Teacher Pay, Part III: The Rising Cost of Benefits

• Rising cost of health and retirement benefits is ignored in current discussion
• Share of employee salary state dedicates for retirement benefits has increased 347 percent since 2004
• Cost per employee for health Insurance has increased 65 percent since 2004

In part II of this three-part series on teacher pay, we showed how the current problems with teacher pay are about more than dollars and cents. There are structural problems that prevent teachers and students from reaching their full potential. In Part III, increases in the cost of health and retirement benefits are highlighted 

The rising cost of health care and retirement benefits – and their implications for funding – are a third and final topic that’s frequently missing from current discussions on teacher pay.

Table I illustrates how those costs have risen over time. Note the significant increases in the percentage cost of salaries allocated for retirement benefits and the increase in the cost of health insurance per employee. The percent of state government payroll dedicated to funding retirement benefits has increased 347 percent since 2004, or an increase of 27 percent annually.

Likewise the cost of health insurance per employee has increased 65 percent, or about 5 percent annually. In 2015-16, the average teacher salary in North Carolina was $47,931. The cost of additional benefits adds $16,481 to the taxpayer support for each teacher: $3,667 for Social Security, $5,471 for health insurance and $7,343 for retirement. The benefit package is 34 percent of salary, bringing the total average compensation for teachers to $64,412.

Table I

Change in Benefit Percentages and Cost by Type of Benefit 2003-04 – 2015-16
Year	Retirement Benefits % of Total Salary	Health Insurance Cost Per Employee	Social Security as % of Total Salary
2003-04	3.42	$3,307	7.65
2004-05	5.815	$3,432	7.65
2005-06	6.82	$3,748	7.65
2006-07	7.14	$3,854	7.65
2007-08	7.83	$4,097	7.65
2008-09	8.14	$4,157	7.65
2009-10	8.75	$4,527	7.65
2010-11	10.51	$4,929	7.65
2011-12	13.12	$4,931	7.65
2012-13	14.23	$5,192	7.65
2013-14	14.69	$5,285	7.65
2014-15	15.21	$5,378	7.65
2015-16	15.32	$5,471	7.65

Source: Highlights of North Carolina Public School Budget for various years

Just how much are we spending on employee benefits? In 2015-16, North Carolina budgeted $1.28 billion for employee benefits for teachers and other instructional staff.[1]  That’s up from $558 million for the same category in 2003-04. Of course, critics say the growth is somewhat a result of growth in the student population and educational staffing.

Table I charts the growth in benefits. Of course the state is not the only entity that pays for benefits. Federal and local governments also pay retirement, health insurance and social security. Chart I provides the cost of all benefits by source for employees. This data is available from Table 22 of the Statistical Profile.

Chart I

chart-1-powerpoint

We use this table because a listing for teachers only was not available and because it chronicles the growth in employment benefits by the source of funds. While this table reflects costs for all employee benefits, a review of school personnel by category can help us estimate the portion roughly attributable to teachers.[2]  In 2015-16, teachers made up 54 percent of all full-time personnel in the schools, up from 52 percent in 2003-04. If we broaden the category to teachers and all instructional staff, percentages go up even higher. Teachers and instructional staff comprised about 63 percent of all staff in 2015-16, up from 59 percent in 2003-04.

It might be helpful to look at the rise in the cost of benefits another way: per pupil expenditures. Table 22 of the Statistical Profile also provides per pupil expenditures by source (state, federal or local government) in 2003-04, $1.2 billion was spent by state ($894 million), federal ($110.2 federal) and local ($232.2 million) entities on all employee benefits. On a per student basis that means the state was paying approximately $682 per ADM student, the federal government $84 per ADM student and local government $177 per ADM student.

All told, in 2003-04, approximately $943 was spent per student on employee benefits, about 13.5 percent of total current expenditures.

How does that compare to today? Again, it should be noted the data includes benefits for all personnel — not just teachers. However, whereas in 2003-04 North Carolina spent about $682 per student, in 2014-15 that number increased to $1,338; a 96 percent increase. Chart II chronicles the rise in state employee benefit expenditures per student from 2003-04 to 2014-15.

Chart II

chart-2-teacher-pay-3

Source: Table 22, Per Pupil Expenditures for Employee Benefits by Source of Funding, North Carolina Department of Public Instruction. Available online at: http://apps.schools.nc.gov/pls/apex/f?p=1:32:2981820004588701::NO:

Using Table 22 in the Statistical Profile, we see the same figures for the federal government increased from $84 per student in 2003-04 to $179 per student in 2014-15.  Likewise, employee benefit costs paid by local governments on a per student basis increased from $177 in 2003-04 to $326 per student in 2014-15.

Employee benefit totals increased from $943 to $1,843 per student. Employee benefits rose from 13.5 percent of per student expenditures in 2003-04 to 21 percent of per student expenditures, an increase of 55 percent.

So what to make of all these numbers? In 2014-15, state, federal and local spending on employee benefits in North Carolina for all educational staff totaled $2.6 billion. How much is $2.6 billion? With $2.6 billion you could buy all purchased services, supplies and materials and instructional equipment for North Carolina public schools for an entire year – and still have $533 million left over. Aside from the amount spent on salaries ($7.8 billion), no other budget category is even close in size to employee benefits. When the cost of employee benefits increase, those changes have enormous consequences on the system on what can be spent and how much.

That said, hardly a word has been said about the increasing cost of employee benefits. Of course, teachers aren’t the only group to experience increasing health care and retirement benefits. Still, the $1.9 billion North Carolina state government spent on employee benefits for all personnel last year is a lot of money, money that could have been used for other things. Those trade-offs and a discussion of alternative options are what’s sadly lacking from the current discussion on teacher pay.

Teacher pay in North Carolina has been a topic of much discussion over the past year. Most of the discussion has been focused on raising salaries. While teachers deserve to be paid a fair wage, it would be a mistake to ignore the shortcomings of using national statistics and rankings in the debate. Similarly, we would go off track if we fail to consider how we pay teachers and how the high costs of benefits affect the issue. To find a fair and workable answer, we need to consider all these factors.

[1] Highlights of the North Carolina Public School Budget, 2016, published by the North Carolina Department of Public Instruction, see page 7.  Available online at:  http://www.ncpublicschools.org/docs/fbs/resources/data/highlights/2016highlights.pdf

[2] Total school personnel by job listing can be found in Highlights of the NC Public School Budget for various years. Available online at: http://www.ncpublicschools.org/fbs/resources/data/