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Bankrupt Districts = Happy Shareholders

January 8, 2015

Diane Ravitch wrote a post yesterday providing an update on the York (PA) Schools that I blogged about a few weeks ago. It seems that Edison took over the district, failed to keep its promises to students, parents, and teachers, and— thanks in part to PA’s short-changing of public education— drove the district into bankruptcy. A legal wrangle ensued with a judge approving a receiver’s plan to turn the district over to a for-profit FL charter chain. In the lead paragraph, Diane Ravitch wrote: “How the corporation can make a profit from a district in financial distress is not clear.” In the comment section I responded:

Well, here’s one way it could work: the private corporation could argue that because of bankruptcy the contracts with the teachers and vendors are null and void and all of the legacy costs (i.e. pensions, health insurance for retirees, retiree benefits) will be paid, say, ten cents on the dollar going forward. That would not only erase the current debt but reduce the operating costs. Then they could use the bankruptcy to unilaterally reset the wages, benefits, and working conditions further reducing their operating costs. Assuming the incoming Governor restores funding to an equitable level, the “new” state funds will go to the shareholders. This technique seems to be working well in Michigan…. working well for shareholders that is.

And here’s my concern going forward in the next few months: Republican legislatures (along with some fiscally conservative school boards) across the country will adopt the ALEC playbook on “pension reform” and make it virtually impossible to offer pensions to public employees in the future. As one who collects (and contributed to) public pensions and social security it might seem self-serving to argue against “pension reform” or social security… but the economic reality is that pensions and social security provide a cost-effective safety net for seniors and serve as a means of forced savings for public employees. Cutting pensions might appeal to those looking for short-term quick fixes, but in the long run it will undercut the economy as Gen X-ers and Millenials reach retirement age.

And here’s what is especially annoying: those politicians advocating that everyone assume personal responsibility for their pension planning are all too willing to bail out banks whose irresponsible lending practices caused the economic crash in 2008 and are now unwilling to enforce regulations that will avoid future bailouts. These shenanigans contribute to the fiscal problems school districts face now and will face even more in the future if “pension reformers” get their way.

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