Archives for category: 4 is not 2

March 8, 2012 conversation with an employee of IBM, who explained IBM’s pay schedule to me:

  • every year all employees are evaluated on a scale of 1 to 3
  • each employee receives a rating of 1 (highest), 2+, 2, or 3 (lowest)
  • IBM grades on a curve, so if you have a team of 10 employees, probably only 2 of them can be given 1s no matter how good they all are
  • she thought perhaps 5 of the 10 can receive a rating of 2+ or 2, which means 3 would have to be given ratings of 3
  • she was given a rating of 1 last year & received a raise of 3.5%
  • the amount of the raise given to a ‘1’ varies year to year according to how well the company has done
  • this year she was given a rating of 2+ and will probably receive a raise of 1%
  • a person who receives a rating of 3 receives no raise at all
  • she currently pays $300/month for health care benefits
  • IBM ended pensions in the 1990s

4 is not 2

While Americans are typically earning less than 1 percent interest on their savings accounts and watching their 401(k) balances yo-yo along with the stock market, most public pension funds are still betting they will earn annual returns of 7 to 8 percent over the long haul….


In New York, the city’s chief actuary, Robert North, has proposed lowering the assumed rate of return for the city’s five pension funds to 7 percent from 8 percent…. But that change would mean finding an additional $1.9 billion for the pension system every year….

…to many observers, even 7 percent is too high in today’s market conditions.

“The actuary is supposedly going to lower the assumed reinvestment rate from an absolutely hysterical, laughable 8 percent to a totally indefensible 7 or 7.5 percent,” Mr. Bloomberg said during a trip to Albany in late February. “If I can give you one piece of financial advice: If somebody offers you a guaranteed 7 percent on your money for the rest of your life, you take it and just make sure the guy’s name is not Madoff.”

4 is not 2.

35 is not 2.

Also, and by the same token, 8 is not 7.

The typical public pension plan assumes its investments will earn average annual returns of 8 percent over the long termm…. Actual experience since 2000 has been much less, 5.7 percent over the last 10 years….
Public Pensions Faulted for Bets on Rosy Returns
Published: May 27, 2012

8 is not 5.7, either.

The basic issue we face is simple arithmetic:

Taxes are capped at two percent, but the contract promises 4.

According to an estimate provided by the Assistant Superintendent, under the new contract the average teacher in Irvington will receive roughly a 4% increase in compensation each year until June 2016 next school year.*

Four is not two. That is the problem.

Although “four is not two” is obvious, percent change is not. With percent change, a number that sounds “small” can actually be “large” if it represents a large percent change (and vice versa).

Here is the way I’ve started to think of it:

Under the Irvington contract, if you pay a teacher $100K this year, you have to pay him or her $104K next year, on average.

That is a 4% increase, but we are capped at 2, so you have to find $2K in cuts to ‘pay’ for the raise.

Hence: layoffs. Some teachers are laid off so that other teachers can have 4% raises.

But if you paid a teacher $1.00 — just one dollar — for an entire year’s work, you would still have the same problem. The contract would require that he or she be paid $1.04 next year, and you would have to find two cents in cuts to pay for the 4-cent raise. Four isn’t two, and four never becomes two no matter how “small” the numbers you’re dealing with.

In short, the absolute dollar amount doesn’t matter; it’s the percent change that counts. So the problem isn’t that Irvington teachers are earning “too much;” the problem is that the yearly increase in their compensation is twice the tax cap. The increases are increasing too fast. 

THAT is the issue, and we can’t ‘cut’ our way out of it.

Yes, we can close Main Street School and potentially save a great deal of money. But in terms of the tax cap, closing Main Street School is a one-time deal. We wouldn’t need layoffs the year we closed Main Street, but the very next year we’d be back to square one because teachers are still getting 4% increases, and four isn’t two. To my knowledge, there’s no provision in the law allowing districts to ‘bank’ big savings in one school year to apply against the tax cap the next year. **

Yes, we can raise class size and save money, but that, too, is a one-time bonus to the budget. We would avoid layoffs that year, but the next year we’d be back to cutting.

Yes, we can cut electives. Again: a one-time bonus.

In each of these cases, cuts reduce spending, but they don’t fix the rate of increase. As long as we have a union contract in place that guarantees average annual increases of 4%, we can’t meet the tax cap without layoffs. The contract is funded by layoffs.

The logic of percent change also means that encouraging older teachers to retire so we can hire much less costly young teachers actually makes the problem worse because new teachers receive Step increases every year (usually 3%), while older teachers don’t.

We have only two possible solutions:

  • Persuade the union to agree to cap raises at 2%
  • Raise taxes by roughly 5 to 6% every year (a 4% budget increase is a 5 to 6% tax increase because of tax certs.)

It’s conceivable there is a third option: generate enough revenue outside of the tax levy to make up the shortfall. Perhaps parents could fund raise as they do in California (where property taxes are much lower and must be shared with all schools in the state – very different situation) or the district could rent out Main Street School and increase the rent enough each year to make up the shortfall —- ?

* update 5/26/2012: Looking at the terms of the contract again, I’m wondering whether 4% is too low an estimate for the year after next, when the one-year freeze on “increments” (steps) comes to an end.

** Apparently you can “bank” a savings from year to year up to 1.5% (of the budget you would have been allowed under the cap? Not sure; I’ll look it up. I don’t know how the sale of property applies to the budget.) The principle remains the same, however. If you bank a savings, you must use it to pay 4% compensation increases the next year, and the problem begins anew.

What people who do not have children in the schools pay
to educate the children of people who do
How we got here
4 is not 2
Budget vote
Core Knowledge: curriculum & property values

Here’s a quick back-of-the-envelope calculation to estimate the shortfall we face in 2013-2014.

Assuming no change to “Other” expenses (which is probably unrealistic), I come up with a $610,000 shortfall. Personnel is 80% of the budget, so If the union does not agree to cap raises at 2%, that would mean roughly 6 teachers laid off in order to fund 4% raises.

(6 teachers because under LIFO the teachers earning the lowest salaries are laid off first. You have to lay off more of them to make up the shortfall.)

Obviously, these are very rough calculations, but they’re not a bad place to start.

FTE = full-time equivalent Essentially, 1 FTE = 1 teacher.

2012-2013 BUDGET
Personnel $40,800,000
All other $10,200,000
TOTAL $51,000,000
 2013-2014 BUDGET
 4% increase Personnel  $42,432,000
 All other (0% no increase)  $10,200,000
TOTAL  $52,632,000
 budget w/2% increase $52,020,000
SHORTFALL  $612,000

4 is not 2

The problem we are having with the school budget is that the average increase in teacher compensation is 4 percent, while the tax cap is 2.

4 is not 2.

Do IUFSD teachers earn more than IUFSD residents?
Why we can’t cut our way out
5/2013: Inflation at 1.26%
Raises and benefits at IBM
“Step” and “column” raises for teachers explained
Budget surpluses since 2008-2009
7th grade reading curriculum (curriculum & property values)
What people who do not have children in the schools pay
to educate the children of people who do

How we got here
All student achievement scores & posts

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