Frederica Freyberg:
The governor's call for the legislature to take up mayoral takeover of Milwaukee's public schools didn't get off the dime this week. The issue awaits public hearing. But in the midst of that controversy, a new report out this week sounds the alarm. Over the finances at MPS. The Wisconsin Policy Research Institute released a study showing the estimated costs of future health care insurance benefits for retirees that MPS has promised to pay but has not yet set aside money for currently stands at $2.6 billion  and is projected to grow to nearly $5 billion by the year 2016. The study shows that instead of setting aside the money for the liability, the district pays the benefit as they go, a figure of $70 million for this year, expected to jump to more than $130 million by 2016. Either way, MPS pays for it, this is one big budget item. George Lightbourn is with the Wisconsin Policy Research Institute. The group says this is a financing failure. And shows the need for reform of MPS.  Tom Morgan is executive director of Milwaukee Teachers’ Education Association, the teachers union which negotiates these benefit plans on behalf of its members. They both join us from Milwaukee. Thanks very much for doing so.

George Lightbourn:
You're welcome.

Frederica Freyberg:
George Lightbourn, what is better about prefunding pension costs as opposed to pay as you go?

George Lightbourn:
Well, it's basic pension 101. If you look at a teacher who retires from MPS, is eligible for as much as $1,800 a month in health insurance coverage for a family plan, if you're paying as you go, the taxpayers are picking up that entire amount of money. If you prefund it, like just about every pension plan in the country is, the earnings that you realize over the life of the investment pick up two-thirds of the cost, so rather than the state picking up or the employer picking up $600, which would make sense, it's having to fund the entire $1,800 a month.

Frederica Freyberg:
Now, staying with you for another moment, George Lightbourn, what is your reaction, not withstanding the pay-as-you-go versus the prefunding, what's your reaction to the size of these expenditures themselves?

George Lightbourn:
Well, it's quite extraordinary. We have a school district where fringe benefits now amount to 68 percent of salaries. When I tell people in the private sector that, they almost think I must be pulling a fast one, but that's the fact. That's an indication that things are seriously awry, and the biggest contributor to that fringe benefit rate is exactly the thing that we did the study on. The unfunded health care liability.

Frederica Freyberg:
Let me jump in to you, Tom Morgan. Now aside from the method of payment, the benefit itself does appear to be kind of a Cadillac plan, teachers work 15 years, they can retire, then at age 55 get this health benefit of more than $1,800 a month. Does that kind of generous benefit need defending in these economic times?

Tom Morgan:
I think you have to go back to the history of the benefit. The benefit was negotiated in lieu of salary, that like many unions, fringe benefits were important. Years ago, the benefit was bargained in an era when that was not that unusual. The intent of the MTEA when they bargained it, the money would have been paid to teachers in salary would be set aside in a fund to grow and be invested as the report says should be done, and if that would have been done over a period of time, we wouldn't be talking about this problem at this point.

Frederica Freyberg:
And so you take exception to the method by which MPS is funding this as well?

Tom Morgan:
Certainly, because when you bargain a contract, a collective bargaining agreement and you look at the total cost and back in the day when this was bargained, what they said, there was so much money that was in that package and part of the money went to salaries, lower than probably would have normally have gone even with inflation at that period of time, and the remaining money was supposed to be set aside for the fringe benefit package, so when teachers retired, they would have fringe benefits. The report talked about teachers retiring around age 57, which isn't unusual, and many states teachers retire around that age. It's similar to individuals that are in protective occupations like police and fire, and so you have a period from when they retire until the time they can get Medicare, that they need insurance, and that's what was planned for, that we knew when people would retire, we knew that there would be a cost to it, and we bargained money to be set aside for those during that period of time.

George Lightbourn:
Can I just —

Frederica Freyberg:
Go ahead.

George Lightbourn:
The issue here, and we can get all bogged down in fringe benefits and salaries and all of that, the issue here is how much money is available for the classroom and what our study found is that the dollars that the school board is having to pay out for these benefits is not only taking dollars out of the classroom today, it's going to take an extraordinary amount out of the classroom of the future, and when you talk about education reforms, understanding that you have this fiscal ball and chain to carry around for the next several decades, it becomes an untenable situation.

Tom Morgan:
I would argue that all studies show, especially in an urban classroom, the most important thing is the teacher in front of those students, that a quality teacher in a classroom makes a big difference, and fringe benefits are an important factor in retaining teachers, quality teachers that these students need in the classroom. So we think when the state takes money away from the classroom, I don't agree. I think putting a quality teacher in front of students is the most important thing.

Frederica Freyberg:
George Lightbourn, there's so much more to say, kind of on that topic, but I want to move along and ask you how you believe the mayoral takeover of the school district might help solve this problem.

George Lightbourn:
Well, I don't think the takeover in and of itself is necessarily the answer, but I think it's a reasonable conclusion to look at the school boards over the last 20 years that have known about this problem, and have done nothing about it, and you'd say, is this the system we should continue. Or should we at least consider a different governance model, but I think what the study shows quite clearly is that whether it's the school board or the mayor, whoever is responsible for running the system, they have to have the capacity to address these very complicated, very contentious kind of issues, because if they don't, we keep pushing them off on to future generations.

Frederica Freyberg:
Tom Morgan, is the union on board to kind of help the school board or whoever would be in charge of the schools in the next several years, tackle this issue?

Tom Morgan:
Certainly, I mean, it seems to be the role of the union in Milwaukee that when the school board get themself into a mess, it's our job to help them get out of it, and we've already negotiated in fringe benefits, a wellness plans that saved a million dollars last year and that was just the first year of the plan, but we are at the collective bargaining table looking at other ways that could be win-win operations, where it would benefit the plan, the taxpayers, and not hurt our teachers, and that's our goal.

Frederica Freyberg:
And so when you say, and very briefly, that it seems to be the union's job to get the school board out of its fixes, does that mean that you're kind of done helping them do that, or do you expect to come to the table again and help them resolve this unfunded pension business?

Tom Morgan:
No, we'll continue to work on the problem, because in the end, we believe that retirement insurance is important, so our teachers don't end up with a period of time where they have no health insurance. We want quality teachers in the classroom. And so we will work on a way that we can maintain both and be creative.

George Lightbourn:
I think that most people would believe that state government — state employees have a pretty good fringe benefit package.

Frederica Freyberg:
We do. I'm one of those and highly admit to it, but I'm being given the heavy wrap it up here. We've run out of time. There's a lot more to say. We'd like to have you back and other players as well. George Lightbourn and Tom Morgan in Milwaukee, thank you.

Tom Morgan:
Thank you.