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Bill Gates: States Should Rethink Healthcare and Pensions Systems, Education Funding Stifled

Source: WSJ - Robert A. Guth, Michael Corkery

Posted on 03 Mar 2011

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Microsoft's Bill Gates at the high-profile TED conference taking place in Long Beach, California, will step into the national debate over state budgets on Thursday with a call for states to rethink their health care and pension systems as they stifle funding for public schools.

Mr. Gates said that during the TED conference he will 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.

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.


Larry Neilson Mar 4 2011 10:33AM Report Abuse
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. What he doesn't say, doesn't realize is that the same pensions and union benefits that attract good teachers also keep the bad ones. We need reform and we need it quick. Our politicians have mortgaged our future to get elected and stay in office and now they are beholden to a constituency that won't accept that we can all live the deals that were made to the detriment of reinvesting in education, or we can change them now and fairly reinvest the savings into improving education. Teaching should be performance based just like any other business.
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