Biden administration sues city for ‘rampant overspending on teachers’ salaries’

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The Biden administration’s Securities and Exchange Commission is suing the city of Rochester, New York, saying “widespread overspending on teachers’ salaries” has thrown the Rochester school district into “extreme financial distress,” misleading investors who bought municipal bonds.

The legal action is unusual. Of course, the federal government’s interaction with K-12 education has often extended beyond the confines of the US Department of Education. The Department of Agriculture administers the school meals program and the Department of Defense operates schools serving military-related children. Under George W. Bush, the Justice Department toyed with the idea of ​​using antitrust law to prop up charter schools. And in the final days of the Trump administration, President Trump issued an executive order authorizing the provision of “emergency learning grants” through the Secretary of Health and Human Services.

But, despite Bloomberg columnist Matt Levine’s theory that
“It’s all about securities fraud,” in practice, the pace of K-12 education hasn’t overlapped much with the fraud provisions of federal securities laws. At least until now.

Securities laws do not offer a technical definition of “overspending on teachers’ salaries”, let alone “creeping overspending”. The SEC can say that if the city is spending so much that market participants doubt the city’s ability to meet its obligations and bondholders lose value as a result of the ratings downgrade, that is overspending by the common sense definition. The city challenges the action of the SEC, the Rochester Democrat and Chronicle reported; the newspaper cites a statement from the city saying “the city does not have access to or authority over the finances of the City of Rochester School District, and therefore cannot be responsible for the district’s withholding of financial information” .

How much did Rochester “spend?” The Seethroughny.com website, a project of the Empire Center for Public Policy, lists 717 Rochester City School District employees who earned more than $100,000 in 2019. The district has approximately 25,000 public school students in kindergarten through 12th grade, according to New York State. . Expenses are around $20,000, a little below the state average. Whether this amounts to “overspending” probably depends on one’s opinion of what children are learning, and also on one’s opinion of whether students could learn more, and how much more, if more money was spent.

Teachers may point out that they earn less than SEC staff, who average more than $200,000 a year, according to FederalPay.org, which tracks government salaries. Although the SEC may counter that its lawyers can earn significantly more in corporate law firms, a consideration that may be less applicable to Rochester teachers.

In practice, the legalities of the case are likely to revolve more around considerations about disclosure to potential bond buyers than the details of teacher salary expenditures.

Even so, the mere mention of securities law and bondholders as potential tools to curb school district “overspending” is intriguing, especially when the action falls under a president who campaigned on a promise to increase school expenditure in order to pay teachers “competitive salaries”. For years, reformers have complained that teachers’ unions are capturing school boards and running school systems to benefit adults rather than children. Today, a different set of influential adults – the bondholders – are asserting, in a way, via the SEC, their own claim that could be a countervailing force.

It’s intriguing, but also not entirely satisfying. The union is there to represent the teachers. The SEC is there to represent the so-called misled bondholders. Securities laws exist to protect bond buyers. However, there is little in federal law to protect parents or students when a child enrolls in a public school and does not receive the education advertised. Therefore, there is no federal government agency with strong enforcement powers to defend students misled about the education they can expect.

Ira Stoll is editor-in-chief of Education Next.

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