Gates Says High Pension Costs Hurt
Education
Wall Street Journal
By ROBERT A. GUTH And MICHAEL CORKERY
3/3/2011
Billionaire philanthropist Bill Gates will step into the
national debate over state budgets Thursday with a call for states to rethink
their health care and pension systems, which he says stifle funding for public
schools.
Mr. Gates in an interview said he will use a high-profile
conference Thursday in Long Beach,
Calif., to urge that more
attention be paid to how states calculate their employee-pension funding and
health-care obligations. "These budgets are way out of whack," Mr.
Gates said. "They've used accounting gimmicks and lot things that are
truly extreme."
The comments come after Mr. Gates spent more than a year
studying the issue and enlisting the advice of leading academics and others.
The talk will be at a meeting of leading thinkers called
the TED conference. Mr. Gates will outline how, as he sees it, rising state health-care
costs and flawed pension accounting hamper the ability of states to pay for
education. He said he'd use California
as an example to illustrate his point.
"I'm just very worried about the investments we make
for kids' education and what that means for the future," he said.
"It's going to take voters to really look at that." Without that, he
said, "The default course—where the health care costs are squeezing out
education — is quite bleak."
Dennis Van Roekel, president of
the National Education Association, which has 3.2 million members, said U.S
teachers have been trying to make up funding shortfalls by raising their
contributions to their pension plans. He added that pensions are one of the
reasons schools can attract quality teachers.
"People within public services know they are not
going to make a high salary but they know that you have some semblance of
retirement security," Mr. Van Roekel said in an
interview.
As co-chair of the Bill & Melinda Gates foundation,
Mr. Gates focuses most of his efforts on three areas: global health; overseas
development; and U.S.
education.
Yet he occasionally uses his stature in the service of
other causes, and when he does, it's very deliberate. Two years ago, Mr. Gates
used the same TED conference to outline his views on energy. That talk was the
start of an increasingly higher profile by Mr. Gates in national discussion on
the state of government investment into energy-related research and nuclear
power. His involvement has stirred debate on streamlining the licensing process
for U.S.
nuclear-power facilities.
He said he is concerned that states' public
employee-benefit costs could now stand in the way of broader changes. These
include programs Mr. Gates's foundation backs that
aspire to use technology (including cameras that monitor classrooms) and
strengthened teacher evaluations to improve K-12 education.
"Those goals will never be met with the kinds of
cuts that we're seeing right now" in education, he said.
One focus of Mr. Gates is public pension funds' use of a
relatively high discount rate to calculate obligations. The discount rate is an
assumed rate of return used to calculate the current value of a future
liability.
The higher the rate, the smaller a fund's obligations
appear—and the less that states need to contribute to their pension funds.
Critics blame this accounting approach for contributing to state pension
shortfalls, estimated nationwide to total more than $1 trillion.
Pension funds say their discount rates are prudent when
considering investing returns over several decades.
Mr. Gates downplayed any suggestion that his view on
pensions will court controversy. "The only position I'm taking you could
call a political position is that I wish education spending can go up," he
said.
Over two days last September, Mr. Gates hosted experts in
state pensions and health care at his office near Seattle. Several of the participants continue
to advise Mr. Gates.
Among the participants in the meetings were Jeremy Gold,
an independent actuary, who argues that state and local government accounting
methods understate the true size of pension liabilities; Robert Clark, a North
Carolina State University professor who has written a book on the history of
public pension funds in the U.S.; and Alicia Munnell,
director of the Center for Retirement Research at Boston College, whose
research has focused lately on the cost of state and local pension plans.
Along with his comments Thursday, Mr. Gates will unveil a
new set of tools to his personal Web site, "The Gates Notes."The
tools allow visitors to click through U.S. maps that show state-by-state
the funding status for pension obligations and retiree health-care benefits.
There is also a feature on Mr. Gates's
site that ranks how much each state spends on programs such as higher education
and prisons, as a percent of its total budget. "A lot of society's
resources go into state budgets and yet it has been made complicated enough and
the accounting is bad enough that people haven't had a sense of what's going
on," Mr. Gates says in a video on the Web site.
Write to Robert A. Guth at rob.guth@wsj.com
and Michael Corkery at michael.corkery@wsj.com