Jerry Brown Doubles School Pension Cost to $11.4 Billion
California Governor Jerry Brown got some kudos from Republicans for not funding new boondoggles and promising to focus on paying down the $166.9 billion in unfunded state liabilities for the teachers' pension plan.
Senate Republican Leader Bob Huff (R-Diamond Bar) said, “I am glad to see the governor is continuing to prioritize fiscal responsibility.” But school districts just learned that Brown’s idea of “fiscal responsibility” is to more than double school districts’ annual pension cost to $11.4 billion.
California State Teachers’ Retirement System (CalSTRS) administers the pension plan for the state’s 868,493 pre-kindergarten through community college teachers and their families. Unlike the other pension plans for state and local government, the teachers’ pension is a constitutional responsibility of the state’s General Fund.
The pension plan currently is paying benefits to over 253,000 CalSTRS retirees. The pension liability was supposed to be funded by a combination of investment income and the annual contributions from employees, employers (districts and county offices of education), and the state’s General Fund. With the number of teachers growing rapidly in the past, the cash contributions from schools, teachers, and investment income was pouring in. This allowed politicians under Sacramento’s “Golden Dome” to make big pension promises and then short-change the funding.
But now the number of participants is shrinking, as about 10,000 teachers retire every year. With more pension cash flowing out and less contributions and investment income flowing in, new Government Accounting Standards Board rules that take effect on July 1st caused the “Net Pension Liability” to explode from $71 billion to $166.9 billion.
The average California teacher’s salary is $68,531. The average school district's pension contribution was 8.25%, or $5,654 per teacher last year. But Jerry Brown wants the school districts’ contribution percentage to rise over the next seven years to 19.1% or $13,089 per teacher. The annual impact statewide on school districts is a $6.5 billion increase from $4.9 to $11.4 billion.
For that hot-bed of liberalism in San Francisco, the school district’s pension cost will jump from the current $25.8 million to $59.8 million. Before the governor’s announcement on pension funding, the United Educators of San Francisco teachers’ union had demanded and expected to receive a 21% pay raise over the next three years.
“Quite frankly, we are stunned,” said San Francisco Superintendent of Schools Richard Carranza, who took his case to state legislators this week. “We agree that the pension shortfall is a problem that has to be fixed, but the burden is being smacked down on school districts at the last minute, just as we are finalizing budgets created with extensive community input and hours of thoughtful planning around how to serve our most disadvantaged students.”
The challenge for Superintendent Carranza is that, to the state legislature, the term “disadvantaged students” does not actually mean a student at a school. Although the public is told that the vast majority of the school’s annual cost goes to fund classroom teachers’ salaries, the average percent of budget spent on teachers is only 40.74% for elementary schools and 35.53% for high schools. The vast majority of the school’s money goes to fund a dizzying array of administrative staffing positions and progressive social welfare initiatives.
Despite the fact that the state’s General Fund is liable for 100% of the unfunded pension liability, Governor Brown is proposing that the school districts shoulder 80% of the additional cost, and the state will only pick up 20%.
The 2012 Proposition 30 ballot initiative that raised taxes by $7 billion per year was advertised on TV and radio by Governor Brown and others as money that would go to fund school classrooms, not state unfunded pension liabilities. Brown is now cleverly proposing to have the schools pay the state’s $6.5 billion a year of unfunded pension liabilities.
The author welcomes feedback and will respond to comments by reader.