Pension Costs and K-12 Budgets in California

The problem of legacy pension costs in California was much easier to address a decade ago when critics, including me when I served on the board of the California State Teachers’ Retirement System (CalSTRS), asserted that pension obligations were greater than reported and that larger pension contributions were immediately required. Had action been taken then the problem would be manageable now. Instead, the only action taken was to remove me from the board.

CalSTRS sought and received a bailout eight years later. The cost of delay was exponential, resulting in a bailout cost of $240 billion over 30 years. Worse, the California Legislature imposed 71 percent of the bailout cost on school districts. That means that current and future schoolchildren are being forced to pay off $170 billion in debt for past promises that have nothing to do with their educations, plus interest at 7.5 percent per annum.

Last week Governor Brown reported that state revenues are flattening as a six year bull market slows down, which means school districts are caught in a tightening vise of slowing revenues and rising pension costs. Also, the full cost of the pension bailout will exceed $240 billion, because CalSTRS under-reported the true size of pension obligations when seeking the bailout and continues to issue misleading disclosures about financial matters. Government employee unions are seeking a tax increase to cover up the rising pension costs, but schoolchildren need any new taxes to go to the recruitment and improved pay of active teachers, not to pay off past pension debts. The California Legislature needs to address pension costs so that school districts can use their funding for education, not past debts.

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