San Diego Unified School District will be grappling with major budget cuts this week and over the coming year. Much of it will be from increases to the pension contributions the district has to make for current and future retirees.

District contributions to teacher pensions will total more than 19 percent of salary costs by 2020-21, up from less than 13 percent this year and less than 9 percent in 2014-15.

Just two years ago, the district spent $75.7 million on contributions to the California State Teachers’ Retirement System. This year, the cost is nearly $124 million, budget documents show.

Amplifying the costs are new contribution demands from the teacher pension system aimed at reducing unfunded liabilities that have piled up statewide. District contributions to teacher pensions will total more than 19 percent of salary costs by 2020-21, up from less than 13 percent this year and less than 9 percent in 2014-15. Districts must also account for pension costs on their balance sheets differently today than they did years ago.

City of San Diego leaders have grappled with pension costs for more than a decade since a controversial plan in 2002 boosted benefits for city employees while reducing the city’s funding of the pension system. The resulting scandal pushed the mayor to resign and led to several efforts over the years to cut guaranteed pensions entirely for most future city employees.

But the state as a whole and other major cities are now facing their own problems. Recently, CalMatters and the Los Angeles Times dove into how the state and former Gov. Gray Davis enhanced pension benefits for state employees, a decision that is now having major impact across the state:

This year, state employee pensions will cost taxpayers $5.4 billion, according to the Department of Finance. That’s more than the state will spend on environmental protection, fighting wildfires and the emergency response to the drought combined.

And it’s more than 30 times what the state paid for retirement benefits in 2000, before the effects of the new pension law, SB 400, had kicked in, according to data from the California Public Employees’ Retirement System.

The L.A. Times recently found that 20 percent of Los Angeles’ general fund dollars go to fund pensions.

Correction: An earlier version of this post said that two years ago, the district spent $47.8 million on contributions to the California State Teachers’ Retirement System. That figure represented the district’s estimated costs for 2014-15; final numbers show the actual costs were $75.7 million.

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    Written by Voice of San Diego

    Bill Bradshaw
    Bill Bradshaw subscribermember

    Here’s the deal on public employee pensions, from one who has some experience with “defined benefit” schemes:

    1. There’s nothing inherently wrong with the idea of defined benefit plans, if they are actuarially sound and not subject to politician’s meddling.  In the private sector, there are still a number of plans that don’t need constant emergency relief.  I am the beneficiary of one and sleep quite soundly because I know it’s conservatively managed and fully funded.

    2.  You can’t simply decide that, because there is what appears to be a surplus, you can give everyone a retroactive benefit increase without incurring huge instant unfunded liabilities.  It’s this simple:  Pensions are financed over a long period,   To make benefits already earned and provided for in the plan suddenly worth a lot more is catastrophic, yet this is what many public agencies, particularly in California, did.  Once a few agencies had done this, the pressure for “me too” mounted and politicians couldn’t resist playing Santa Claus.  After all, they often personally benefitted, and they’d be long out of office before the crisis hit.  This thinking is the antithesis of “fiduciary responsibility”. If these public agencies had competent actuarial advice, they simply ignored it.

    3.  Retirement eligibility ages are hugely important, and in the public sector, in the face of steadily increasing life expectancies, retirement eligibility ages have been  getting younger.  It’s now typical in the public sector to provide a full retirement benefit at age 55 (50 for so-called “safety” employees), ten years earlier than in the private sector.  Why?  Is public employment more complex, less secure, more intellectually or physically demanding?  You answer that one.

    Why is this important?  Well, when pensions have to be paid out over much longer periods, the costs escalate rapidly.  Not only is the plan funding, including employee contributions, if required, over a shorter period, but the payout is over a greater time as well, a double whammy.

    4.  Finally, pensions should be based on base salary, and not be increased by such things as unused sick leave or vacations, shift premiums, overtime or specialty pay, e.g., police officers responsible for dogs or horses, sudden promotions or any other scheme by which the system can be “gamed”.  The highest average pay over three or five years is the benefit norm in the private sector.  In the public sector, it’s the highest single year’s pay and is often increased by including things other than base salary.  This is how you get these horror stories of public retirees making more in retirement than when working.

    In conclusion, it’s nice to contemplate some reduction of excessive pensions for current public retirees and current public workers, but the courts have been very liberal in this regard, ruling, in effect that any pension related benefit in place on the day a person is hired is cast in concrete.  So, until this changes it’s up to public administrators and elected officials to work on the issues outlined above, particularly #4, which probably is the least assailable legally.  

    The current situation is simply unsustainable if we want any reasonable level of public services, particularly in California.  You'll notice I haven't mentioned public employee unions.  It's management's job to deal effectively with unions, and to use them as an excuse for the mess we're in is simply a cop out!

    Mark Giffin
    Mark Giffin subscribermember

    an oldie but a goodie.

    Read the comments. not much has changed but the hole they dug is deeper.

    By John Evans | July 2, 2014

    That ‘Ticking Time Bomb’ School Budget Prediction Was a Dud

    Critics inside and outside of the school board have predicted budget mismanagement would rear its head right about now. Instead, we have a balanced school budget that prioritizes students

    philip piel
    philip piel subscriber

    Time to hit up "The Rich" for a temporary tax?