Fund the facilities! A teacher pensions policy for the polycrisis
Last week I summarized a debate about public pensions between socialists Henwood/Featherstone and Sawicky. This week I want to make my own proposal based on my research on pensions thus far. I call the proposal "fund the facilities." It's wonky but bare with me! I'm trying to take up and take on the capitalist approach to public educator pensions as a socialist.
Here are the basics:
I think the federal government should repurpose the old Build America Bond program to cover the losses of any teacher pension that invests in public school infrastructure under certain circumstances, namely three conditions: the rate of return on investment in school bonds, the extent of their portfolio's investment in those bonds according to credit rating, and the bond projects' carbon emissions.
The federal government would, through the treasury and federal reserve, cover the difference in contribution increases that might occur if:
(a) the pension invests a significant amount of its fund in school district bonds, on a sliding scale incentivizing investment in districts with low credit ratings (portfolio criterion);
(b) teacher pensions’ investment returns fell below a certain threshold (rate of return criterion);
(c) the school district is selling green bonds or engaging in projects that lower carbon emissions (green criterion).
Here's how I think this would all work.
The Treasury would bundle school bonds into a financial instrument and sell that security to teacher pensions through a renewed Build America Bonds program.
If pensions buy a certain amount of the new bonds, the policy would set a baseline for coverage of pension returns to kick in. Let's say it's 6.8%, which is on the low side of what all the actuaries use.
If the teacher pension invests 45% of its portfolio in school bonds and only makes a 5% return in a given year, then the federal government covers any costs incurred by the lost 1.8%. The pension would get even more money if the school bonds are green bonds or the bond revenues go towards green infrastructure.
Basically, to use a term that's en vogue right now in political economy and finance studies, this policy proposal derisks public teacher pensions' investment in green public school infrastructure, simultaneously creating a safety net for pension costs.
The money that teachers and states and districts contribute to retirement funds thus gets used to generate revenue for the infrastructure those teachers work in as they educate students. If things go pear-shaped with the school bonds for whatever reason (which is actually quite rare), the federal government steps in and does damage control, making sure the pension costs don't fly off the charts in the process.
Two birds, one stone
I'm proposing this fund the facilities policy because it hits two birds with one stone, using the United States's own convoluted tendency to govern with credit to provide a working class school facilities and teacher retirement policy.
The first problem is teacher pension contribution increases given volatile market outcomes. Whether we think the market will perform well or poorly, it's certainly true that it might perform poorly and leave teacher pensions on the hook for high contributions. That's a potential issue.
The second problem is the ongoing crisis in public school infrastructure. We have a country full of toxic schools--at least half of them need significant repair--underwritten by toxic finance policy--districts and states borrow more than a trillion dollars on Wall Street--which I've written about extensively. There's no federal policy for this school buildings problem that, I think, demands a federal solution.
By derisking teacher pension investment in school bonds, specifically low rated ones and green ones, you can shore up any potential crises in teacher pensions (such as they might be) and actively do something about the ongoing school infrastructure crisis in hard-hit areas, while continuing to encourage green infrastructure that won't poison the planet. It's a teacher pension policy for the polycrisis.
A new fiscal mutualism
Readers know that I've been focusing on school infrastructure finance for years now. In a nutshell, public schools in the US are funded through private credit markets that buy and sell school bonds, a regime that comes with all kinds of punitive fees and rewards the wealthy, white districts with more property value in their boundaries. It's a dog-eat-dog system and the federal government enables it by continually refusing to have any school infrastructure policy whatsoever, leaving state and local governments to manage it all.
Historian of education finance Mike Glass and economist Sean Vanatta wrote a paper on the history of school pensions and bonds that I found inspiring. They wrote about a time in school finance in New York state when big public pension funds invested in school bonds rather than just anything that might get a big return. The authors distinguished two approaches to pension finance: fiduciary (get the biggest return you can by any means necessary) and fiscal mutualism (invest intentionally in public infrastructure, like school buildings). The policy I'm suggesting here is a sort of new fiscal mutualism.
Central sticks and credit carrots
Sarah Quinn's book American Bonds has also been inspiring for my thinking about school finance. The big thing I took from her historical-sociological analysis of the bond market in US governance is that, because our federal system is so janky-sly in the way it distributes repression between federal, state, and local apparatuses (AKA federalism), the federal government has tended to rule by credit.
Instead of making a policy at the federal level that all states and localities have to follow--instead of using a centralized stick--it's more common for the US federal government to use credit carrots, incentivizing states and localities to follow a policy by making it cheaper and safer to borrow/invest through such a policy.
I think a lot of socialists miss this key aspect of the US repressive apparatus and its relationship to capitalism. I think socialism in the US is going to have to take this path, at least at first, and our policy imaginations have to take the credit-carrots into consideration, avoiding the central sticks. I'm trying to do that with my fund-the-facilities proposal.
Strategy questions
There's a question about political strategy here. How to get such a thing passed? Obviously the kinks would have to be worked out first. A nicely designed report from a trusted think-tank on the left would be in order, something from climate+community project or Beggruen Institute maybe (or maybe one you work for? If so email me!).
Then I think approaching unions with social justice caucuses in power and socialist electeds with this report in hand, and a vision for writing legislation, would be a good next step.
You could also propose a campaign to DSA's national convention, asking chapters to set up meetings with local unions to discuss their advocating the policy. This could be part of the Green New Deal commission's work.
Then you'd probably have to stuff the legislation--now supported by a groundswell of groups--into a budget reconciliation cycle (maybe President Ocasio-Cortez's first cycle in 2028? lol) which is how the first Build America Bond program happened.
If you have thoughts on this, let me know! I'll be dipping back into pensions off and on over the next few weeks, but I see this proposal as a kind of conclusion to my mini-project looking at retirement policy.