackboards, and iPhones were just a twinkle in some techie's eye—testing day....Still, the convergence of powerful new computer technologies and important new developments in cognitive science hold out the prospect of a new generation of student testing that could contribute to significant improvements in teaching and learning in the nation's classrooms.Read the full report here.
Monday, February 16, 2009
That's Settled
The recently-enacted stimulus bill includes $13 billion in extra funding for Title I of the No Child Left Behind Act. Since Title I currently receives a little over $12 billion per year and the maximum amount authorized under the law is $25 billion, by my count NCLB is now "fully funded" and I assume those persons and organizations who have cited the lack of such funding as their principle objection to NCLB will now be foursquare in favor of holding all schools accountable for student performance via standardized tests.
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