CA Should Raise Teacher Pay By Reducing Unfunded Retirement Liabilities

Fast-rising spending on pensions and other retirement costs is crushing teacher staffing and pay in California. As an example, retirement spending at San Francisco Unified School District grew 3x faster than district revenues over the last five years, absorbing $35 million that could have gone to current teachers. Worse, that happened despite record stock market gains and school revenues. Absent reform, teacher staffing and pay will decline further.

Something must be done. Public school students and teachers deserve fully-staffed classrooms and sufficient salaries. While the children of well-to-do parents can attend private schools or privately-subsidized public schools, most of California’s six million K-12 students cannot.

Someone must step up. Potential candidates fall into five categories: (i) the people who created the problem, (ii) taxpayers, (iii) students, (iv) current teachers, and (v) pension beneficiaries.

  • Self-serving pension fund board members and elected officials blocked honest pre-funding of retirement promises, causing today’s unfunded liabilities. While it would be wonderful justice if they could be forced to pay for the problem they created, at nearly $100 billion and growing the problem is too big for their resources.
  • Taxpayers didn’t cause the problem but they’ve been paying for it. Income taxes were raised 30 percent in 2012 and school revenues are up 60 percent since then but pension spending in districts like SFUSD grew more than 100 percent over that same period and are heading higher.
  • Students and current teachers didn’t cause the problem but they’ve been paying for it in the forms of understaffed classrooms and inadequate salaries, especially in school districts without well-to-do parents to subsidize school budgets. It’s no wonder poor and minority students in California perform worse than their counterparts in Texas, which spends less per student but has a better student-teacher ratio.
  • Pension beneficiaries didn’t cause the problem but unlike students, teachers and taxpayers they have NOT been paying for it. In fact, they garnered additional financial benefits from the actions that created the problem, as explained here. They need to step up.
Reducing unfunded obligations would free up billions for current teachers.

Shrinking unfunded retirement obligations by reducing un-earned future benefits would allow school districts to divert fewer dollars to retirement costs. For example, Rhode Island suspended annual increases until pension funds are better funded and moved some to-be-earned benefits to hybrid plans. Acting similarly in California could free up billions with which to boost current teacher staffing and pay. Such sacrifices by beneficiaries would be no greater than those of students, teachers and taxpayers and beneficiary retirement benefits would still be greater than those of the vast majority of their fellow citizens.

No one can be happy about making any innocent person sacrifice to meet unfunded liabilities created by corrupt pension fund board members and elected officials. But students need fully staffed classrooms and teachers need adequate salaries. Everyone needs to chip in to reach those goals.

One cannot both be progressive and be opposed to pension reform.

Unfunded retirement obligations are crushing the hopes and dreams of California’s public school students and teachers. Policymakers need to act.

NB: A different set of unfunded liabilities is crushing higher education. The University of California is losing $600 million this year compared to what it would’ve received had it simply maintained the same share of the state budget as it garnered a decade ago. Retirement beneficiaries didn’t cause that problem either but only they have avoided the consequences as taxpayers are paying more and citizens are receiving less. The state needs to reduce its unfunded liabilities. Beneficiaries must chip in there too.