Moving Michigan from the bottom of the states to the top in educational achievement will not be simple or easy, but most agree that quality teaching is an essential element of the effort. But the state could be stymied in attracting and retaining teachers due to a factor every working person understands: stagnant salaries.

Many factors influence career choices, but clearly salary is an important one. And in Michigan, state administrators, staff and teachers must wrangle with the conundrum that even as new funding is pumped into education, it is not reflected in increasing teacher salaries.

Why is this happening? Because of Lansing’s past failures to adequately manage and fund the state teacher retirement system. Consequently, much of that increase in education spending ends up going to Michigan’s former teachers, not the ones in the state’s classrooms.

Like many other pension funds, the system suffered because of the sour stock market of a decade ago, along with unrealistic actuarial assumptions and short-term budget decisions. These failings have created ballooning unfunded liabilities that have to be met now and are diverting funding that might otherwise go to teacher pay.

Funding for retiree benefits

State revenues suffered in the first decade of this century, but have benefited from the growing economy since. However, they’ve been far outpaced by the growth in unfunded retirement liabilities. In 2000, the teacher retirement system had $246 million of unfunded liabilities. By 2018, this had grown to $32.8 billion. Over the same period, pension funding grew from 11.7 percent of each school district’s payrolls to 32.3 percent with contributions from both school districts and the state.

Various reforms have been enacted to address and mitigate these legacy costs, but they can only slow the growth rate.

The Snyder administration made funding legacy costs, and paying down other long-term debt, a priority and that appears to be carrying into the Whitmer administration. These actions are necessary but expensive. In a budget with limited resources, the payment of these liabilities leaves little room for increased spending elsewhere in school budgets.
This has created a unique dynamic wherein the state budget has been prioritizing education, but little of the increased funding is making its way to the classroom.

The squeeze created by retirement costs not only affects the ability to fund priorities like early literacy and support of at-risk students, our research finds that in the end teachers are bearing the brunt of the pain.

Consider these numbers: Per-pupil education expenditures for operations increased 13 percent from $9,325 in 2008 to $10,548 in 2018, with most of the growth coming in the past five years.

But at the same time, the statewide average teacher salary rose by just two percent, from $60,430 in 2008 to $62,530 in 2013. And it has remained close to that level since then. Some of this can be attributed to minor changes in workforce composition (senior teachers leaving and younger, lower paid entering) but the bulk of the squeeze is tied to paying down unfunded liabilities.

To illustrate how changing spending is reflected in budget priorities, we calculated a ratio of average teacher salary to per-pupil expenditures. This ratio provides an understanding of teacher salaries in the context of the larger fiscal situation facing schools. It provides insight into the priority given to teacher salaries relative to other education spending.

Statewide, the ratio rose from 2008 to 2013, reflecting an increasing average teacher salary while per-pupil expenditures were fairly constant. Since, the ratio dropped sharply, reflecting increasing per-pupil expenditures while the average teacher salary has changed little.
Averages can be deceiving, but we found little variation when calculating this ratio at the district level, suggesting that the increased funding is not being reflected in rising average teacher salaries in most school districts.

Help wanted

The beginning of a new school year is drawing attention to difficulties some school districts are having finding qualified teachers to staff the classrooms or substitute teachers to fill in when necessary. Our research released earlier this year documented problems throughout the teacher pipeline. Michigan’s teaching workforce has shrunk. Fewer high school graduates are enrolling in college intent on teaching as a career. Many of those that see college teacher prep through to completion leave for a different profession within the first five years of teaching. Even some tenured teachers are leaving for different professions.

Many things may account for the disinterest in teaching careers or the disillusionment with their nascent professional decisions, but salaries are surely part of it.

Unless changes can be made to ensure the funding of retirement costs while providing adequate funding for other educational services, teachers will likely bear the burden with little to no increase in pay.