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Schools statewide are staring down a pension crisis that will take bold solutions to fix – and it’s not clear if politicians have any sitting around.
San Diego is to pension crises like Connecticut is to pizza: We may not make the most well-known, but we can cook them up with the very best.
And if that remains true, we should be in for a grand ole time dealing with the ballooning pension costs for teachers and school workers across the state in coming years, according to a recent study out of Stanford University.
Local school districts and the state seriously underfunded school pensions for decades, the report notes. But the state, to its credit, finally addressed the problem in 2014 and passed legislation that mandated gradually increased contributions from all three parties: the state itself, local school districts and employees.
But now those mounting contributions – which in no small part go toward paying off old debt that districts, the state and even unions seemed happy to ignore as it piled up – are starting to sharply cut into school districts’ bottom lines. Pension contributions have nearly doubled since the mandated hike began. In 2013-14, contributions totaled 18.3 percent and by 2020-21 they will reach 35.3 percent statewide. (All districts must pay the same per capita pension costs, per state law.)
“You could describe where we’re at right now as a disaster,” Cory Koedel, a professor of economics at the University of Missouri, who headed up the pension research, told me. “The debt is so massive that to deal with it all at once would be like ripping off a really big Band-Aid and then be left holding this bloody, hairy mess.”
The key problem with the pensions costs is this: Even though the state required school districts to pay a growing cost, it didn’t allocate increased dollars for school districts to pay for it. In simple economic terms, the cost is going up faster than the revenue. And school districts already use anywhere from 85 to 95 percent of their budgets on salaries. Raising salaries, for instance, will be out of the question in the face of rising costs – at least not without raising taxes or some other politically bold strategy.
The state has in fact been increasing the amount of money it puts into education in recent years. But much of the increase has gone toward restoring post-recession budget cuts. This school year is the first that state education spending has actually risen above 2007 levels when accounting for inflation, Michael Simonson, an assistant superintendent of business services for the San Diego County Office of Education, told me.
Roughly 20 percent of the increase in spending, or one in five dollars, is being spent on rising pension costs, which were much lower back in 2007, he told me.
“By itself, I wouldn’t call it dire,” Simonson said. “It’s really a three-pronged stool. It’s the increase in pension costs, the statewide increase in special education costs and the declining enrollment. Any one is manageable by itself, but dealing with all three makes it much more difficult. Pension contributions are an added cost to a budget that already has a lot of pressure.”
And that’s not all of it. Even though the state stepped up to mandate increased contributions, Koedel, the researcher, found that the pension hole is still likely getting deeper today. That’s because, he said, the actuarial assumptions behind the funding formula assume too high a rate of return on investment.
The saddest part, for Koedel, is how much current education spending goes toward paying off old debt. Roughly 18 percent of teacher salaries would need to go toward that old debt just to pay it off by 2046, he found. And that’s money that isn’t making it to the classroom in any way whatsoever. Koedel sees at least one bold solution: Let the state buy the debt in exchange for legislation that would no longer allow old pension debt to accrue into the future.
But, as the Los Angeles Times and others have pointed out, getting major politicians to take a visionary stance on pension debt would basically be like asking a New Yorker to drive to New Haven, Connecticut, for a slice of pizza.
Turns out, Sweetwater Union High School District in Chula Vista is on the verge of financial meltdown. I got a tip about this last week, and it took me days to untangle the weedy budget mess, but I ultimately learned that Sweetwater was $30 million off in its budget calculations. Officials came up with a one-time offset of $10 million. But that still leaves as much as $20 million in cuts that may have to come out of the school year that has already started. It’s rare for districts to have large shortfalls that affect the school year in progress and in the worst-case scenario a fiscal adviser could take partial control of the district.