Sunday, August 2, 2009

Charter schools, The Ujima Village Academy, teachers' unions

Pay Your Teachers Well. WSJ Editorial
Their children’s hell will slowly go by.
The Wall Street Journal, p A10, Aug 03, 2009

The conflicting interests of teachers unions and students is an underreported education story, so we thought we’d highlight two recent stories in Baltimore and New York City that illustrate the problem.

The Ujima Village Academy is one of the best public schools in Baltimore and all of Maryland. Students at the charter middle school are primarily low-income minorities; 98% are black and 84% qualify for free or reduced-price school meals. Yet Ujima Village students regularly outperform the top-flight suburban schools on state tests. In 2006, 2007 and 2008, Ujima Village students earned the highest eighth-grade math scores in Maryland. Started in 2002, the school has met or exceeded state academic standards every year—a rarity in a city that boasts one of the lowest-performing school districts in the country.

Ujima Village is part of the KIPP network of charter schools, which now extends to 19 states and Washington, D.C. KIPP excels at raising academic achievement among disadvantaged children who often arrive two or three grade-levels behind in reading and math. KIPP educators cite longer school days and a longer school year as crucial to their success. At KIPP schools, kids start as early as 7:30 a.m., stay as late as 5 p.m., and attend school every other Saturday and three weeks in the summer.

However, Maryland’s charter law requires teachers to be part of the union. And the Baltimore Teachers Union is demanding that the charter school pay its teachers 33% more than other city teachers, an amount that the school says it can’t afford. Ujima Village teachers are already paid 18% above the union salary scale, reflecting the extra hours they work. To meet the union demands, the school recently told the Baltimore Sun that it has staggered staff starting times, shortened the school day, canceled Saturday classes and laid off staffers who worked with struggling students. For teachers unions, this outcome is a victory; how it affects the quality of public education in Baltimore is beside the point.

Meanwhile, in New York City, some public schools have raised money from parents to hire teaching assistants. Last year, the United Federation of Teachers filed a grievance about the hiring, and city education officials recently ordered an end to the practice. “It’s hurting our union members,” said a UFT spokesman, even though it’s helping kids and saving taxpayers money. The aides typically earned from $12 to $15 an hour. Their unionized equivalents cost as much as $23 an hour, plus benefits.

“School administrators said that hiring union members not only would cost more, but would also probably bring in people with less experience,” reported the New York Times. Many of the teaching assistants hired directly by schools had graduate degrees in education and state teaching licenses, while the typical unionized aide lacks a four-year degree.

The actions of the teachers unions in both Baltimore and New York make sense from their perspective. Unions exist to advance the interests of their members. The problem is that unions present themselves as student advocates while pushing education policies that work for their members even if they leave kids worse off. Until school choice puts more money and power in the hands of parents, public education will continue to put teachers ahead of students.

WaPo Editorial: Bribing carbuyers with trade-in cash is a dangerous path for the auto industry and the overall economy

Clunk! WaPo Editorial
Bribing carbuyers with trade-in cash is a dangerous path for the auto industry and the overall economy.
WaPo, Sunday, August 2, 2009

ABOUT A MONTH ago, we ventured a prediction about the federal government's "Cash for Clunkers" program, which offers motorists up to $4,500 to trade in their old cars for new, more fuel-efficient models: "When the program's initial round disappoints, as seems likely, pressure will mount to expand it." Sure enough, Friday, with car dealers and consumers complaining because the first $1 billion in car-buying aid was about to run out after four days, the House of Representatives approved another $2 billion. The issue may move to the Senate this week.

Admittedly, we expected the program to be undersubscribed, not oversubscribed. But the latest turn of events hardly proves the program a "success," as its proponents now claim. It merely shows that Washington could bribe more people into purchasing new cars than many thought possible. And the essential flaw of "Cash for Clunkers" has been confirmed: Once Congress starts passing out free money for cars, it's hard to stop. Will the next $2 billion be the last? Or will car dealers and their customers demand even more when it runs out? Maybe the government should just buy everyone a new car. That would certainly "stimulate demand." The washing-machine industry could use a boost, too; older models waste water and energy. So how about cash from Uncle Sam for washer upgrades?

You get the point. Stimulating the economy through more government spending and tax cuts is a much disputed idea. But at least a tax cut or an increase in unemployment benefits puts money into the hands of consumers generally and lets them decide how to spend it, rather than having the government choose which sectors of the economy will benefit. "Cash for Clunkers," by contrast, redistributes demand, as between cars and other goods, or between various models of cars. Car-repair shops, parts stores and used-car dealers suffer. People who would have bought cars next year are buying them now: What will the government do when 2010 sales are deemed impermissibly low?

As for the plan's purported fuel savings, those would have been achieved much more straightforwardly through a modest increase in gasoline taxes. To be sure, raising gas taxes would require Americans to accept some sacrifice for the public good, whereas "Cash for Clunkers" both encourages and exploits a different sort of mentality. As car shopper Alvin Lee of Burlingame, Calif., told CBS Radio: "To me, it's a big waste of taxpayer money. But if it's there, I'll take it."

The good-bad news in second-quarter GDP

Poised for a Rebound. WSJ Editorial
The good-bad news in second-quarter GDP.
The Wall Street Journal, p A10, Aug 01, 2009

The bad news in yesterday’s second-quarter GDP is that the recession was even deeper than previously thought. Or should we say that is the good-bad news. Because that pain is now largely past, the very steepness of the decline means that the economy is now poised for a sharper rebound, or at least it should be if the history of recessions is any guide.

The economy contracted by only 1% at an annual rate in the quarter, but the Bureau of Economic Analysis report was even more interesting for its growth revisions in previous quarters. Last year’s third quarter was revised downward by a remarkable 2.2-percentage points, to a negative 2.7% rate. This means the recession began in earnest in July and August, which follows the spike to $145-a-barrel oil and the collapse of Fannie Mae and Freddie Mac, and it accelerated in September with the fall of Lehman Brothers and its aftermath.

To put it another way, the 2008 financial panic quickly—almost instantaneously—triggered a panic in real goods, which sent the economy tumbling down. The rapidity of that reaction is a perverse compliment to the flexibility of U.S. producers, who reacted almost on a dime to the rout in the financial system. Companies pared back production to liquidate their inventories so fast that the bottom fell out of the economy in last year’s fourth quarter and the first part of 2009.

We’ll never know for sure, but it seems probable that the recession that formally began in late 2007 would have remained far less destructive had our financial plumbers done a better job of preparing the shaky financial system for the rough weather. Last year’s commodity spike—a reaction in part to reckless monetary policy—and Washington’s failure to build financial firewalls after the fall of Bear Stearns look to be major culprits in making the recession worse than it needed to be. This is where we’d most fault Ben Bernanke’s Federal Reserve and Hank Paulson’s Treasury.

The encouraging news is that the Adam Smith washout of recent months has now set the economy up for a comeback. The need to rebuild inventories of everything from cars to furniture will by itself help to lift GDP for the rest of 2009. The housing market looks to be bottoming, which means residential construction will also make a contribution to growth. Net exports (less imports) added some 1.4-percentage points to GDP in the second quarter and should also provide a lift the rest of the year.

What didn’t seem to make much difference is the “stimulus.” Transfer payments did climb sharply by 7.4% in the quarter, reflecting the likes of jobless insurance. These payments offset declines in worker compensation, but they didn’t do much for consumer spending, which declined by 1.2% in the quarter. In any event, these transfer payments are temporary and thus do nothing to promote the investment and risk-taking that are the only way back to steady growth and prosperity.

With a recovery on the way, the real question is whether we’ve laid the groundwork for such a durable expansion. Having been down so long, the economy should be in for a nice, long ride up. Even the Great Depression was followed by a notable rebound—until the bill for its government excesses came due in the mid- and later 1930s.

In this recession, Washington has reflated the economy with record spending and monetary easing that couldn’t help but spur some recovery. The issue is what happens when the price of that reflation comes due in higher taxes and higher interest rates. Political uncertainty also continues to hang over risk-takers, and on that point it has been fascinating to see the latest Wall Street rally coincide with the political troubles of ObamaCare. If it collapses, we might see Dow 10,000.

WSJ Editorial: The ‘Shareholder Bill of Rights’ is good for union leaders but bad for business

The Schumer Proxy. By THOMAS J. DONOHUE
The ‘Shareholder Bill of Rights’ is good for union leaders but bad for business.
WSJ, Aug 01, 2009

When Congress reconvenes after Labor Day, Sen. Charles Schumer (D., N.Y.) will try to advance his “Shareholder Bill of Rights.” Among other things, this legislation, which Mr. Schumer unveiled in May with the backing of Andy Stern, president of the Service Employees International Union (SEIU), would give the Securities and Exchange Commission (SEC) the legal authority to grant shareholders access to the corporate proxy for nominations to boards of directors. Meanwhile, the SEC will close its public comment period Aug. 17 and begin to consider new regulations on shareholder access to proxy statements.

This sounds harmless enough, a way of giving shareholders a chance to have their concerns put to a vote. But in reality, Mr. Schumer’s bill would give union-backed shareholders who hold a small interest in a company—as little as 1% of the shares—enormous leverage to promote their own agendas. It would require companies to allow, and essentially pay for, unions and other activist shareholders to run a competing slate of board candidates.

Granted, there is plenty for shareholders to be upset about these days. But the answer isn’t to pit one group of agenda-driven shareholders against all others. Corporate boards are designed to hold management accountable to the interests of all shareholders. Allowing unions to rig the proxy rules for their own advantage is simply bad corporate governance.

Unions already employ shareholder activism to advance a special interest agenda, using the stock owned by their pension funds to support shareholder resolutions having little if any connection to the financial performance of the company. This includes repeated motions by the AFL-CIO to require pharmaceutical companies to disclose their drug reimportation policies and pressuring oil companies to reduce greenhouse gas emissions.

They also have used their pension funds to force employers to negotiate union contracts or agree to specific demands. Richard Trumka, secretary treasurer of the AFL-CIO, said in 2000 that the labor federation planned to use the “clout of union pension funds as major corporate stockholders to influence contract talks and organizing drives.”

Ironically, unions’ management of their own pension funds does not inspire much confidence in their ability to influence the management of public corporations. Many union funds are in a precarious financial position, without enough assets to pay out the benefits they have promised.
According to the Department of Labor (form 5500 filings), the Plumbers and Pipefitters National Pension Fund is funded at just 54%, and the Sheet Metal Workers National Pension Fund is at only 39%. Even the SEIU recently reported that one of its largest pension plans is in “critical” status because it won’t have enough money to pay promised benefits.

Still, some may ask what is wrong with union pension funds wielding their power to advance their own special interests? Plenty.

The Employee Retirement Income Security Act. ERISA requires pension assets—which include proxy votes—to be used for the “sole purpose” of benefiting plan participants and not to pursue unrelated objectives. Politically and socially motivated proxy activity may violate the fiduciary duties of union pension trustees.

In addition, union members themselves don’t want their retirement assets used for special interest crusades. A nationwide survey by Voter Consumer Research taken this spring found that 88% of union households agree that “the most important goal of union pension funds should be to manage pension funds so they’re financially secure and return the best retirement income for retirees.” Just 9% thought funds should be managed to “advance the union’s social and political goals.”

The Chamber of Commerce recently commissioned a study by the respected economics firm Navigant Consulting which found that shareholder activism by union pension funds provides no economic benefit to pension-plan participants. In fact, the study found evidence that this shareholder activism actually reduced shareholder value.

Workers should have the right to join or leave unions under fair rules, and unions have every right to represent their members on pay, benefits, and working conditions. But organized labors’ attempts to use stock holdings to advance narrow agendas not in the best interest of all shareholders is unsound, and toying with their own members’ retirement savings is indefensible.
Mr. Donohue is president and CEO of the U.S. Chamber of Commerce.