Tuesday, December 10, 2013

Let's look inside the international test results.

Over the last 3 blog posts, we've been looking at the performance of American public schools in light of the current "the sky is falling" push to "reform" schools. Along the way, we've learned that HS graduation rates are up, not down. We have also learned that, over time, results as measured by the National Assessment of Educational Progress (NAEP) have been going up, not down and that, in fact, students today know far more than students 25 or 50 years ago.

But then there is the matter of international test scores. The PISA (Program for International Student Assessment) test, administered every 3 years, measures performance in reading, math, science and problem-solving skills. While the U.S. has maintained its score level over several administrations of the test, other countries score higher. The conclusion the "reformers" reach is that we are not keeping up with our international competition. Our public schools are "failing" and drastic changes are needed.

Sorry, but that's only true if you compare apples to oranges!

The National Association of Secondary School Principals (NASSP) has done a very nice job of looking inside the numbers for the PISA test. They have a nice analysis, and you might be very surprised at where the USA really stands when apples are compared with apples. Please take a few minutes and click here to read their piece, then come back here when you are done.

Welcome back! Let's review:

• U.S. students in schools with 10% or less poverty are the number one country in the world.

· U.S. students in schools with 10-24.9% poverty are third behind Korea, and Finland.

· U.S. students in schools with 25-50% poverty are tenth in the world.

· U.S. students in schools with greater than 50% poverty are near the bottom.

To paraphrase Bill Clinton: It's the poverty, stupid! Poverty matters because it's more difficult for kids who are homeless or live in a shelter to learn. It's more difficult for kids who are hungry to learn. It's more difficult for kids who are scared about getting to/from school--or just about being in school--to learn.

Poverty is not an excuse, it's a fact of life and the USA has a greater percentage of kids living in poverty than any other country in the world.

To quote the NASSP: "When it comes to student achievement and school improvement, it's poverty not stupid! Researchers report that perhaps the only true linear relationship in the social sciences is the relationship between poverty and student performance. While there is no relationship between poverty and ability, the relationship between poverty and achievement is almost foolproof. To deny that poverty is a factor to be overcome as opposed to an excuse is to deny the reality that all educators, human services workers, law enforcement officers, medical professionals and religious clergy know and have known for years.... regretfully, poverty impacts test scores."

"We count on our leaders to provide focus and direction. Sadly, our education leaders don't trust us enough to tell us the truth. The problem is that we will never solve a problem that our leaders refuse to admit even exists. The comparison of PISA scores by poverty clearly identifies our strengths and challenges as a nation. Our schools with less than 50% poverty are some of the best in the world. Our extremely high-poverty schools, with over 50% poverty, are among the poorest performing internationally."

"Instead of labeling all schools as failing, we must find a way to raise the performance of our students in under-resourced schools. Instead of looking to low-poverty countries like Finland for direction, we should be looking to take what we already know about educating students in high-performing, high-poverty schools like our Breakthrough Schools and scaling up their successes across the nation. We continually look for gold in other countries when, all along, we are sitting on acres of diamonds."

Sunday, November 24, 2013

"Superman" and Rhee blew it!

My last two posts (There's only one problem with this narrative and Public schools in Crisis? Check the facts) began looking at education expert Diane Ravitch's new book, Reign of Error. Ravitch maintains that there is no "crisis in American education" and backs up her assertion with hard facts.

One of the claims of the "reformers" is that today's students don't know as much as their counterparts from 25 or 50 years ago. In this post we will examine this claim.

According to Ravitch, the U.S. has only one way to measure student performance over time. It is called the National Assessment of Educational Progress (NAEP). NAEP is run by an independent, bipartisan board consisting of "teachers, administrators, state legislators, governors, businesspeople and members of the general public." Ravitch was appointed to this board by Pres. Clinton and served on the board for 7 years.

According to Ravitch: "NAEP is central to any discussion of whether American students and the public schools they attend are doing well or badly. It has measured reading and math and other subjects over time. It is administered to sample of students; no one knows who will take it, no one can prepare to take it, no one takes the whole test."

NAEP reports scores in two ways. The first is a "scale" score which is simply a number on a scale with a maximum of 500. This scores reflects "what students know and can do." Its purpose is to establish a trendline over time.

The second is "achievement levels." Ranging from "advanced" on the high end to "proficient," "basic," and "below basic." Misunderstanding of what each of these achievement levels represents can lead, and has lead, to misrepresentation of the state of our public schools.

The following definitions are all direct quotes from Ravitch: "Advanced" represents a superior level of academic performance. In most subjects and grades, only 3-8 percent of students reach that level. I think of it as A+. Very few students in any grade or subject score "advanced."

"Proficient" represents solid achievement. The National Assessment Governing Board (NAGB) defines it as "solid academic performance for each grade assessed. This is a very high level of academic achievement. Students reaching this level have demonstrated competency over challenging subject matter, including subject matter knowledge, application of such knowledge to real-world situations, and analytical skills appropriate to the subject matter." From what I observed as a member of the NAGB who reviewed questions and results over a seven-year period, a student who is "proficient" earns a solid A and not less than a strong B+.

"Basic," as defined by the NAGB, is "partial mastery of prerequisite knowledge and skills that are fundamental for proficient work at each grade." In my view, the student who scores "basic" is probably a B or C student.

"Below basic" connotes students who have a weak grasp of the knowledge or skills that are being assessed. This student, in my understanding, would be a D or below.

With this background, you will be able to see how "reformers" fudge the numbers to create a "crisis." Again, I quote Ravitch directly.

"The film Waiting for Superman misinterpreted the NAEP achievement levels. Davis Guggenheim, the film's director and narrator, used the NAEP achievement levels to argue that American students are woefully undereducated. The film claimed that 70 percent of eighth-grade students could not read at grade level. That would be dreadful if it were true, but it is not. NAEP does not report grade levels (grade level describes a midpoint on a grading scale where half are above and half are below). Guggenheim assumed that students who were not "proficient" on the NAEP were "below grade level." That is wrong. Actually 76 percent on NAEP are basic or above, and 24 percent are below basic. It would be good to reduce the proportion who are "below basic," but it is 24 percent, not the 70 percent Guggenheim claimed."

Ravitch points out that "reformer" Michelle Rhee, makes the same mistake--equating NAEP "proficiency" with "at grade level"--in her writings.

The full details can be found in chapter 5 of Ravitch's book, but here is the simple truth. "NAEP data show beyond question that test scores in reading and math have improved for almost every group of students over the last two decades: slowly and steadily in the case of reading, dramatically in the case of mathematics. Students know more and can do more in these two basic skills subjects now than they could twenty or forty years ago."

"Why the difference between the two subjects? Reading is influenced to a larger extent by differences in home conditions than mathematics. Put another way, students learn language and vocabulary at home and in school; they learn mathematics in school....their starting point in reading is influenced more by home and family than in mathematics."

"So the next time you hear someone say that the system is "broken," that American students aren't as well educated as they used to be, that our schools are failing, tell that person the facts. Test scores are rising."

Well, that may be so, some will say, but the real problem is that our students stink when compared with those in other countries. We'll deal with that in the next post.

Friday, November 15, 2013

Public schools in crisis? Check the facts.

In our last post --There's only one problem with this narrative.--we began to look at Reign of Error, a new book from education scholar/historian and former Asst. Sec. of Education Diane Ravitch.

Dr. Ravitch maintains that the current "sky is falling" narrative claiming a "crisis" in our public schools is simply not true. All one needs to do, according to Ravitch, is look at the facts. Ravitch handles this in a straightforward manner by devoting a chapter to each of the claims of crisis made by "reformers."

Chapter 8, for example, examines the claim that "the nation has a dropout crisis and high school graduation rates are falling." Ravitch counters with the "reality" that "High school dropouts are at an all-time low, and high school graduation rates are at an all-time high."

According to Ravitch: "Not until 1940 did the high school graduation rate reach 50 percent. The graduation rate dropped during World War II, as young men went into the armed forces, but rose to 70 percent by 1970. By 1990, the four-year graduation rate reached 74 percent and remained virtually flat until 2010. In 2012, the Department of Education announced that the four-year graduation rate had reached to 78.2 percent in 2010, the first significant increase in three decades."

Ravitch continues: "The U.S. Department of education uses the four-year completion rate as the gold standard; this method produces the lowest possible graduation rate. It does not account for students who take more time to graduate or who earn a GED....When their numbers are added to the four-year graduates, the high school graduation rate is 90 percent."

What about the dropout rate? "The dropout rate is trending downward....The dropout rate has actually been cut by 40 percent overall between 1972 and 2009 and reduced even more for blacks and Hispanics, the groups that are most at risk for dropping out."

"Well, so what," I heard someone mutter in the back of the room. Everybody knows that kids today don't learn as much as kids did 50 years ago. We may be graduating a higher percentage but they aren't as well prepared as graduates when we went to school. Ravitch devotes chapter 5 to this subject.

According to Ravitch: "Critics have complained for many years that American students are not learning as much as they used to or that academic performance is flat. But neither of these complaints is accurate."

According to Ravitch: "We have only one authoritative measure of academic performance over time and that it the National Assessment of Educational Progress, known as NAPE (pronounced "nape")."

"Critics may find this hard to believe, but students in American public schools today are studying and mastering far more difficult topics in science and mathematics than their peers forty or fifty years ago. People who doubt this should review the textbooks in common use then and now or look at the tests then and now. If they are still in doubt, I invite them to go to the NAEP website and review the questions in math and science for eighth-grade students."

We will talk a little more about NAPE in the next post, and we will address the question of how American students rank with respect to other nations.

Wednesday, November 6, 2013

There's only one problem with this narrative.

"In the early years of the twenty-first century, a bipartisan consensus arose about educational policy in the United States. Right and left, Democrats and Republicans, the leading members of our political class and our media elite seemed to agree: Public education is broken. Our students are not learning enough. Public schools are bad and getting worse. We are being beaten by other nations with higher test scores. Our abysmal public schools threaten not only the performance of our economy but our national security, our very survival as a nation. This crisis is so profound that half measures and tweaks will not suffice. Schools must be closed and large numbers of teachers fired. Anyone who doubts this is unaware of the dimensions of the crisis or has a vested interest in defending the status quo."

"Furthermore, according to this logic, now widely shared among policy makers and opinion shapers, blame must fall on the shoulders of teachers and principals. When test scores are low, it is their fault. They should be held accountable for this educational catastrophe. They are responsible because they have become comfortable with the status quo of low expectations and low achievement, more interested in their pensions than in the children they teach."

"In response to this crisis, the reformers have a ready path for solving it. Since teachers are the problem, their job protections must be eliminated and teachers must be fired. Teachers' unions must be opposed at every turn. The "hoops and hurdles" that limit entry into teaching must be eliminated. Teachers must be evaluated on the basis of their students' test scores. Public schools must be evaluated on an "objective" basis, and when they are failing, they must be closed. Students must be given choices other than traditional public schools, such as charter schools, vouchers and online schools."

"In Hollywood films and television documentaries, the battle lines are clearly drawn. Traditional public schools are bad; their supporters are apologists for the unions. Those who advocate for charter schools, virtual schooling and "school choice" are reformers; their supporters insist they are championing the rights of minorities. They say they are leaders of the civil rights movement of our day."

"It is a compelling narrative, one that gives us easy villains and ready-made solutions. It appeals to values Americans have traditionally cherished--choice, freedom, optimism, and a latent distrust of government."

These are the first 5 paragraphs from a new book, Reign of Error, by education scholar/historian and former Asst. Sec. of Education Diane Ravitch.

Pick your source: NBC's "Education Nation", local or national newspapers, local or national TV/radio, they're all saying essentially the same things found in those 5 paragraphs. How often to do you recall pundits on Fox News and MSNBC agreeing on anything? Those who have spent their careers in public education are--to say the least--dispirited.

But let's continue just a bit farther, to paragraphs 6 and 7.

"There is only one problem with this narrative."

"It is wrong."

"Well, Dr. Ravitch, that's your opinion," one might say. But then Ravitch does the most frustrating thing: She looks at the "everybody knows" claims made by "reformers" and shows that they simply are not true. How does she do this? With FACTS.

Now we will examine some of these claim-crushing facts in the next post or two, but don't wait for me. If you're tired of being told that public education is ruining the country and that retired teachers should be ashamed of taking their pensions, buy the book right now. Click on the link above, it will take you to Amazon where you can be reading the book in less than a minute if you have a Kindle. If you don't, they will be happy to send a real book to your home.

Read the book and be ready to jam some facts down the throat of the next irritating bozo who tries to pull one of those "everybody knows" arguments out of his clown car full of claims.

Thursday, September 12, 2013

Have Medicare? Don't worry about Obamacare.

There seems to be a lot of confusion in the retiree community regarding what Medicare participants need to do when the Obamacare "exchanges" start doing business on October 1.

The answer is simple: If you currently are participating in Medicare, you do not need to do anything! Medicare will continue uninterrupted for you. Enrollment in health insurance in those "exchanges" you'll be hearing about on TV is for those under 65 who are not covered by Medicare.

There is something happening in October, however, that Medicare participants need to think about: The annual "open enrollment period." Between October 15 and December 15 you can change your Medicare coverages for "medigap" policies and part D drug coverages. You can also switch from traditional Medicare to a Medicare Advantage plan (or vice versa). All of this can be accomplished at medicare.gov. See "I saved $700 in 45 minutes last Sunday."

Here's an article from the Wall Street Journal titled Seniors: Obamacare marketplaces don't change Medicare.

Tuesday, September 3, 2013

Hell froze over and I missed it?

It's been one month since my last blog post. During that time we finalized the sale of our Fredonia home of 40 years and have taken up full time residence in central Florida. For those of you interested in watching snow squalls only in HDTV, I may do a blog post or two in the future about "lessons learned" during our 16 month adventure.

For now, however, I need to share a jaw-dropping article from a recent edition of the NY Times. The article was titled "At charter schools, short careers by choice." The thesis, to paraphrase a famous movie line: Experience? Teachers don't need no stinkin' experience!

"As tens of millions of pupils across the country begin their school year, charter networks are developing what amounts to a youth cult in which teaching for two to five years is seen as acceptable and, at times, even desirable. Teachers in the nation’s traditional public schools have an average of close to 14 years of experience, and public school leaders and policy makers have long made it a priority to reduce teacher turnover."

The article notes that Teach for America introduced the idea of a short stay in a teaching job for high-achieving college graduates before moving on to their "real" careers and the rest of their lives. TFA provides its teachers with a few weeks of training during the summer and then they agree to teach for 2 years in low-income schools. 

"'To become a master plumber you have to work for five years,” said Ronald Thorpe, president of the National Board for Professional Teaching Standards, a nonprofit group that certifies accomplished teachers. “Shouldn’t we have some kind of analog to that with the people we are entrusting our children to?' "

Critics argue that charter schools are taking advantage of the enthusiasm of young teachers to work them long hours for low pay and burning them out quickly in the process. The article points to YES Prep charters as an example. This group of 13 schools provides new teachers with 2 and one-half weeks of training in the summer before they begin work. The average experience level of YES teachers is 2.5 years. "At YES Prep... all teachers are assigned a cellphone to answer any student call for homework assistance until 9 p.m."

Just when did experience become a bad thing? How would you feel if you learned that your heart surgeon was "enthusiastic" about your case because yours would be their first solo surgery? Would you be interested in going to court having a lawyer handling their first case? Didn't think so. Do you remember how long it was into your teaching career before you felt you weren't groping for solutions in the darkness?

This particular article generated 715 online comments. As usual, I found many of these comments made excellent points. Here are just a few:

1) "Encouraging high rates of turnover in the teaching profession seems to me to be a very clever way to ensure that no one looks upon teaching as a lifetime career commitment anymore, thus divesting schools of ever having to worry about the costs of paying for teachers' health care and retirement. When you put 'em through boot camp, employ 'em for a few years, burn 'em out and send them packing for a new career, you need not be concerned that they're going to expect something like paid hospitalization, or a pension."

2) "As someone who once taught in an inner city for a short stint, and had an alternative career in software design, I can tell you one of the driving forces toward short careers is money. I took a 50% pay cut to be a teacher, and when I gave it up, went right back to where I was.

How many people out there would make such a huge financial sacrifice or have the means to do so. There's a reason why the folks in these careers are right out of college, single and mobile. And the reason they don't stay is money.

One of my fellow teachers once told me that all of the reforms in the world of education were simply ways of looking like they (politicians and bureaucrats) were doing something without spending any money."

3) "Why do I have this sick feeling in my stomach it's the education of minority and low income kids that's been shafted, that middle and upper-middle class parents won't send their children to these factories?

This is reprehensible. It's a vicious circle. Kids who are already disadvantaged because their parents don't have resources to support their education, are now being sent to be educated by people with very little professional and life experience, who want to move on to "something bigger and better". This is so immoral and unfair."

4) "From everything I read in the [article], this is simply corporate rubbish. The reality is that these "eager young" teachers are grossly overworked and underpaid. And that's just fine with the corporate elite that is behind the charter school movement. It is impossible to be a "great" teacher - for most people - including myself - without experience. This is nothing more than the "Walmartization" of teaching, including the lavish campaign contributions from the "charter school community."

The interest in this topic was so intense that the NYT put together a "Room for Debate" piece a few days later offering a variety of opinions from those qualified to comment on the subject. We'll get to their opinions in the next blog post.

Saturday, August 3, 2013

Putting myths to rest one more time.

The people who don't like public employees and/or their unions are having a field day. Detroit's bankruptcy filing has given them the opportunity to dust off the tired old "everybody knows" myths about public employees and their unions.

We addressed these myths in early 2012 with a six-part series called "Let's lay this myths to rest once and for all." If you're unfortunate to have a family member or friend who still believes these myths, here's a quick refresher course:

MYTH: Public employees are paid more than employees in the private sector.

TRUTH: The average public employee IS paid more than the average private-sector employee. This ignores, however, the fact that this involves an "apples to oranges" comparison. The "basket" of public employees contains many more employees with college educations, including many with graduate degrees. In fact, the average public employee is more than twice as likely to have a college or advanced degree. If you believe that more education should lead to better pay, you should have no problem with better-educated employees being paid more. The research-based conclusion is that "Wages and salaries of state and local employees are lower than those of private sector workers with comparable earnings determinants (e.g., education). State employees typically earn 11% less; local workers earn 12% less." For details see:

1) Let's lay this myth to rest once and for all.
2) Part 2: Let's lay this myth to rest once and for all.

MYTH: Pubic sector benefits are excessive compared with those in the private sector.

TRUTH: Pundits have told us time and again that excessive pension benefits have brought Detroit to its knees. The average police/firefighter pension is $36,000 for Detroit retirees. The average for other city employees is $19,000. These hardly seem excessive! Taking the country as a whole, we find that " benefits as a share of total compensation across the entire private sector amounted to 29.15%. In large private firms (100+ employees), benefits were 31.42% of total compensation. The figure for local and state governments is 32.65%, hardly a dramatic difference!"

The research-based conclusion is that " When comparing total compensation [wages plus benefits] state workers are behind their private sector counterparts by 6.8%, while local government workers trail by 7.4%. If you compare them with just the large firms in the private sector sample, state workers trail their private counterparts by 10.4% with local workers trailing by 9.8%." For more details see "Part 4: Let's lay this myth to rest once and for all."

MYTH: Public sector unions, through their political influence, are exacerbating state and local financial problems.

"The large state deficits have frequently been blamed on a growing public sector. For example, Governor Scott Walker warned that Wisconsin 'cannot grow if our people are weighed down paying for a larger and larger government.' However, the size of the public sector has not grown in recent years, neither in terms of public sector employment levels nor public sector compensation."

"Let's look at the numbers. "State and local government workers as a share of the workforce has been relatively steady since 1979....Overall, the share of workers in state and local employment averaged 14.2 percent over the thirty year period and ranged from a low of 13.6 percent at the height of the boom in 1999 to a high of 15.2 percent in the great recession in 2009 reflecting the greater loss in private sector employment—over 5 million private sector jobs were lost that year.  By midway through 2011, the share of workers employed by state and local governments had fallen back to 14.6 percent."

"Not only has the share of state and local government jobs remained relatively steady as a percentage of all jobs, but state and local government employment per thousand residents has also remained steady....In 1990, the United States as a whole had an average of 17.2 state workers per thousand residents. In 2009, there were 16.8."

"Might union states be different? New York Times columnist David Brooks argued, “public sector unions can use political power to increase demand for their product.” If he is correct, we should expect states with high public sector union density—the share of public sector workers in a union—to have more public sector workers per thousand residents, than states with lower public sector union density. In order to test this hypothesis, we examine the ten states with the highest share of public employees in unions and the ten states with the lowest share of public employees in unions. .. the lowest union density states averaged 69.1 state and local employees per thousand residents in 1990 and 74.6 in 2009. The highest union density states averaged 65.1 state and local employees per thousand residents in 1990 and 68.3 in 2009. The number of state and local employees per thousand actually fell in the high union density states between 2001 and 2009....No correlation was found between public sector union density and the level of public sector employment in a state. Contrary to Brooks' assertion, there is no evidence that public sector unionization has resulted in a growth of the public sector workforce.

"Not only has the number of public sector workers per thousand residents remained steady, but public sector compensation as a share of state budget has actually declined....The share of state spending that went towards compensation fell steadily between 1992 and 2002 and remained stable from 2002 to 2009."

"The average share of the budget spent on compensation over the time period for the ten most highly unionized states was 19.6%, compared to 18.7% for the ten least unionized states. By 2009, that gap between the two groups had narrowed to 0.5% (19.8 vs 19.3 percent)...Budget deficits were not caused by an increase in funding going to compensation for public sector workers."

Saturday, July 27, 2013

In another life, we must have been very good.

I talk with a number of retired teachers whose careers roughly approximated my own. I began teaching in 1966 and retired in 1999.

All the folks with whom I speak seem to agree that we taught in what we view as the "golden age" of education. American schools were the class of the world. Schools hired teachers and then let them teach. Teachers were encouraged to be creative in their work. Efforts were not being made to make the curriculum "teacher proof." When you called home about a problem, parents got busy and backed you up. Their first thought was not to hire a lawyer.

The pay wasn't great, but most taxpayers felt you did a good job for too little money. They tried to make the pay better and they succeeded.

Then there was the pension. We didn't think it was something unusual. When I started teaching more than half of American workers were covered by a pension plan at work. Tier I was easy to figure out. After 33 years of teaching I receive 66% of my final average salary.

Along with our pensions--my wife was a teacher, too--we receive Social Security payments each month. NY teachers may not be aware of it, but there are other states in which public employees--including teachers--cannot participate in the Social Security system. Their pension is their only "guaranteed" income. (The quotation marks are due to places such as Detroit.)

 I can't afford a yacht, but my wife and I can live comfortably and pay our bills. To many other Americans, that seems like a far off dream.

PBS ran a Frontline documentary in April titled Retirement Gamble. I just got around to watching it, and you can watch it on your computer by clicking on the link.

I already knew that America is in a retirement crisis. There have been several posts to this blog concerning how few Americans are covered by 401k plans at work (42%) and what lousy alternatives these plans are compared to traditional pensions.

What had not sunk in for me is how truly awful most 401k plans are and the reason why we will probably never get rid of them.

Remember, 401k plans were never expected to replace traditional pensions. They were created as a "perk" for highly-paid executives. However, these plans provided a loophole big enough to allow companies to ditch their traditional pension plans. And they did.

It really sounded like a win-win. The employer would match the employee contribution (up to a point), they were portable when the employee changed jobs, and the employee was told that they would be in charge of their own money.

And here's where things get a bit nefarious. The employee really can't pick any investment for their money in a 401k. They only get to pick among a few mutual funds chosen by the 401k administrator. Funds which, by the way, have almost certainly paid a fee to the 401k administrator to be part of the plan's choices.

Guess who those fees wind up being charged to. That's right, they come off the top before any earnings are distributed to the plan participants. And, of course, these funds are actively managed--as opposed to "index" funds--and the management companies take their management fees off the top as well.

Here's an interesting example: Suppose you invest your 401k money into a fund that earns an average of a 7% return over 50 years. Now suppose that this fund charges a 2% management fee each year. For every $100,000 in returns over the course of those 50 years, those fees will eat up $65,000. Oh the magic of compound interest!

That's right. As Jack Bogle, founder of Vanguard says: "You put up 100% of the capital. You took 100% of the risks, and you get about 30% of the returns!"

And that is why it's going to be almost impossible to get rid of the 401k. The financial services industry, which used to be about 7% of the economy but is now over 40%, sees all of these 401k fees as a cash cow. And they're still working on getting Social Security "privatized" so that they can do the same thing they've already done with 401k accounts!

Take a look at the film and you will understand why private sector workers are jealous of public sector pensions. They have every right to be angry. They have been royally screwed! Their anger, however, is misplaced. Instead of railing against those workers who still have traditional pensions, they should be demanding that we go back to the system of the "three-legged stool" which worked so well. The 3 legs were pension, Social Security and individual savings.

In a rational world, Americans would look at this situation and say: "Hey, every other wealthy country has figured out how to provide better retirement security than us. Congress, get off your butts and solve this problem!"

Unfortunately, the banks and other financial services have armies of lobbyists with campaign contributions in hand. How many lobbyists do 401k owners employ?

Saturday, July 20, 2013

Keep an eye on Detroit.

What in the world happened to Detroit?  Some would have us believe that once again those greedy public employees and their outlandish pay and benefits--enforced by their union thugs-- ruined an economy.

The real story is just a tad more nuanced. Here's the best one-paragraph explanation I've been able to find. It's from a story titled Detroit and bankruptcy: How a great American city endured decades of decay published in the Huffington Post.

"It took decades of decay to bring down the once-mighty industrial giant that put the world on wheels. The city grew to 1.8 million people in the 1950s, luring them with plentiful jobs that paid good wages to stamp out automobiles for sale across the globe. But like many American cities, Detroit's fall began late that decade as developers starting building suburbs. Then came the 1967 riots that accelerated the number of white residents who moved to the cities north of Eight Mile Road, considered the region's racial dividing line. At the same time, auto companies began opening plants in other cities, and the rise of autos imported from Japan started to cut the size of the U.S. auto industry. Detroit's property values fell, tax revenue dropped, police couldn't control a growing murder rate, and many middle-class blacks fled the city for safer suburbs with better schools. By 2009, the auto industry collapsed along with the economy as a whole, eventually pulling the city down with it. Government corruption under former Mayor Kwame Kilpatrick only made things worse. In the 2000 census, Detroit's population fell under 1 million in as the exodus continued. Today it's barely above 700,000."

As the population declined, the city's infrastructure remained 139 square miles in size. People didn't all move from the same neighborhoods, so all the streets still needed to be maintained. Sure, there were fewer people, but the growing number of abandoned structures created a need for more fire protection not less. More poverty translated to more crime. Hard to cut police personnel under those circumstances. And so it went.

It's tragic, but what importance does it have for retired teachers in WNY? Plenty!

Let's consider the retired public employees of Detroit. They've just been told that they may lose up to 90% of their pensions! But wait, Michigan has a clause in their state constitution which protects the pensions of public employees, just like New York. One legal theory holds that since Bankruptcy is a federal proceeding, federal bankruptcy law trumps state law--including the state's constitution--and the retirees must get in line and wait for their few cents on the dollar along with other creditors.

On the other hand, a Michigan judge has just held that it is a violation of the state constitution for a governmental body to apply for bankruptcy protection since it would lead to a reduction in public employee pensions in violation of the state constitution.

To make matters worse, here's the beginning of an article from today's NY Times titled Detroit Gap reveals industry dispute on pension math: "Until mid-June, there was one ray of hope in Detroit’s gathering storm: For all the city’s problems, its pension fund was in pretty good shape. If the city went under, its thousands of retired clerks, police officers, bus drivers and other workers would still be safe."

"Then came bad news. Seemingly out of nowhere, a $3.5 billion hole appeared in Detroit’s pension system, courtesy of calculations by a firm hired by the city’s emergency manager."

"....But Detroit’s pension revelation is nothing new to many people who run pension plans for a living, the math-and-statistics whizzes known as actuaries. For several years, little noticed in the rest of the world, their staid profession has been fighting over how to calculate the value, in today’s dollars, of pensions that will be paid in the future."

That's right, in the boring world of actuaries, there's a big fight on concerning the assumptions used to determine how "fully funded" a pension plan is. Imagine what would happen if tomorrow's headlines read "NY teacher retirement system not fully funded. Gazillion dollar unfunded liability discovered." Constitution or not, some very unpleasant stuff would hit the fan!

Could anything like Detroit happen in New York? Been paying attention to your local school district finances, particularly those in upstate NY? The state has cut back on aid to local schools at the same time that the tax cap has limited the ability of districts to raise local revenue. Districts have been laying off teachers while using their reserve funds to help avoid educational collapse.

Some districts have exhausted their reserve funds while others are only a year or two away. School administrators across the state have been warning of a coming educational and financial bankruptcy.

So let's keep an eye on what happens in Detroit. It just might have real implications for WNY retired teachers.

Wednesday, July 10, 2013

Bad teachers?

In my 33 years in the classroom, I have known some truly great teachers. I've also known teachers of average abilities. There have also been some that I would place in the "above average" and "below average" categories.

As with the medical or legal profession, not every teacher is a superstar. If someone is above average there must be those whose abilities are below average. That's the only way you get to have an "average."

But what about those teachers who just should not be in charge of a classroom? When I think back on my career, I can name some but, if I'm counting on the fingers of my right hand, I wind up with a leftover finger or two. I'm willing to bet that that's your experience too.

New York is a state in which a teacher can be terminated at any time during the first 3 years without a reason needed. Administrators have a full 3 years to determine where on the superstar-to-abomination continuum each probationary teacher falls.

Tenure simply means that termination must be for a reason, and that reason must be documented. That's hardly a guarantee of a job for life. And, given enrollment changes, elimination of programs, etc., even superstar teachers with tenure can find themselves without a job.

The current crop of education "reformers," however, would have us believe that our public schools have been invaded by a plague of locusts disguised as "bad teachers." If only we could get rid of those "bad teachers," our schools would once again have graduates who would rank right up there with the best in the world.

Just how many "bad teachers" do we have? Is it 5%, 10%, 15% of inservice teachers? What if it's 25%? Suppose we find a way to eliminate the worst-performing quartile of our teachers tomorrow, would our schools rival those of Finland? You and I both know that if the bottom 25% of teachers in our school district were replaced by teachers with the abilities of those in the top 75%, there would not be much difference in the performance of our students.

Yet we are being told that we need to spend precious resources preparing for and giving a mind-numbing array of tests to students in order to ferret out these "bad teachers."

Isn't it just possible that there is another cause for poor school performance? Two newspaper columns from the last few days seem to agree with this thought.

Donn Esmonde, writing in the Buffalo News, says that he loves the annual lists ranking public schools by performance. Why?

"...I like the rankings, which are based solely on test scores, for one reason – they confirm what education experts have said for decades: The biggest factor in how well kids do in school is not quality of teachers, variety of programs, class size, access to computers or how often pizza is served in the cafeteria. No, it’s socioeconomics."

Scott Waldman, education columnist for the Albany Times-Union, points out that the high-performing schools are "low needs" schools in which most homes have two parents who are college-educated. Most of the bottom-performers are "high needs" schools with large number of students who qualify for free or reduced-price lunches. According to Waldman: "The higher a school's concentration of poverty, the less likely a student is to graduate, according to recently released figures by the state Education Department."

"Study after study has shown that poverty has a tremendous effect on a child's schooling. Children in poverty are more likely to move frequently, to come to school hungry, to miss a large number of school days. These districts have a far higher percentage of special education students and students who speak languages other than English at home."

Let's put it another way. Suppose every school in America had exactly the same resources. We would expect that children of two-parent college-educated homes would still do better in school compared with children who lived in poverty.

In a rational world, we would try to even out the educational opportunities by sending more resources toward the poverty schools and less to the "low needs" schools?

Well, our educational system is a very irrational world. In our real world, who gets the best-equipped science labs, the fanciest auditoriums full of the finest equipment or the opportunity for the most and best field trips? Not the "high needs" kids!

Could it be that our educational problem is not an infestation of "bad teachers," but an educational system which takes the students who are most likely to do well in school and gives them additional resources while giving less resources to those with the greatest need?

Let's give the last word to Esmonde:

"I don’t want to diminish the good work that teachers do. But, for the most part, test scores are not about how good a particular school’s teachers are. Instead, they reflect the background of the kids they teach."

"Doubt it? Then imagine this: Take all the kids from, say, Buffalo’s Burgard High and send them to Williamsville East for a year. Take the Williamsville East kids and send them to Burgard for a year. You don’t have to be a school superintendent to guess what would happen: Test scores at Burgard would skyrocket, test scores at Williamsville would nosedive."

"It would not be because the Burgard teachers suddenly upped their game, or because the Williamsville teachers lost their touch. It would be about who is sitting at the desks."

"...There is no reason for suburban teachers to check the school rankings and feel smug. Just as there is no reason city teachers – of whom my wife is one, although not in a classroom – to feel defensive. But given what is at stake, I think there is every reason to understand what these test scores are really about."

Friday, June 28, 2013

The rush to privatize.

Before we get to today's main subject, let's take a moment to revisit Gov. Scott Walker and the state of Wisconsin.

If you recall, Walker ran on a platform of "Jobs, jobs, jobs." Once elected, he seemed to forget about jobs and instead decided that his first priority was to take away the collective bargaining rights of most public employees. I say most because he did not find collective bargaining by police and fire unions to be a problem. The fact that police and fire unions supported him in the election probably didn't hurt either.

Wisconsin was no. 11 nationally in job creation when Walker took office. I understand that they are now no. 44 and projected to be no. 49 next year. So much for "Jobs, jobs, jobs." Now for privatization.

People seem to feel that moving government jobs to the private sector will be a more efficient use of resources. They tend to see government employees as the gang that can't shoot straight while private enterprise is a lean, mean fighting machine.

Our embassies used to be guarded by marines. Now they are guarded by "private contractors" who often make three times the pay of a marine. That's more "efficient?"

A huge number of our prisons are now run by private contractors. That's worked so well that 3 states recently cancelled their contracts with one of the giant private prison contractors. Instead of making things more efficient, the contractor apparently made them more profitable by doctoring staffing records to make it seem that the facility was fully staffed when it wasn't. Scandals have occurred in which judges have been bribed to send prisoners to one profit-making facility or another.

And now it seems that the Edward Snowden story has added another layer of privatization. We already knew that Snowden was employed by a private contractor--Booz Allen--instead of being a government employee. Now it turns out that Snowden's top-secret security clearance was issued based on a background check by a private contractor, USIS.

Turns out that USIS is supposed to do two checks. The second makes sure that nothing was missed in the first check. It seems that between 2008 and 2011 USIS claimed to do these second checks but actually did only half of them. This allowed them to clear more people in less time, thus qualifying for incentive awards!

Is it any wonder why the final goal of the school "reform" movement seems to be the privatization of what once was public education?

Sunday, June 16, 2013

A few things to remember about your pension.

It's school budget time of year and griping about pensions earned by teachers is in the air. Here are a few things to remember about your pension:

1) There are states and municipalities which are having great financial difficulties paying for the pensions they promised their retirees. In virtually all of these situations, the problem is that the governmental unit granted the pension benefits but did not also begin to set funds aside to pay for those benefits. In the case of states such as New Jersey, Illinois, Rhode Island, California, etc. several years worth of funding were skipped in order to keep taxes low. Is this the fault of the retirees? No way! Thankfully, New York is not in this situation. Every contribution needed to fund our pensions has been made in a timely manner.

2) When I began my teaching career in 1967, schools were required to contribute about 23% of salary to the NYS retirement system. By the early 2000's that figure had dropped to less than 1%. Then came the financial collapse of 2008. The NYSTRS assumes--and has produced over 25 years-a return on its investments of 8%. When the stock market tanked, that return disappeared and schools needed to increase their contributions. Next year, the employer contribution rate will be around 14%. While that is almost half the rate from the 1960's, it represents a big jump from the less than 1% a few years ago, allowing the anti-teacher forces to yell that "pension costs have increased by over 1400% and are unsustainable." The employer contribution rate is based on a rolling 5-year average investment return.The stock market has performed well in the last few years and the losses of 2008-2009 will soon drop out of that 5-year average.

3) The average NYS teacher's pension is $39,000/year. Certainly not a huge amount. In fact, 76% of NYSTRS pensions are less than $30,000/year.

4) Unlike private-sector 401(k) plans, teacher contributions to their pension system are taxed.

5) Although public employee pensions are exempt from NY income tax, no one--private or public--is taxed on their Social Security benefits. In addition, private pension benefits are exempt from NY taxes for the first $20,000. This means that a couple with two private-sector pensions has a $40,000 exemption from NY income tax.

6) We often hear that politicians "buy" the votes of teachers and other public employees by "sweetening" pension benefits. From the 1960's through today we have seen our pensions modified from Tier 1 through today's Tier 6. Each modification has seen a decrease in benefits. Some "sweetening!"

7) Yes, we do have a COLA. But, you must be at least 62 and have been retired for 5 years before you can begin receiving a cost-of-living adjustment. In addition, the COLA--which applies to only the first $18,000 in pension benefits--is 1% or half the increase in the consumer price index, whichever is LESS. No matter how high the CPI spikes, the COLA cannot be larger than 3% of the first $18,000 of pension benefits. Hardly a kingly amount!

8) "I don't have a pension, why should teachers have something that I don't?" Private-sector employers saw the 401(k) as a way to drop their defined-benefit pension plans and lower their pension costs. The problem is that it costs twice as many dollars to produce the same retirement benefit in a defined-contribution (401k) plan compared with a traditional (defined benefit) pension. If employers are saving money, that can only mean that the expected benefit at retirement has to be reduced. As time goes on, people have been discovering that they have been hoodwinked by this switch. Could private-sector employers afford traditional pensions? You may recall that they are sitting on almost $2 trillion at the moment. Corporate profits are at record high levels. What do you think? Or we could all join hands and race to the bottom! (For a full discussion of the problems with 401(k) plans, see "What's so bad about 401(k)-type plans?")

Saturday, June 8, 2013

Are your property taxes too high?

Let's talk property taxes. You know, the ones that pay for schools, roads, police and fire protection, the county health department and stuff like that. While you may not know how much income tax you paid last year, you probably would come close to the right amount of your property taxes. Everyone gripes about them.

Are your property taxes too high? On what do you base your answer? Really, what's the benchmark? What if your property taxes could be cut in half? Would they seem more reasonable then?

It just so happens that I'm living in the middle of an interesting experiment in tax relativity. As you may know from reading previous posts, my wife and I have built a new home in Ocala, Florida. We moved in at the end of last October. We're back in WNY this summer to try to sell our home in Fredonia. As such, we're living in two different places at pretty much the same time.

Through the magic of the internet, and the fact that both Dunkirk and Ocala newspapers are available online, we have been able to stay in touch with what's happening in both "homes."

The Ocala Star Banner reports that last Friday a "bombshell" was dropped in the schools of Marion County. We'll get to that in a minute.

First, you should know that while many in WNY are trying to get some of the smaller school districts to merge for the sake of efficiency and the ability to offer a complete educational program, Florida is years ahead of NY in this regard. All schools in each Florida county are controlled by a single countywide school board and administration. Can you imagine the hassle that would be involved in doing this in our WNY counties?

Ocala, located in Marion County, is in central Florida about 90 minutes northwest of Orlando. In population, it's about twice the size of Jameston, NY. Ocala's largest industries are agriculture, race horses and old people. Most of the horses you see in the Derby, Preakness, etc. were born and bred in the Ocala area. There are lots of "55+" communities--you must be 55 or older to live there--in the Ocala area. Part of the most famous such community--"The Villages"--is located in Marion County.

No, we didn't build in The Villages. We looked but went elsewhere. But that's a different story.

The home we built in Florida has about the same full value as the one we have in Fredonia. Our property taxes in NY are about $3900. In Florida, they will be a bit less than $1600. We're in the Forestville school district, so our NY property taxes might be considerably higher if we lived in the Village of Fredonia and the Fredonia Central School District.

We think that this big drop in property taxes is wonderful. But the people in Florida don't have the advantage of living in two places at the same time and they believe that their property taxes are oppressive.

Let's understand that it's tough to see Florida as a high-tax state. There is no state income tax. There used to be a tax on investments, etc. but that was abolished several years ago. Sales tax pays a large portion of the tax load in Florida, and we thank you for visiting Florida and leaving your sales taxes with us. Are sales tax rates high? We pay a 6% sales tax in Ocala, considerably less that WNY.

As I said, my Florida neighbors believe that they are being taxed to death. In the last year efforts to raise  funds for the local nonprofit hospital--to keep it from being sold to a for-profit hospital chain--were voted down. As was an effort to raise the needed funds for maintenance of the Marion County school buildings. Combined, these two tax increases would have meant about $130/year for the average homeowner. Voters said no.

Florida is no different from NY in that times have been tough for schools in the last few years. State aid has shrunk, but buildings still need to be maintained, busses run, staff paid, etc. The schools in both states have made valiant attempts to control costs. In order to keep tax increases low or nonexistent they have spent down their "rainy day" savings to a point at which they are mostly gone.

Then, last Friday, the Marion County School Superintendent dropped a bombshell. He announced that there was a $29-million deficit in the 2013-2014 school budget. To begin to address that shortfall, there will be 261 layoffs including firing all 160 first-year teachers and 72 teacher aides. There will also be 58 positions cut in art, music and phys. ed.

Now here's the icing on this cake. The fired first-year teachers will be replaced by certified substitutes paid $18,000/year with no benefits.

Read that last paragraph again because Ocala, Florida just may be the canary in the coal mines of NY public education. Most upstate districts have been using their reserves to keep the wolf from the door and it won't be long before those reserves are exhausted. If Florida residents paying half the taxes that NY folks pay won't vote to support their schools, it's unlikely that local NY taxpayers will step up.

But there's a bit more to the Florida story, besides the fact that school board members are paid $36,000/year in Marion county. Last year the state effectively reduced teacher salaries by 3%. This year, the state is giving teachers a $2500 raise.

The head of the Marion County School Board has said that the 160 first-year teachers can keep their jobs if all the Marion County teachers donate their raises to the school district.

By the way, if it weren't for tenure I doubt that it would be the first-year teachers being fired to help the budget. The move away from tenure is simply an attempt to make it easier to throw experienced--and more expensive--teachers overboard.

Thousands of NY teachers and their supporters are rallying in Albany to defend public education. Let's support them before our schools are privatized and all teachers earn $18,000/year with no benefits. Imagine the quality of teachers then!

Sunday, June 2, 2013

E pluribus hubris

Well, that was a nice "vacation." We came back to WNY and did a lot of clean-up, fix-up, paint-up stuff and put our Fredonia home on the market. The "open house" was yesterday, so things are a little more calm at this point.

Let's talk about retirement and--along the way--America. We seem to live by several familiar phrases. The first to come to mind is, "We're number one!" Often followed by masses chanting, "USA, USA!"

Welcome to the wonderful world of hubris, defined as "excessive pride or self-confidence." We have the world's largest economy and biggest military so we must be doing everything right. We have nothing to learn from smaller nations. God blesses America and He/She certainly wouldn't bless us with inferior solutions to our problems.

So let's look at retirement in America. Remember the "three-legged stool" of retirement planning? Leg one was Social Security, leg two was your pension and leg three was your savings. If you're a retired NYS teacher, you almost certainly have a nice sturdy three-legged stool and, while you're probably not part of the 1%, you probably are able to pay your bills.

Don Esmonde--while discussing the views of a new member of the Clarence school board in this morning's Buffalo News--referred to that pension leg as "...benefits that disappeared in corporate America with the two-martini lunch."

By the way, if you think that replacing pensions with 401(k) plans is a good thing--or even that it makes financial sense--have a look at a post I did called "What's so bad about 401(k)-type plans?" and have your eyes opened!

On May 14, the NY Times published a special section on retirement which included an article by Steven Greenhouse titled, "How they do it elsewhere." Here's the first paragraph: "The United States can boast that it has the world’s best basketball players, fighter jets and country and western singers. But hardly anyone would ever boast that the United States has the world’s best retirement system."

According to Greenhouse, 58% of American workers have neither a pension plan nor a 401(k). Imagine for a moment what your life would be like should your pension disappear. Could you live on Social Security and your savings? Apparently 58% of today's workers will be doing just that.

USAToday ran an article this morning titled "Will U.S. workers ever be able to retire?" It included the fact that "One-third of America's [current] retirees get at least 90% of their retirement income from the [Social Security] program, with annual benefits averaging a modest $15,000 for an individual."

A new report comparing our retirement system with others around the world is referenced by both the Times and USAToday articles. From the Times: "A new report ranking various countries’ retirement systems gives the United States a C, considerably worse than the A received by Denmark and the B-plus given to the Netherlands and Australia. The study, by the Mercer consulting firm and the Australian Center for Financial Services, weighs adequacy of benefits, breadth of coverage and other factors, and points to numerous weaknesses in the American system."

"Those shortcomings include contribution rates too low to assure adequate retirements for middle-class Americans and many workers withdrawing large sums from their 401(k)’s before they retire."

"The report also cites poverty-level retirement benefits for many low-income workers and pensions that fail to keep up with inflation. It also points to the common practice of retirees withdrawing large sums from their 401(k)’s soon after retiring, leaving many without an adequate income stream if they live past 80."

Oh, did I mention that participation in the 401(k) plan at work--if there even is one--is voluntary?

Certainly, there is room for improvement. We could task our Congress with formulating a system which would provide a reasonable assurance of an adequate retirement for all American workers. If other countries can do it, so can we.

Well, there is one small roadblock and it's another much-used phrase in America: "You're not the boss of me!" And up pops the mandate.

Other industrialized nations have discovered that they can provide medical care at half the cost of the USA, while also producing outcomes that are measurably better than ours. This requires, however, that the government mandate that everyone participates.

Awhile ago, I did a blog post which discussed mandates. It was called "We have laws because "please" doesn't work." I would urge you to take another look at it.

Again, from the NY Times piece: "John A. Turner, director of the Pension Policy Center in Washington, said some foreign features might not fit American culture, like mandated participation in the pension system as in Australia and Chile. He does not advocate such a mandate."

“We’re quite different from many other countries,” he said. “There’s an emphasis on individual freedoms and rights and responsibilities versus collectivism — although I admit we will never have high pension coverage without some form of mandate.”

“In the United States, collective is a four-letter word,” agreed Harry Smorenberg, head of a Netherlands-based consulting firm on pensions and founder of the World Pension Summit."

Now if "collective" is such a four-letter word in America, I wonder why the business community spends so much time and money in "team-building" activities. Working together toward a common goal is good for the corporation, but not for individuals?

I remember a world in which conservatives actually brought forth a healthcare plan with a mandate for individuals to purchase insurance because it was a matter of "personal responsibility." Now it seems that any law requiring collective action is "unamerican."

Life would certainly be better without those tyrannical government mandates that we all drive on the same side of the road or obey the speed limit.

Saturday, April 6, 2013

We're asking the wrong healthcare question: Part 4

Let's talk about how Congress handcuffs Medicare.

By law, Medicare is prohibited from negotiating drug prices. This applies both to the Part D prescription drug program as well as drugs you may receive during a hospital stay. Medicare is only allowed to ask the drug manufacturer the average sale price of the drug then add 6% to that amount when paying the hospital for the drugs they administer. The manufacturer is free to set its own price.

This process is quite different from what happens in Veterans' Administration hospitals which are free to use their buying power to negotiate drug prices.

Other developed countries regulate the price that drug companies can charge for their products. Not the USA. We pay about 50% more for a drug than in other developed countries.

The drug companies will say that they need to charge high prices to support their research and development programs. Without these programs, they say, new "wonder drugs" will be undiscovered. Brill's article says: "More than $280 billion will be spent this year on prescription drugs in the U.S. If we paid what other countries did for the same products, we would save about $94 billion a year. The pharmaceutical industry's common explanation for the price difference is that the U.S. profits subsidize the research and development of trailblazing drugs that are developed in the U.S. and then marketed around the world. Apart from the question of whether a country with a health-care-spending crisis should subsidize the rest of the developed world--not to mention the question of who signed Americans up for that mission--there's the fact that the companies' math doesn't add up."

"According to securities filings of major drug companies, their R&D expenses are generally 15% to 20% of gross revenue. In fact, Grifols [a major drug company] spent only 5% on R&D for the first nine months of 2012. Neither 5% nor 20% is enough to cut deeply into the pharmaceutical companies' stellar bottom-line net profits. This is not gross profit, which counts only the cost of producing the drug, but the profit after those R&D expenses are taken into account. Grifols made a 32.3% net operating profit after all its R&D expenses--as well as sales, management and other expenses--were tallied. In other words, even counting all the R&D across the entire company, including research for drugs that did not pan out, Grifols made healthy profits. All the numbers tell one consistent story: Regulating drug prices the way other countries do would save tens of billions of dollars while still offering profit margins that would keep encouraging the pharmaceutical companies' quest for the next great drug."

Oh, by the way, many new drugs come as the result of government-supported research paid for by the taxpayer, not the drug companies.

Why did Congress prohibit Medicare from using its vast buying power to negotiate drug prices? Remember, the medical/hospital/pharma complex spends three times what the military/industrial complex does on lobbying. What Will Rogers said in the 1930's seems to still be true: "We have the best government money can buy."

Sunday, March 24, 2013

We don't have a clue about our kids' finances.

We're not done with our discussion of Brill's Time article about medical costs, but I want to share something amazing with you.

Retirees have a lot of life experiences. We grew up, received an education, spent decades in the workforce and along the way learned how to handle our family finances.

We would like to pass that experience along to our children in hopes of making their financial lives a little easier. Here's the problem: Much of what we know about family finances doesn't apply to the "mom, dad and two kids" families of today.

How can that be? Like the proverbial frog in the slowly warming water, things have changed so gradually that we never noticed.

This was driven home to me by a piece of video I recently ran across. I was stunned by how much my financial thinking was out of date. I watched the video, then got my wife and sat down with her and watched it again.

In March of 2007, Elizabeth Warren was invited to Berkley to give the Jefferson Memorial Lecture. Note to conservatives: Although Warren is now a U.S. Senator, there is nothing even close to a partisan remark in this video. Warren was invited to lecture because she was becoming recognized for her work on bankruptcy and the conditions leading American families into financial peril.

Warren is to financial information what the late Carl Sagan was to science. She can make her topic interesting and easily understandable. Once I got past the dean of the graduate school who introduced Warren, I couldn't stop watching.

The video runs 57 minutes, but you can stop it and come back to it later if desired. (Just remember the time you stopped, then use the "scrubber" bar to fast forward back to that point.)

Warren contrasts the financial situation facing a typical family in 1970 with one in 2005. You will be amazed at the differences you did not understand. Educators will be particularly struck by the difference in educational costs to a family wanting their children to enter the middle class. This occurs around 48 minutes into the video.

Here is the video, Trust me, it is worth your time:

Wednesday, March 13, 2013

We're asking the wrong healthcare question: Part 3

In part 1 and part 2 we began digesting Steve Brill's recent Time magazine cover story in which he says that we should be asking why our healthcare bills are so high as opposed to who will pay those bills.

In part 2 we learned some things about nonprofit hospitals, including the fact that the average nonprofit hospital makes a greater profit than the average for-profit hospital. "In hundreds of small and midsize cities across the country...the American health care market has transformed tax-exempt "nonprofit" hospitals into the towns' most profitable businesses and largest employers, often presided over by the regions' most richly compensated executives." With a profit margin averaging about 12%, what do "nonprofit" hospitals do with their profits?

They start by buying up medical practices. The doctors in these practices will send their patients to the hospital lab for tests, X-rays, CAT scans, etc. When sending patients for inpatient or outpatient care, the doctors will recommend the hospital "affiliated" with their practice.

"In a trend similar to what we've seen in nonprofit colleges and universities--where there has been an arms race of sorts to use rising tuition to construct buildings and add courses of study--the hospitals improve and expand facilities (despite the fact that the U.S. has more hospital beds than it can fill), buy more equipment, hire more people, offer more services, buy rival hospitals and then raise executive salaries because their operations have gotten so much larger. They keep the upward spiral going by marketing for more patients, raising prices and pushing harder to collect bill payments. Only with health care, the upward spiral is easier to sustain. Health care is seen as even more of a necessity than higher education. And unlike in higher education, in health care there is little price transparency--and far less competition in any given locale even if there were transparency. Besides, a hospital is typically one of the community's larger employers if not the largest, so there is unlikely to be much local complaining about its burgeoning economic fortunes."

 "Nonetheless, hospitals...are able to use their sympathetic nonprofit status to push their interests. As the debate over deficit-cutting ideas related to health care has heated up, the American Hospital Association has run ads on Mike Allen's Playbook, a popular Washington tip sheet, urging that Congress not be allowed to cut hospital payments because that would endanger the '$39.3 billion' in care for the poor that hospitals now provide. But that $39.3 billion figure is calculated on the basis of the chargemaster prices. Judging from the difference I saw in the bills examined between a typical chargemaster price and what Medicare says the item costs, this would mean that the $39.3 billion in charity care costs the hospitals less than $3 billion to provide. That's less than half of 1% of U.S. hospitals annual revenue and includes bad debt that the hospitals did not give away willingly in any event."

And let's not forget lobbying costs. You probably thought that the defense and aerospace industries were big spenders in Washington. Or maybe you would have guessed in would be the oil companies. "According to the Center for Responsive Politics, the pharmaceutical and health-care-product industries, combined with organizations representing doctors, hospitals,nursing homes, health services and HMOs, have spent $5.36 billion since 1998 on lobbying in Washington. That dwarfs the $1.53 billion spent by the defense and aerospace industries and the $1.3 billion spent by oil and gas interests over the same period. That's right: the health-care-industrial complex spends more than three times what the military-industrial complex spends in Washington."

That lobbying is done because there is a lot of money to be made in healthcare. "We may be shocked at the $60 billion price tag for cleaning up after Hurricane Sandy. We spent almost that much last week on health care. We spend more every year on artificial knees and hips than what Hollywood collects at the box office. We spend two or three times that much on durable medical devices like canes and wheelchairs, in part because a heavily lobbied Congress forces Medicare to pay 25% to 75% more for this equipment than it would cost at Walmart."

That's coming up in the next post.

Sunday, March 3, 2013

We're asking the wrong healthcare question: Part 2

In Part 1, we began to break Steven Brill's Time cover story into smaller pieces. Brill says that we're arguing about who should pay for our healthcare instead of the more important question of why are our healthcare bills so high.

We were using 64-year-old Janice S. as an example. She spent a few hours in her local hospital one morning learning that her chest pains were simply indigestion. Those few hours brought $21,000 in medical bills, $17,000 from the hospital itself.

Brill points out that while in the hospital Janice had three "TROPONIN I" tests at $199.50 each. These are blood tests conducted in the hospital lab looking for substances in the blood which are good indicators of a heart attack.

If Janice had been 65--instead of 64--and covered by Medicare, Medicare would have paid the hospital $13.94 for each of those tests. And now you are about to learn something that I'll bet you didn't know.

"...Medicare collects troves of data on what every type of treatment, test and other service costs hospitals to deliver. Medicare takes seriously the notion that nonprofit hospitals should be paid for all their costs but actually be nonprofit after their calculation. Thus, under the law, Medicare is supposed to reimburse hospitals for any given service, factoring in not only direct costs but also allocated expenses such as overhead, capital expenses, executive salaries, insurance, differences in regional costs of living and even the education of medical students."

You may want to read the above paragraph again. Then a few more times until it sinks in. I read and think a lot about American healthcare, but this was news to me.

My doctor periodically sends me to the local hospital lab for routine blood tests. Medicare eventually sends me a notice that the hospital charged $139 for the tests and Medicare paid the hospital less than $20. I used to think that this was a terrible abuse of the hospital by the government. Now I understand that the hospital will do just fine with Medicare rates.

Janice, however, was too young for Medicare and she did not have health insurance and so she was billed the full rate as stated in the hospital's "chargemaster." According to Brill, "The chargemaster, I learned, is every hospital's internal price list. Decades ago it was a document the size of a phone book; now it's a massive computer file, thousands of items long, maintained by every hospital."

If Janice had been privately insured, her insurance company would have been able to negotiate a discount from the chargemaster rates. Janice might have received a notice from the company that they had obtained a "discount" of 50% from the $199.50 figure and Janice would have thought that the company did a great service for her. With no insurance, Janice was billed the full $199.50 for each of the three tests.

But wait, a repayment of $13.94 would have covered all the hospitals expenses, both direct and indirect. If other insurers pay more than $13.94 for these same tests--or the uninsured pay the full chargemaster amount of $199.50--the hospital is making a profit. Isn't this supposed to be a nonprofit hospital?

Ready for another revelation? "Under Internal Revenue Service rules, nonprofits are not prohibited from taking in more money than they spend. They just can't distribute the overage to shareholders--because they don't have any shareholders."

If everyone paid Medicare rates, these hospitals would break even and be truly nonprofit. But patients with private insurance will pay about 35-50% of the chargemaster rates and the uninsured will be asked to pay the full rate, resulting in large profits. Only in American healthcare are those with the least ability to pay charged the highest rates!

The hospital that Janice visited made a 12.7% profit last year. The famous MD Anderson Cancer Center in Texas--also nonprofit--has a 26% profit margin, about 10 times that of your local supermarket. These are profit margins which would delight most for-profit businesses.

"Yet hospitals are beloved local charities. The result is that in small towns and cities across the country, the local nonprofit hospital may be the community's strongest business, typically making tens of millions of dollars a year and paying its nondoctor administrators six or seven figures....the 2900 nonprofit hospitals across the country, which are exempt from income taxes, actually end up averaging higher operating profit margins than the 1000 for-profit hospitals after the for-profits' income-tax obligations are deducted. In health care, being nonprofit produces more profit."

What happens to these profits? That's for the next post.

Tuesday, February 26, 2013

We're asking the wrong healthcare question: Part 1

"One night last summer at her home near Stamford, Conn., a 64-year-old sales clerk whom I'll call Janice S. felt chest pains. She was taken four miles by ambulance to the emergency room at Stamford Hospital, a nonprofit institution. After about three hours of tests and some brief encounters with a doctor, she was told she had indigestion and sent home. That was the good news."

"The bad news was the bill: $995 for the ambulance ride, $3000 for the doctors and $17,000 for the hospital--in sum, $21,000 for a false alarm."

The above is a quote from a remarkable cover story by Steven Brill in Time magazine this week. Its title is "Bitter Pill: Why Medical Bills are Killing Us." At 26,000 words and 36 pages it is the longest feature story Time has ever published, and probably one of the most important.

I'd like to think that every reader of this blog will take the 2-1/2 hours or so required to read the entire article, but I doubt that will be the case so I will hit the important points for you over the course of several posts.

Unfortunately, situations like that of Janice S. are the norm. A WNY retiree recently appeared at a nearby hospital for his angiogram appointment at 6 AM. (Angiograms check for the amount of blockage in blood vessels feeding the heart.) By 1 PM he was eating lunch at a local restaurant. The bill for the morning's activities: $18,000.

Brill posits that we have been arguing about the wrong healthcare question: Who should pay our healthcare bills? Instead, he addresses a more important question: Why are our healthcare bills so high?

"What are the reasons, good or bad, that cancer means a half-million-or million-dollar tab? Why should a trip to the emergency room for chest pains that turn out to be indigestion bring a bill that can exceed the cost of a semester of college? What makes a single dose of even the most wonderful wonder drug cost thousands of dollars? Why does simple lab work done during a few days in a hospital cost more than a car? And what is so different about the medical ecosystem that causes technology advances to drive bills up instead of down?"

Long-time readers of this blog know that I think a lot about healthcare and have devoted many posts to the American system and others around the world.

Personally, I have wondered why it is that 10 ml (about 2/3 of a tablespoon) of an eyedrop I use every day costs almost $300 if purchased without insurance at the Walmart pharmacy. Do these drops contain the tears of real angels?

Ten years ago, my father spent the last month of his life in a Buffalo hospital. The bill for the month came to almost $40,000. Medicare would pay a little less than $10,000 and the hospital was happy to receive that amount. A hospital happy with getting 25-cents on the dollar of its bill--what's happening here?

It turns out that the healthcare marketplace is not a marketplace at all. What I learned from Brill astounded me and gave me a totally new picture of healthcare costs. You may be surprised to find that while you are powerless in what Brill describes as "the ultimate sellers' market," health insurance companies are increasingly finding themselves in the same position.

I'll share some of what I learned over the next few posts, but I urge you to get ahead of me and read the article. You can get it by clicking on its title above. Let me warn those of you with high blood pressure that what you learn will make you mad enough to make your medication necessary!

Sunday, February 17, 2013

We're two weeks away from killing the kids.

Imagine that your family has a dispute with a neighboring family that has gone on for years. In order to force a settlement of this dispute, both families agree to do something so stupid as to be beyond belief if the dispute hasn't been settled by a certain date: One child from each family will be killed. How could this not force a settlement?

We're about to play out this scenario on a national scale. Welcome to the "sequester." We're two weeks away from killing the kids!

If you've lost track of the history of this little gem, here's a quick refresher: The last fight over authorizing an increase in the debt ceiling ended with an agreement to turn deficit reduction over to a congressional "supercommittee." If this group could not reach a deficit-reduction solution, a set of cuts to both defense and non-defense spending would automatically go into effect.

These cuts--known as the "sequester"--were purposely designed to be so insanely stupid that neither left nor right would ever let them happen. The supercommittee could not reach an agreement so the cuts are due to go into effect on March 1.

How stupid are these cuts? This morning's NY Times, in an editorial titled The real cost of shrinking government, deals in specifics:

" About $85 billion will be cut from discretionary spending over the next seven months, reducing defense programs by about 8 percent and domestic programs by about 5 percent. Only a few things will be spared, including some basic safety-net benefits like Social Security, as well as pay for enlisted military personnel."

"The sequester will not stop to contemplate whether these are the right programs to cut; it is entirely indiscriminate, slashing programs whether they are bloated or essential. "

"NATIONAL SECURITY: Two-week furloughs for most law-enforcement personnel will reduce Coast Guard operations, including drug interdictions and aid to navigation, by 25 percent. Cutbacks in Customs agents and airport security checkpoints will “substantially increase passenger wait times,” the Homeland Security Department said, creating delays of as much as an hour at busy airports. The Border Patrol will have to reduce work hours by the equivalent of 5,000 agents a year."

"AIR TRAFFIC: About 10 percent of the Federal Aviation Administration’s work force of 47,000 employees will be on furlough each day, including air traffic controllers, to meet a $600 million cut. The agency says it will be forced to reduce air traffic across the country, resulting in delays and disruptions, particularly at peak travel times."

"CRIMINAL JUSTICE: Every F.B.I. employee will be furloughed for nearly three weeks over the course of the year, the equivalent of 7,000 employees not working each day. "

Looking for something specific to teachers and education? "EARLY CHILDHOOD EDUCATION: About 70,000 children will lose access to Head Start, and 14,000 teachers and workers will be laid off, because of a $424 million cut. Parents of about 30,000 low-income children will lose child-care assistance."

"DEFENSE PERSONNEL: Enlisted personnel are exempt from sequester reductions this year, but furloughs lasting up to 22 days will be imposed for civilian employees, who do jobs like guarding military bases, handle budgets and teach the children of service members. More than 40 percent of those employees are veterans."

"MILITARY OPERATIONS: The Navy plans to shut down four air wings on March 1. After 90 days, the pilots in those air wings lose their certifications, and it will take six to nine months, and much money, to retrain them."

"TRAINING AND MAINTENANCE: ....Air Force pilots expect to lose more than 200,000 flying hours. Beginning in March, roughly two-thirds of the Air Force’s active-duty combat units will curtail training at their home bases, and by July will no longer be capable of carrying out their missions."

These are just a few examples of cuts which are expected to cost the economy more than one million jobs.

To paraphrase Thomas Friedman--NY Times columnist and Pulitzer-prize winning author--"You can grow an economy without a plan, but cutting it without a plan by indiscriminate hacking risks cutting not only fat but muscle, bone and nerves as well."

If we kill our kids in two weeks, everyone will feel the effects. 

And where is Congress? They took a vacation and will return to work when there is only one week left to avoid what was originally designed to be an insanely stupid action that nobody would ever dream of allowing. 

Wednesday, January 30, 2013

Democracy as a yacht race revisited.

Last Dec. 13 I did a blog post titled "Has democracy turned into a yacht race?" In a yacht race, you can win by having the fastest boat, or the most skilled skipper and crew, or by manipulating the rules.

I pointed out that there seemed to be a lot of rule manipulation going on in politics and used Michigan as an example. If you recall, Michigan's governor announced at an 11 AM news conference that he was in favor of a right-to-work law for his state. A strange turn of events since during the election season he had said that he opposed such legislation as being too "divisive."

The Michigan right-to-work law was introduced in both houses of the legislature later that day and passed by 8 PM that evening with no hearings or real chance to debate the issue. And just to be certain that the people of Michigan couldn't overturn the law at the polls, the legislature attached it to the one type of law not subject to voter referendum: a budget bill.

And we thought that was breathtaking. But wait, it turns out that Michigan could do better!

Last November, Michigan voters turned thumbs down on a law which allowed the governor to appoint an "emergency manager" for any governmental unit (village, town, county, school district) within Michigan. This manager would wield absolute dictatorial power over the affairs of that unit. He could nullify contracts with workers, spend or not spend money, etc. all without the approval of the democratically-elected officials of that governmental unit.

Benton Harbor, Michigan was a good example. Think of Benton Harbor as a smaller version of Detroit. One of the actions of Benton Harbor's emergency manager was to sell a piece of land which had been deeded in perpetuity to the city as a park to a private developer to create a country club and golf course, even though there are not many golfers among the citizens of Benton Harbor and even fewer citizens who could afford country club dues.

The citizens of Michigan apparently did not like the idea of some appointed overseer substituting for their elected officials. So they collected signatures on petitions and got enough to put the law on the November ballot where it was defeated.

End of story? Hardly. The legislature passed what was essentially the same law--but this time attaching it to a budget bill so it would not be subject to referendum--and the governor signed it.

It's difficult to imagine a bigger middle-finger salute to the people of Michigan and to democracy!

There's a great example happening of politics as yacht racing on a national scale, but we'll leave that to another post. Here's a question to consider though: Since there are so many more people living in urban areas than rural areas, should we balance things out by giving urban voters only 3/5 of a vote per person in national elections?

Thursday, January 24, 2013

America's foam finger problem.

Sometimes I feel as if I'm living inside a giant pep rally for America. Politicians love to tell us how we are the greatest country on the face of the Earth, the "land of opportunity" a "shining city on a hill." We're told that God especially loves America, so much so that there was a painting making the rounds recently in conservative circles showing Jesus delivering the Constitution to our founding fathers.

Maybe we should set aside a day each year when we all wear those giant "We're Number 1" foam fingers and chant "USA, USA" for a full 24 hours just to get it out of our systems.

Now don't get me wrong. I love this country and have no plans to move anywhere else. But, we have some pretty large failings. Tuesday's NY Times Editorial Page Editor's blog references a list of a few of our shortcomings compiled by Gus Speth:

"To our great shame, among the 20 major advanced countries America now has
  • the highest poverty rate, both generally and for children;
  • the greatest inequality of incomes;
  • the lowest government spending as a percentage of GDP on social programs for the disadvantaged;
  • the lowest number of paid holiday, annual, and maternity leaves;
  • the lowest score on the United Nations’ index of “material well-being of children”;
  • the worst score on the United Nations’ gender inequality index;
  • the lowest social mobility;
  • the highest public and private expenditure on health care as a portion of GDP,
yet accompanied by the highest
  • infant mortality rate;
  • prevalence of mental health problems;
  • obesity rate;
  • portion of people going without health care due to cost;
  • low-birth-weight children per capita (except for Japan);
  • consumption of antidepressants per capita;
along with the shortest life expectancy at birth (except for Denmark and Portugal);
  • the highest carbon dioxide emissions and water consumption per capita;
  • the lowest score on the World Economic Forum’s environmental performance index (except for Belgium), and the largest ecological footprint per capita (except for Belgium and Denmark);
  • the highest rate of failing to ratify international agreements;
  • the lowest spending on international development and humanitarian assistance as a percentage of GDP;
  • the highest military spending as a portion of GDP;
  • the largest international arms sales;
  • the most negative balance of payments (except New Zealand, Spain, and Portugal);
  • the lowest scores for student performance in math (except for Portugal and Italy) (and far from the top in both science and reading);
  • the highest high school dropout rate (except for Spain);
  • the highest homicide rate;
  • and the largest prison population per capita."
The author concludes that "...in a 20-country group of America’s peer countries in the OECD, the U.S. is now worst, or almost worst, on nearly 30 leading indicators of social, environmental, and economic well-being."

So what I would like to see is a politician with the courage to say "We can learn some things from our competitors."

Want to run government like a business? Google "learn from your competitors" and you'll find a raft of articles from business journals like one from Business Week saying " The quickest way to learn how to be successful is to check the playbook of your competitors. By taking the time to investigate what has made their businesses work, you’ll be able to learn their best methods and improve upon their model."

That's precisely what our international competitors did to us. We were once number one in education, manufacturing, etc. They studied what we did and improved upon it. Yet we are now too arrogant to admit that we could learn a thing or two from their innovations.

As an example, we mouth platitudes about wanting equality of opportunity for our children. Finland has put that idea into practice in its first-in-the-world education system. Nobody puts their kids into a private school in Finland. Regardless of the wealth of the community, every school has exactly the same resources and draws from the same pool of teachers. If a child does well it's because they had talent and worked hard, not because they got to start the inning by standing on third base.

That's very different from America. Nicholas Kristoff points this out in his NY Times column this morning:

"Point to a group of toddlers in an upper-middle-class neighborhood in America, and it’s a good bet that they will go to college, buy nice houses and enjoy white-collar careers."

"Point to a group of toddlers in a low-income neighborhood, and — especially if they’re boys — they’re much more likely to end up dropping out of school, struggling in dead-end jobs and having trouble with the law."

"Something is profoundly wrong when we can point to 2-year-olds in this country and make a plausible bet about their long-term outcomes — not based on their brains and capabilities, but on their ZIP codes. "

So how about we give the foam fingers a rest, admit that we have some problems and adopt Inc. Magazine's suggestion:" Spend some time studying the guy who wants to eat your lunch. You might learn something."