Pension Costs Creating State-Wide Fiscal Crisis
May 2, 2019
The number of school districts facing insolvency is probably far higher than what is being shown by California’s most recent state-wide annual data, and the reason for this is the districts’ swelling pension costs.
According to the survey by Pivot Learning and the California School Boards Association, nearly sixty percent of California's school districts may be forced to deficit spend before this school year ends.
The Pivot Learning research—with help from the University of Missouri—sought to explore the degree in which pension costs were undercutting support for our most at risk students.
A major share of the additional money districts have received in extra supplemental and complementary funding are supposed to target low-income students, English learners and foster youth under the Local Control Funding Formula.
Cutting At-Risk Funding
The Pivot survey found that this may not be the case and in order to keep up with pension costs, districts are increasingly siphoning these additional LCFF resources from their intended use, in order to pay their state-mandated pension costs.
The latest research stands in sharp contrast to the state's year-old information that only five local educational agencies might not be able to meet all their future financial obligations.
However, this year’s annual spring fiscal report from schools did include that 47 LEAs had said they might not be able to cover all their obligations into the next fiscal year.
This sudden shift about school districts’ unknown fiscal future came even as the state funding guarantee has increased from $47.3B at the low end of the Great Recession to a record $77.8B this year, and close to $80 billion in 2019-20.
Pivot's latest report seems to expose a distinct difference between how much school budgets have increased and how school districts across the state are spending it. Many more districts are now holding administrative discussions about the need to make future budget cuts.
The Elephant in the Room
In 2014, in a move that is proving too little, too late, and over-burdensome for many local school districts, our legislature imposed higher pension cost-sharing requirements on employees as well as the state and local school districts-as employers.
The impact of these rate increases have proven to be too steep for district budgets. As employers, school districts’ CalSTRS costs will increase from a rate of 8.5% in 2012 to more than doubling to over 19%, by 2021—an increase of over 225%. In the end school districts will be paying a combined $9 billion just on pension benefits-up from $3.5M before the recession.
At issue is the increasing burden of baby-boomer retirement costs and the state legislature’s inability to deal with the problem earlier before it got out of hand--waiting years until the unfunded liability of CalSTRS had grown to over $50B in 2014 and is still growing annually. CalSTRS unfunded liability is still increasing annually. It is now over $90B--even after years of state-imposed annual increases in payments.
While it was understood that some LEAs--including our own CCUSD--were struggling with pension costs, because long-term contracted salary increases had to be met, the latest survey results from Pivot Learning show just how much more wide-spread the problem is and may yet become without further legislative action.
Local communities are seeing district annual revenues increase and are thinking everything is going great and that school districts are adding more student services and district salaries would be increasing. But that is far from what is actually happening.
State-Level Action is Needed
The most obvious answer to this pension funding issue is for the state to increase its legal share of pension costs and/or its funding of K-12 education. But how much more remains at issue. Gov. Gavin Newsom has proposed paying $3 billion of one-time money into CalSTRS to help reduce the burden on the California’s school districts. One time infusions may not be enough to fix the problem. What we need is a statewide debate on how the state legislature is going to pay for these ballooning pension costs—or not.