WSJ: Medicaid Spending is Crowding Out K-12 Education

Crowding Out K-12 Education 

The real budget story behind those teachers strikes: Medicaid and public pensions.

By The Wall Street Journal Editorial Board

Oklahoma teachers ended their nine-day strike Thursday—and had little to show for it despite demands for a $10,000 raise. But at least a dozen Sooner teachers filed paperwork to run for state office last week, and teachers are agitating for more money around the country. So it’s worth looking to see what’s really pinching school spending.

Following the nationwide trend, Medicaid has taken a growing toll on Oklahoma’s budget. In 2017 the health-care program that is supposedly for the poor consumed nearly 25% of the state’s general fund, up from 14% in 2008, as nearly 200,000 more people enrolled. Lawmakers are left with less money for everything else, not least education. (See nearby chart.)

The shortfall has created grievances, some legitimate. Per-student funding declined by nearly 16% between 2008 and 2017. Class sizes have grown, particularly in rural districts. Ninety-six of the state’s 513 school districts hold class only four days a week.

Oklahoma teachers went a decade without a significant raise, and only three states pay less on average, according to the National Education Association. Depending on which grade they teach, Oklahoma educators’ mean annual pay lags around $1,000 to $3,000 behind the overall state mean of $43,340, according to the Bureau of Labor Statistics.

Yet Sooner State teachers received a big pay hike before their recent strike began. In March Oklahoma raised taxes on oil and gas, cigarettes and fuel. The new taxes pay for a raise of about $6,100 per teacher and more school funding. But union leaders sense an opportunity to press for more, especially with Republicans on edge about the midterm elections.

In Kentucky the protests have been about pensions, not pay, but the same Medicaid crowding out is taking place. The Bluegrass State was one of the first Medicaid expansion states under ObamaCare. Some 22% of residents—more than two million people—are enrolled. In 2008 Medicaid spending in Kentucky was $4.9 billion, but by 2017 it was $9.9 billion. The federal government paid $7.7 billion of that sum last year, but the burden has already begun shifting to states.

As for education, Kentucky’s public pension woes place it on par with New Jersey and Illinois, and teachers’ pensions are only 56% funded. Participants can draw full benefits as early as age 49, and some collect longer for more years than they’ve worked.

The Republicans who gained control of the Kentucky government in 2017 have made pension reform a priority. Legislation that passed in March leaves benefits untouched for retirees and current employees.

But it stops teachers from cashing in on accrued sick days at the end of their careers, a common strategy to game the system. And it shifts new hires to a hybrid retirement plan that operates more like a 401(k). The most optimistic estimates have the teachers’ pension running a $14 billion liability, and the changes make a dent of around $500 million to $800 million over 20 years.

The strikes in Kentucky were an effort to lobby Gov. Matt Bevin to veto even this modest reform, never mind that strikes are illegal in the state. Mr. Bevin signed the bill last week and slammed Kentucky Education Association leaders for “looking out for the best interests of themselves.”

He has a point. Teachers unions saw an opening after West Virginia teachers got a raise after nine days on strike, but other concessions they won benefit labor at the expense of students. One casualty was a plan to open the state’s first charter—a science, technology, engineering and math school that would have operated with Marshall University and West Virginia University. Union leaders also killed a reform to let school districts consider teacher performance as they determine which employees to lay off from shrinking schools.

Arizona seems to be following the West Virginia model. Teachers are demanded a 20% pay raise, while protesting and planning for a walkout. Last week Gov. Doug Ducey announced a proposal to increase teacher pay by 20% over 2017 levels by 2020, also restoring education funding to pre-recession levels. The proposal has to get through the legislature, so you may soon read about strikes there.

Arizona also expanded Medicaid under ObamaCare, and the program’s share of the general fund has grown to 18.5% from 12.4% a year earlier. In this election year, Democrats and unions want to portray taxpayers as stingy for not paying them more. But if teachers aren’t getting bigger raises, two reasons are the progressive priorities of Medicaid and runaway pensions.

Appeared in the April 17, 2018, print edition of the WSJ.