Chapter 6

Education

The New Sacred Cow

The more that learn to read the less learn how to make a living. That's one thing about a little education. It spoils you for actual work. The more you know the more you think somebody owes you a living.

Will Rogers

This has been a lot of fun thus far, so let's take a look at a few more examples to give you a better understanding of the style and substance of the commitments that have been made on your behalf for the future well-being of your public sector employees. We've already discussed one of the most notable public pensions (the Ontario Teachers' Pension Plan), but let's look at the rest of the education system to see if everyone in it is as lucky as Ontario teachers. Naturally we all hope that our educators are much smarter than the rest of us; after all, we are entrusting our children to their care, and children represent our hope for the future of our country. We also hope teachers are instilling sound moral principles in our kids through leadership. So let's see how the people at the top of the education pyramid are modeling good citizenship and career-planning on our behalf.

Feathers were ruffled in the ivory towers in 2009 when the University of Calgary was forced to reveal their retirement package for outgoing university president Harvey Weingarten: $4.75 million.1 The university had successfully hidden the value of Weingarten's package for several years, a move that has triggered an investigation by the auditor general's department.

The chair of the university's board of governors suggested the omission was merely a record-keeping oversight that has since been corrected. The amounts have not changed, however.

“It was a miscommunication between what the obligation that had been incurred in relation to the pension was and the reflection of the same by the financial people and the financial statements,” said the board chair, Jack Perraton.

The president of the faculty association was not impressed by the board's efforts to transfer focus from the amount to the “recording” of the amount. “The issue is proportion,” said Anne Stalker. “Let's have the right proportion between the president's benefits and faculty member's benefits and staff at the rest of the university.”

The auditor general investigated the oversight and says it is now properly accounted for on the university's financial statements. Whew! That's a relief. We are sure the graduating students of the U of C leaving the campus with their staggering student loan encumbrances will be satisfied that proper accounting has now taken place!

Mr. Weingarten's story illustrates three interesting aspects of pension funding in the public sector. First, of course, is the rather amazing sum of almost $5 million as a retirement gift. When you consider that the average RRSP value of Canadians is only $25,000, you can see how big the gap is between the lifestyle our top civil servants will have in retirement compared to the one an average Canadian can look forward to.

Of course, Canadians have their CPP payouts—an average of $6,148 in 2011. But Mr. Weingarten also receives that. News reports pointed out that the $4.75 million is not a lump sum, and will be paid out over the course of his lifetime. Based on a final salary of $441,000 at 70 per cent, that would be $308,000 per year. Either way, payments start right away. Mr. Weingarten retired at 54.

The second point is the lack of transparency regarding the way our tax dollars are being awarded in contract negotiations. This pension payout only became public knowledge when Weingarten retired, even though he had been employed at the University of Calgary (U of C) for nine years, and the commitment was made to entice him to leave a much lower-paying position at McMaster University. Even the statement of responsibility from the chairman of the board of the university shows a lack of clarity. Can you understand what he is talking about?

“It was a miscommunication between what the obligation that had been incurred in relation to the pension was and the reflection of the same by the financial people and the financial statements,” said board chair Jack Perraton.

A miscommunication between “obligation” and “reflection.” Apparently “obligation” and “reflection” are the names of two staffers in the financial department at the U of C. We hate to criticize the head of one of our leading educational institutes, but this statement is clearly an attempt to spin the problem and hope it goes away, rather than a clear admission of responsibility.

As the U of C's student newspaper, The Gauntlet, points out, this “miscommunication” changes the president's “non-cash benefits” (pension, supplemental pension, health care, dental care, life insurance, short- and long-term disability insurance, rent-free upscale house, etc.) from $180,000 per year, as previously reported, to $347,000.2 This amounts to $1.5 million over nine years. No problem, says Mr. Perraton, we're just not very good at math here at the U of C—I'll just fix that right now with a couple of keystrokes!

The third point to understand is how Weingarten and Perraton conspired to tweak the system and give Weingarten more than he was entitled to. Further research by angry students and faculty who had faced years of increased tuition fees and staff cuts under Weingarten's management (in July 2009, Weingarten announced 200 job cuts to the U of C business unit3 to begin in the fall, citing a $14-million deficit at the institute) showed that the university signed a statement of principles in 2007 to credit Mr. Weingarten with 22 years of past service with his previous employer, McMaster University in Hamilton.4 This was more than 6 1/2 years after he was hired in Calgary. The statement of principles was noted in the 2009 financial statements.

Perraton's oversight became public knowledge in 2009, but the decision to merge Weinberg's two pensionable earnings periods was actually made before he was hired. Apparently the president's salary of $269,000 and benefits package of $180,000 was not enough to entice him to leave McMaster. Perraton described the circumstances in 2001 as “fair and reasonable to attract a very talented individual to the university.”5

Also not revealed until later was the fact that McMaster will contribute nothing to the pension; the entire amount will come from the University of Calgary's budget. So, in fact, the U of C relieved McMaster of its pension liability to Weingarten. Of course, at the end of the day it's all taxpayers' money, and with the nationwide portability of pensions, who can keep track anymore.

The Gauntlet further revealed that Weingarten's salary had grown from $269,000 in 2002 to $441,000 in 2009—a 64 per cent increase over seven years. Under Weingarten's management, executive pay for his senior staff jumped from $859,000 to $2.15 million—an increase of 150 per cent, and executive benefits totaled an additional $2.78 million.

Perraton called it fair compensation, noting that Weingarten would have received a higher salary and pension if he were in the private sector.

This often-touted idea that public sector employees would all receive more money were they working in the private sector is totally unfounded and, in fact, quite ridiculous. The suggestion that private industry would be lining up to pay Mr. Weingarten a compensation package in the range of $750,000 a year (its true value when salary, benefits, and pension are combined) is ludicrous. Weingarten's degrees include a bachelor of science, a master of science, a master of philosophy, and a doctor of philosophy (Ph.D.). There are hundreds, if not thousands, of people with equivalent qualifications. He has no business degrees whatsoever and his entire career path has prepared him to do nothing except work in the field of education. Had he decided to pursue a career in science he would have been hard-pressed to break six figures. According to Payscale.com, a research scientist can expect to make between $41,000 and $89,000 a year in Canada's private sector.

Calgary's enticement to Weingarten, in effect, turned the nine years of pensionable income for which the U of C would have been obligated into 31 years of pensionable income. More importantly for the financial calculations, it is common practice for public sector pensions to be based on the last five years of income (i.e., the highest possible amount, rather than the average amount over a working career). Had those two pensions remained separate, his 22-year Ontario pension would have been based on his final five years of income as a professor at McMaster; his Alberta pension, based on a much higher income as president of the University of Calgary, would have only been multiplied by a factor of nine. By combining the two he was eligible to have his pension based on his final five years of higher income at Alberta multiplied by a 31-year factor, resulting in a much higher payout. Read on for the details.

Suppose these were two separate pensions, as there would be in the private sector if Weingarten had moved from one private school to another. A 2 per cent-accrual rate and a salary of $169,000 from McMaster after 22 years would have entitled him to a pension of around $75,000 a year. Nine years at Calgary with a top salary of $441,000 would have added $80,000 per year, for a total of $155,000. However, the portability option combines the qualifying years and allows the final five years to be used as a base, resulting in an estimated $308,000 a year—a $2.78-million retirement bonus paid for by higher tuitions and higher taxes.

Portability is a special rule that applies to the public sector. Can you imagine someone going to work at Ford, for example, and saying, “I just left Chrysler with 15 years of service and I expect you will pay me for the pensions I accrued there.” Portability does not apply in the private sector and is an example of the special rules afforded public sector employees, all paid for by taxpayers.

You might think that since Weingarten transferred from one university to another it would be natural to combine one pension with the other. In reality, education is a provincial concern and funded separately by the taxpayers of the individual provinces, so there is no legal reason why the two employments should be combined. Had they remained separate, taxpayers would have saved money, but as we can see, saving taxpayers money is not a significant concern for people at the top of the education pyramid. Maximizing their own compensation, benefits, and retirement packages is a significant concern, however.

The response from students and faculty at the university was near universal in its condemnation of both the principle and the practice as demonstrated by the board and executive. Alberta Union of Public Employees Local 52 chairwoman, Shirley Maki, said she was “shocked and dismayed at the dollar amount in this time of economic rough times [sic]. To have one person who is able to receive that kind of money taken out of a budget that is struggling to make ends meet feels very wrong.”6

When Weingarten announced the 200 job cuts he explained that “we are required to live within our means and that's what we are trying to do.” Apparently he was not using the royal “we,” and therefore living within means did not apply to him.

The university's Students' Union president, Charlotte Kingston, said $4.75 million is a huge number to swallow, especially when many students are struggling to pay their tuition. Kingston said Weingarten's pension is part of a bigger problem. “We can make a huge deal just around pension money, but really the issue is how much we're paying all our executives,” she said. “Obviously the president is not the only one making a huge salary and expecting a huge pension. We have a whole team of senior administrators making hundreds of thousands a year and their pensions will reflect that salary.”7

The faculty association at the University of Calgary, in the October 2009 issue of the Canadian Association of University Teachers Bulletin, called on the administration to scale back what it calls an “obscene” supplementary-pension deal for outgoing university president Harvey Weingarten. “One of our big concerns with the auditor general's report is his suggestion that there is nothing wrong with the amount the president is receiving,” said faculty association president, Anne Stalker. The faculty association suggests the amount is “additional under-the-counter benefits dressed up to look like a pension.”

“This has a significant financial impact on the university,” said Stalker. “It will be like we are paying two presidents, while at the same time staff are being laid off, academic staff vacancies are not being filled, and some departments can't afford to buy pens.”8

More likely the university will be paying for four presidents, since three former presidents are still alive, plus the one actually working. Yes, early retirement is a wonderful thing if you are in the bell jar.

So did the good doctor buy a house on the beach somewhere, get out the rocking chair, maybe write his memoirs? Of course not. He got another job—in the public sector, where he can start building yet another pension. On July 1, 2010, Dr. Harvey P. Weingarten became president and CEO of the Higher Education Quality Council of Ontario.

Is Calgary an Aberration?

You might be hoping that the situation at the University of Calgary is merely an aberration and doesn't reflect the norm at the many universities and colleges across the country. Unfortunately, this is not the case. Public sector contracts, both unionized and non-unionized, use a process called benchmarking, in which settlements awarded in one location are used as a template for other locations. We will see better examples of this in the next chapter when we discuss police compensation.

Calgary's stunning display of largesse is equaled across the country. Let's take a look at McMaster University in Hamilton, the very same university that was spared millions of dollars by Calgary's generosity. In 2008 Peter George was the highest paid university president in Ontario, with total income and taxable benefits of $533,900.9 Naturally he had all the bells and whistles possible in his contract, including two life-insurance policies, $30,000 over the five-year contract for “financial estate planning, including legal counsel, in respect of his personal affairs,” memberships in local clubs, a nearly $11,000-per-year car allowance (which is declared as a taxable benefit in his yearly salary disclosure), a $20,000-a-year “Health Care Spending Account” to be used for expenses not covered by the university's regular staff benefits, and provision for “business-class” air travel on flights longer than four hours. And of course he would be set for life with a pension, estimated to be about $350,000 per year, indexed for inflation.

But there was more.

Hidden from taxpayers was a “golden handshake” worth an additional $1.4 million. The money will be paid over 14 years at a rate of $99,999 a year. Salary disclosure laws require universities to disclose the names of all employees paid $100,000 or more in a calendar year. If George were paid one dollar more each year after retirement, the university would have been required to report it publicly. McMaster spent two years—and $66,000 of your money in legal fees—to try to prevent the Hamilton Spectator and the general public from gaining access to the agreement.

So to summarize: Despite Peter George being the highest-paid university president in Ontario, McMaster's board of directors felt it necessary to provide him a “secret” retirement benefit of $1,399,98610 spread over 14 years to be paid AFTER he was no longer working for them. In a Hamilton Spectator article from March 2010,11 Dr. George said he now considers attempting to hide the retirement bonus from disclosure to be “the most foolish thing he did in office.” According to Dr. George, he takes “full responsibility for the stupidity of converting [his] post-retirement allowances into a figure that was seen quite clearly as an attempt to avoid public disclosure.” However, he didn't offer to return any of it. And apparently none of the university's board members saw any foolishness in it.

Naturally this would be a one-time exemption from common sense and financial responsibility, right? Wrong again, taxpayer. McMaster Vice-President John Kelton is estimated to be receiving an even higher payout—up to $1.44 million—when his contract expires on June 30, 2011.12

So that's the University of Calgary and McMaster University. Surely the rest of our campuses—which are chronically short of cash and have continually raised tuition, creating an entire generation of educated graduates saddled with crippling student loans, and at the same time an entire generation of handsomely-rewarded retired professors and administrators—have done a better job?

Sadly, no. After all, they have to compete with U of C and McMaster for the few super-talented administrators who would otherwise all be running McMaster (or U of C), or working in private industry and making far more—if anyone still believes that nonsense. We think this band of elites will be happy to stay in the ivory tower, where they have lifetime security, comfortable hours, and these kinds of salaries:

Ontario-wide, 10,461 university employees made the $100,000-plus list. The grand compensation total of post-secondary institution employees on the Sunshine List is $1.4 billion, and that's just Ontario universities. The total number of Sunshiners17—the total of all government employees in Ontario on the list in 2010—was 71,478. Using the 70 per cent-of-income rule, this will lead to a pension payout of $980 million per year when these employees are retired. And you will be paying $1.4 billion for their replacements—actually, you will be paying more in both cases, since pensions are protected from erosion by cost-of-living indexing, and compensation inducements continue to escalate.

Clearly Peter George was well-suited for his career path. But the question remains, what is it worth to the taxpayers of Ontario? Is Peter George worth almost twice as much as the prime minister of Canada, who was paid $317,574 in 2010? More than three times the premier of Ontario, who was paid $209,000? And what of the trickle-down effect? The president's salary effectively sets the top of the pyramid and is the benchmark by which all lower salaries for university employees are measured. And as mentioned earlier in this chapter, while Mr. Weingarten's salary increased 64 per cent over seven years, the compensation for his senior staff increased by 150 per cent.

University Pensions

So if universities are short of cash for operating, what about their pension plans? Have they at least set aside enough money to take care of their employees' retirements? Remember that these are the smartest people in Canada, so surely they have been able to arrange suitable funding for their own pensions.

Unfortunately that turns out not to be the case. The university pensions, like so many other public sector pensions, are underfunded and have future liabilities that will need to be picked up by the public purse—meaning you. Let's take a look at where these problems come from.

Like so many of our pension plans, fund managers are super-optimistic about the rate of return considering the inconsistency of stock markets over the past two decades. The university plans are based on a 6.5 per cent rate of return in order to fund the plans. But, as we have mentioned throughout the book—volatility has become the norm.

Because these high expectations of interest rates have not been met, contributions by employees are too low to support the payments that have been committed to retirees. This again puts an unfair burden on the taxpayer, who not only pays the “employer” portion of contributions, but will also have to pay the shortfall. In 2009–10 at McMaster University, pension plan contributions consisted of $47.3 million from taxpayers and $15.2 million from employees, a 75–25 split. The McMaster pension funds had a shortfall of $375.4 million.18 At the end of fiscal 2009/2010, the University of Guelph had deficits in its pension plan in the amount of $344 million. As well they had an additional $221.5 million accrued liability for non-pension post-employment benefits (OPEBs). An internal budget document stated that “post-employment expenses and liabilities are currently the greatest risk to the University's long-term financial viability.”19

This information is readily available to taxpayers and employees, and is certainly well understood by the pension fund managers, but the problem is simply being ignored. McMaster's 2009 annual financial report showed that the university was short by $375.4 million in its pension fund. We are sure this won't surprise you by now, but it's interesting to note that the highest-paid employee at the University of Toronto in 2008 was not in fact the president, but rather the managing director of investment strategy. John Lyon's total compensation was $557,474.20 This was the same year that the University of Toronto Asset Management Fund he was responsible for lost $1.3 billion. Wonder what he gets in a good year?

Let's not Forget the School Boards

In addition to the dozens of universities and colleges, and of course the tens of thousands of teachers in Canada, we also have a significant number of management positions within our school systems. Those in management have not been idle in lining up for some pretty outrageous taxpayer handouts. In particular they seem to have mastered the art of being paid to leave, even when it's by their own choice. Take a look at some of these numbers from British Columbia.

Brian Bastien, a former associate superintendent in the Surrey school district, received total compensation worth $614,382 in 2009–2010. Bastien's base salary was $117,095 but he received $486,650 in “vehicle allowance, unused vacation, retiring allowance, and severance payout,” according to the school board's own statement. The district used privacy laws to avoid explaining the dismissal beyond saying it was “without cause” so they were obligated to pay him severance.21

Mark Lee topped Bastien however, receiving a severance/compensation package of $252,287—including his base salary of $117,261 from the Abbotsford district. Bastien worked eight years to get his severance, but Lee picked up his pot of gold just 10 months after he accepted the job. The district never explained why Lee left either. Hey, who needs a reason?

Supervisory jobs in the B.C. education system are pretty lucrative even if you have to stay around and put in the time. Bryan Ennis in Stikine, a district with only 260 students, received compensation of $171,088, including a salary of $129,064. The next smallest district, Central Coast with only 270 students, paid its superintendent, Denise Perry, a salary of $142,236, a bonus of $648, and other benefits that brought the total to $176,209.

That's right, Mr. Ennis and Ms. Perry were paid more than $650 per student. If each classroom had 25 students there would be 11 teachers and maybe a principal to supervise? It makes you wonder what Ennis and Perry were doing with their time to justify $170,000.

Will it get better or worse in the future? Do you need to ask? Education spending in 2010 in Ontario was budgeted at $21.4 billion. In April 2011, the Ontario Teachers' Pension Plan reported a record investment return of $13.3 billion, or 14.3 per cent. Did this solve its deficit? No. Despite ending 2010 with $107.5 billion in assets, the fund is still short $17.2 billion.22,23 The report notes that teachers are living longer than expected, with more than 90 members over the age of 100.

Nova Scotia School Boards Face Budget Cuts

The challenge facing school boards across the country is that the future will inevitably include budget cuts, and they have no plan to rebuild our education system using a more economical model. The major part of the problem is that salaries and benefits continue to escalate faster than the economy, making them a larger percentage of the overall budget every year, leaving less and less for the rising hard costs of education such as building maintenance, higher electricity, and fuel costs. Nova Scotia, facing this reality, announced for 2010 that its school boards were facing cuts of $196 million over three years, up to 22 per cent of the total budget.24 Educators have said the cuts could result in province-wide losses of 70 small schools, 300 bus drivers and janitors, 600 teachers' assistants and student workers, and up to 2,000 classroom teachers. In a culture used to continual increases, an actual budget cut is incomprehensible. In the City of Halifax, over 80 per cent of the school board budget went toward employee compensation.

“It's huge. No increase, for a school board, is a cut,” said Trudy Thompson, chair of the Chignecto-Central Regional School Board. “Now we're cutting 22 per cent over three years? It's just unbelievable.”25

Nova Scotia has 35,000 fewer students than it did a decade ago, but the education system is now more expensive for taxpayers. School boards responded by reviewing their programs and identifying 820 unnecessary positions and offering an additional $200 million in savings. Just kidding. Boards responded, as usual, by urging parents to pressure the government and threatening that their kids would be left years behind the times if the cuts go through.

“Students across our board will have less supports,” Superintendent Gary Clarke said. “They'll have less options in terms of the programming that they can receive. They'll have larger class sizes. I'd be questioning whether or not the education system will meet the needs of my child, and that's a very serious thing,” Clarke said.26 This reaction is common throughout the public sector. “Just leave us alone so we can get bigger and bigger. Money? That's your problem, don't make it mine.”

In Canada there are various issues known as the third rails of politics. The expression is in reference to the rail on an electric train track that carries a high-voltage electrical charge. Wikipedia describes a third rail as:

[A] metaphor in politics to denote an idea or topic that is so “charged” and “untouchable” that any politician or public official who dares to broach the subject would invariably suffer politically.

In Canada these third-rail issues have traditionally been policing, education, and health care. Now the issue of compensation and pensions has become a third rail, integrated together to create a very safe situation for the protected class, those inside the bell jar.

In 2011 StatsCan published an annual report called Education Indicators.27 The report showed that enrollment in elementary and secondary schools across Canada dropped from 5 million in 2001–2002 to 4.7 million in 2008–2009. The total drop was 6 per cent.28

Taxpayers might have expected staff levels to likewise drop 6 per cent, but this was not the case. Full-time equivalent educators increased from 316,574 to 338,361, or by 7.2 per cent.29 The “full-time equivalent educators” category takes part-time teachers and adds them together to calculate full-time teacher positions.

StatsCan should include the total spending on education in its report but does not. Let us provide the example of Alberta as representative of all provinces. In 2002–2003, operating expenses for K–12 education (kindergarten through twelfth grade) were $3.8 billion. By 2011 the same expenses were $6.0 billion, almost double.30 The number of teachers rose from 29,967 to 32,797, an increase of 9.4 per cent over the same period, while student enrollment had increased from 549,923 to 564,617, an increase of only 3 per cent. Spending went from $6,939 per student to $10,743. Either our kids are 54 per cent smarter or our teachers are 54 per cent richer.

Combine a couple of third-rail issues like public sector compensation and education, health care, or policing, and you will find politicians hightailing in the other direction as fast as they can. It is impossible for them to address pensions and their related costs when they have the best pensions of all.