Will California schools pass their tough test on pensions?

Hundreds of Sacramento City Unified School District teachers and supporters listen as a strike date is announced in November 2017. The strike was averted with a pay hike for teachers, but the district and many others across the California are struggling to pay for pensions.
Hundreds of Sacramento City Unified School District teachers and supporters listen as a strike date is announced in November 2017. The strike was averted with a pay hike for teachers, but the district and many others across the California are struggling to pay for pensions. Sacramento Bee file

It’s not just many California cities and counties that face crushing pension obligations. It’s also a lot of public school districts.

As an eye-opening report by Jessica Calefati of CALMatters documents, some districts are already cutting programs, reducing staff and dipping into reserves to make sure they can pay all their teacher pensions.

If this colossal financial challenge isn’t met, districts could be forced to increase class sizes and cut educational offerings even more. And all the debates about charter schools, accountability and student testing aren’t going to matter as much.

The two candidates for state schools superintendent on the Nov. 6 ballot – Marshall Tuck and Tony Thurmond – must tell voters, in detail, how they would help improve the situation. Platitudes aren’t enough, as Tuck offered in his response to CALMatters: “A fair solution will require shared sacrifice and creative thinking.”

Hemming and hawing, as Thurmond’s camp did – he initially didn’t respond, then issued a late statement saying he wants to convene a working group on the issue – is insufficient, too.

The frightening thing is this crisis could be much worse. In November 2016, voters extended a tax increase on the highest-income Californians to help pay for education. Partly with that windfall, Gov. Jerry Brown and the Legislature have increased local school funding significantly, about $20 billion total since 2013.

That cash bought school districts some time, but their budgets will get much tougher when the economy inevitably cycles downward. As it is, schools may need to spend more than half of the new money to pay for pensions, according to state estimates.

The pension payments of school districts have increased since an important deal four years ago to shore up the California State Teachers’ Retirement System. The state, teachers and districts all agreed to put in more; districts’ payments are rising from 8 percent of payroll in 2013 to 19 percent by 2020. While the $224 billion system is on more solid financial footing, the gap between the cost of promised pensions and money set aside is still about $107 billion.

To stay solvent, it’s crucial that CalSTRS do well on its investments. It just reported that it beat its goal of investment returns for the second straight year. But that can come at a different kind of cost.

President Donald Trump’s misguided and inhumane deportation push is increasing demand for detention centers run by private companies under contract with the federal government. It turns out that CalSTRS has $12 million invested in two private correction companies. So teachers and activists are demanding the CalSTRS board divest from what they call immoral investments.

CalSTRS plans to report to the Legislature next year on districts’ growing pension problem. The pension time bomb also looms over local governments, including members of CalPERS. One major change that could lessen the threat is to give cities, counties and school districts some flexibility to reduce pensions for current employees.

Currently, under the “California rule,” public agencies can’t cut pension benefits without additional compensation. That’s why Brown was right to press the state Supreme Court this month to quickly rule on a lawsuit that challenges his pension reform law that reduced benefits for employees hired after 2013.

It’s true that teacher pensions – an average of about $55,000 a year for 30 years on the job – are often more modest than those for firefighters and police officers. It’s also true that teachers have a tough duty, and though their pay is high nationally, so is California’s cost of living.

Still, there’s only so much money. If they truly care about students, teachers can’t want their compensation to force big spending cuts in the classroom. Teacher unions have to be reasonable about retirement benefits and about pay raises.

CALMatters computed what percentage of school district budgets go to salaries. In the Sacramento region, Davis ranked highest, No. 12, spending 63 percent on teacher pay. Rocklin came in at No. 48 with 60 percent, Natomas at No. 73 with 59 percent and San Juan and Elk Grove were in the middle of the pack at 57 percent.

Sacramento City Unified was at the bottom, spending 46 percent of its budget on salaries, but the CALMatters report focuses on it as an example of the politically difficult decisions facing school districts statewide.

The district had stashed $81 million in a reserve account, in part to cover rising pension and health care costs. But teachers, paid less than their peers in some nearby districts, demanded last year that the district spend some of the savings to give salary increases and hire more teachers.

Sacramento Mayor Darrell Steinberg helped avert a teacher strike by negotiating an 11 percent raise over three years. County Schools Superintendent Dave Gordon, however, warns that the pay raises put Sac Unified at financial risk. While the district projects its revenue will go up by $6 million in the next three years, its pension and health care costs will jump by $18 million. The teachers union, however, says the district has “more than enough” to cover the higher pension costs.

In June, the Sac Unified board, facing a $24 million budget deficit, cut $4 million in programs, including a summer learning initiative that just started this year.

If all sides don’t do more to address the pension problem, more of those painful choices await students, parents and teachers across California.

Note: This editorial has been updated with a response from Tony Thurmond.