Philly School District Lays Off 3,783 Employees

Facing a budget deficit in excess of $300 million, the School District of Philadelphia has announced the layoff of nearly 3,800 people. The layoffs amount to about 20 percent of the roughly 19,000 total personnel on the district’s payroll.

Why the big deficit? Based on the district’s proposed budget, the two largest causes of the shortfall are a sharp drop in Federal grants and the deficit from last year that required borrowing to fill the gap-borrowing that cannot be repeated. Another problem that is developing to exacerbate the funding shortfall going forward is the hike in the amount the school district will have to contribute to pensions. Unless there is agreement on pension reform legislation, Philadelphia, as well as most school districts in Pennsylvania, face ruinous increases in pension funding. And that means higher city taxes, more layoffs or both. Philadelphia, like many other communities across the state, is not in any position to absorb higher taxes.

Serious pension reform is needed and teachers’ unions must consider the pain they themselves will suffer in the short run as evidenced by the layoffs already occurring across the state. Layoffs that will grow as the pension burden gets larger in the years ahead. Fighting common sense reforms that preserve benefits earned to date and ward off major tax hikes is a train wreck in the making for the unions.

The Stimulus Trap—Allegheny County Style

Seems like only yesterday we were warning the state, school districts and municipal government about the dangers of grabbing Federal stimulus dollars and spending them as if they were permanent replacement funds for local revenue shortfalls. Now the stimulus dollars are gone and local tax revenue has not risen enough to make up the difference. Case in point; Allegheny County is facing a significant budget problem for 2012 the Chief Executive spokesperson says stems directly from the cuts in Federal and state funds that were available in 2009, 2010 and 2011.

Rather than make the spending cuts in the Executive’s proposed 2012 budget plan the majority members of County Council are proceeding with legislation to boost the County tax rate to 5.69 mills, a 21 percent increase from the 4.69 rate currently in place. As we have noted earlier, the 21 percent hike in a reassessment year is likely to run into legal difficulties.

The problem for Council is twofold. The failure to adjust spending to a lower path when the stimulus funds were arriving in anticipation of the day when they would no longer be coming in is simply inexcusable. The nearly decade long adamant refusal to allow property assessments to change to reflect market movements has locked property tax revenues for the County at artificially low levels with the major inequities frozen in place as well. Now, the Council wants to solve all the problems created by past policy blunders in one dramatic act-raising taxes by 21 percent.

Thanks goodness state law will protect property owners although it is likely to get messy and drag out any eventual resolution. The question is how far and how vigorously the new Executive and the Council will push against the law as they have all too willing to do over the last few years, resulting in expensive lawsuits that have all been lost-up to and including a Supreme Court order to reassess.

Some PA Senators Want Obama Lite Plan to Stimulate Job Growth

Following the precepts of the Obama "jobs" bill, several state senators are proposing to boost employment by stepping up the pace of water and sewer projects, supporting green jobs industries, job training and promoting home ownership. The $1.2 billion plan would use existing funds and a fee on Marcellus drilling.

Let’s take one flaw at a time. First, we do not need special subsidies for green industries. As Obama is proving, such a use of taxpayer money is a gigantic waste. Solar energy is growing on its own. Windmills have been used for almost 40 years now. There is no need to subsidize these efforts. Shovel ready sewer jobs? Not likely. It takes a long time to plan new projects or rehab on major installations. Besides, all such jobs created would be at best short-lived and little more than a payoff to unions who would get all the work because of the prevailing wage law.

More money for job training? What, we do not spend enough on education and training already? And the proposal to promote homeownership is outright ridiculous. Have we learned nothing about the negative consequences of putting people in homes they cannot afford? Interest rates are at the lowest levels ever. If that is not stimulating home buying there is little left for government to do but wait on the market to right itself.

If the senators want to see faster job growth in Pennsylvania, they might want to look at what Wisconsin is doing to rein government unions and they might want to think about repealing prevailing wage rates. Getting government out of the way is a far better jobs program than wasting $1.2 billion trying to boost employment through a sham development scheme. We have seen this movie. Governor Rendell spent a half billion a year attempting to boost the economy. And we got precious little to show for it.

Board Bemoans Pittsburgh Schools Job Cuts

With moans of regret and lamentations over the sadness they felt, members of the Pittsburgh School Board voted by an 8 to 1 margin to eliminate 217 positions from its horribly bloated payroll. Of that number 147 represents currently employed staff that will be laid off in the budget cutting measure that is expected to save $11.5 million.

Here’s the bad news for the board. Their budget cutting is just getting started. Last November the Allegheny Institute warned the school board of a gigantic impending financial crisis about to land on its doorstep. Despite sharply declining enrollment and falling real estate tax collections during the 2006 to 2010 period, school spending continued to rise as new non-teaching employees were added in a display of unbridled profligacy and irresponsibility. The burgeoning future budget shortfall was temporarily filled by jumps in state funding and Federal "stimulus" funds.

As we have pointed out for some time, the state would eventually have to rein in spending in the face of a $4 billion revenue shortfall and Federal funds would dry up as the Congress turns its attention to exploding deficits and economy corroding debt buildup. Now the wolf is at the school house door in Pittsburgh as a result of years of failed financial stewardship and failure to deliver schools capable of adequately educating students.

No amount of pointing out their highly visible shortcomings was ever enough. The board, the teachers’ union, the superintendents and too many politicians in thrall to the specious malarkey of educrats resisted any meaningful reforms, opting for gimmicks and ever more spending as the answer to the problem of delivering quality education.

One could hope that game is over. But in all likelihood, the board’s lachrymose caterwauling as they voted to cut 217 positions signals an unrepentant mentality that continues to believe that in a couple of years, things will get back to normal.

Given the prospects for further enrollment declines and a much tougher stance in Harrisburg with regard to the unproductive and wasteful use of education dollars in the City, the board’s hopes for a miracle on a white horse to ride in are wishful dreaming. It is a good time for the board to lay in a large supply of crying towels.

Public School Employment Up From a Year Ago

Notwithstanding the gnashing of teeth and doomsday prediction of diehard defenders of ever more spending on public schools, employment in the schools increased by 500 jobs in the Pittsburgh region from April 2010 to April 2011. While some reductions-or announced reductions are now in place-it is obvious that school districts have not been engaged in significant cutting.

The time of reckoning is at hand however as Federal stimulus funds have run out and state budget problems are likely to result in state spending cuts for education. As we have been warning for two years, the stimulus money was a trap. By allowing school districts to maintain spending levels rather forcing hard decisions, the state funding cuts will require much deeper reductions in staff and programs than would have otherwise been the case.

Our admonitions to have school boards ask teachers to take a pay freeze two years ago went unheeded, even derided. A pay freeze then would be worth several jobs now. But then greed by the unions and cowardice on the part of school boards is never a good combination for students or taxpayers.

Recovery, Reinvestment, and Ratios

Without stimulus money, "I am quite certain that Pittsburgh, like so many districts across the country, would have had substantial layoffs"-this is what the Pittsburgh Public Schools CFO said in an article this weekend. If we take the additional comments of the District’s spokesperson from the same article we are told that the $47 million in stimulus money that came to the District saved 228 teaching jobs and created 24.

Audited data from the District shows that there were 2,315 teachers and enrollment of 27,922, producing a student/teacher ratio was 12.1. Keeping enrollment constant, if the stimulus prevented any layoffs and added another 24 teachers (bringing the teacher total to 2,339) the ratio fell to 11.9.

Assuming the stimulus money never came-that the District would have been hit with 228 job cuts and never would have created the additional 24-there would be 2,087 teachers and the ratio would be 13.3, about 11% higher than with the stimulus money.

Note that the District’s ratio is lower than that of PA (13.3) and the U.S. (15.5) and would have stayed at or below without the stimulus money. This goes without mentioning that the District spends well in excess on a per-pupil basis but does not deliver commensurate results. So what did taxpayers get for their money exactly? District officials noted that there would have been layoffs, but never explicitly stated what the negative effects on students would have been.

Connector Job Claims as Economic Buffoonery

Spokesman Ritchie of the Port Authority, in response to a claim by Senators that the North Shore connector was a gigantic waste of stimulus funds, argued the project has produced as many as 4,000 jobs. Beyond the obvious problems with the jobs claim, such as the fact that many of the jobs were peripheral and of short duration, there are two greater difficulties with hyperbolic posturing around the jobs created by public sector capital projects.

First, the apologists for these projects completely ignore the concept of opportunity costs. For example, what could have been done with the $528 million that will be spent on the Connector? Many roads and bridges could have been repaired or rehabilitated resulting in many temporary construction jobs and additional paychecks. Millions of dollars in materials and equipment sales would have happened. Alternatively, the money could have been left in the hands of taxpayers who would have saved, spent, bought cars, houses, etc. thereby helping to grow or sustain private sector jobs.

Nor do the Connector apologists consider the unmeasured costs caused by the disruptions created by the construction. This would include stores losing business, commuters’ inconvenience of having to spend far more time getting to and from work, and general discouragement of travel into the City.

Second, public sector capital projects, just as private sector investment, must meet fundamental cost-benefit criteria. In short, these projects should generate a stream of benefits over time that has a present value greater than the expenditures on the development.

For some reason, Port Authority excuse makers never mention this critical point. And little wonder, the project barely convinced the Feds that PAT’s forecast of benefits produced by the Connector would warrant Federal funding of construction when the cost estimate stood at $363 million. Since the Fed approval of funding the cost of the Connector has skyrocketed to $528.8 million and the Convention Center leg, which was to be a major contributor to Connector benefits, has been dropped to reduce construction costs.

There can be no doubt that the Connector cost will greatly exceed any future stream of benefits. Indeed, conservatively estimated, using PAT ridership projections, a roundtrip ride on the Connector will cost taxpayers more than $40 in capital and operating expenses over the first 20 years of operation.

One can easily understand why Authority apologists try to obfuscate and confuse with a steady stream of spurious arguments in support of the indefensible.

Irony of Ironies: A Union Leader as Industry Reviver

President Obama’s car czar, Ron Bloom, has recently been given the additional responsibility of helping figure out ways to revive American manufacturing. Before becoming the car czar Mr. Bloom was a special assistant to the president of the United Steelworkers where his responsibilities included the union’s collective bargaining program. Prior to that he worked as an investment banker and was involved with transactions on behalf of the Steelworkers, United Auto Workers, and the Teamsters among other unions.

Sounds like the least qualified person to revive American manufacturing jobs, especially auto industry jobs where collective bargaining agreements resulted in such high compensation and legacy costs brought the employers to bankruptcy and are now owned largely by the government and the unions.

Wonder what recommendations he will bring to the table? Likely he will want more takeovers of struggling American enterprises hamstrung by regulations and collective bargaining agreements. How will U.S. companies not owned by the government compete with publicly owned enterprises that do not have to worry about profits or return on investment? Is this the way we engage in global competition? Taxpayers as investors with Bloom as investment manager. That is surely the road to the poor house for all of us.

Federal Stimulus Spending on Transit Running on Empty

Federal stimulus money for transportation seemed like manna from heaven for cash-strapped states needing to repair roads and bridges as well as fund public transit. Now these same states that have enjoyed the gift are starting to wonder what will happen when the funds dry up. They worry that there will not be enough to satisfy all of their projects or, in the case of public transit, where replacement funds for the stimulus programs will come from. Many of them are pushing for a higher Federal gasoline tax. However, the Obama administration is correct in noting that raising the gasoline tax is the wrong thing to do in a recession.

There is plenty of irony in the plea to raise the gasoline tax, not just at the federal level, but the state level as well. The push to get people into cars that get higher miles per gallon driven, as evidenced in the cash for clunkers program, has reduced the demand for gasoline and thus reduced the tax revenue collected. Now they want to raise the tax rates which will further force people into more fuel efficient cars.

Thus the cry for a more reliable funding source for transportation.

But these advocates are missing one important point-the cost of these projects have been inflated by as much as 30 percent due to prevailing wage laws. If they want the money to go farther, this onerous law should be repealed. It’s nothing but a sop to the politically powerful unions. Thus repeal is unlikely to happen. Instead the tax and spenders at the state and federal level will find ways to bleed taxpayers for the benefit of these unions.