Pension Costs Are Not the Reason California’s Schools Fail the Disadvantaged

A recent guest editorial published by Bakersfield.com entitled “California’s defunding of public education” makes the case that a “pension contribution maneuver” has left school districts up and down the state with shrinking budgets.

The author, Shaohua Yang, gets many of his facts right. For example, he writes that “California 2019 per-capita income tax ranks the fifth highest in the U.S., and we also have high property, sales and business taxes. The lack of public school spending is not due to short revenue.” Yang is also right to observe that pension costs cannibalize funding for public services. But he’s only telling half the story.

The pension “maneuver” Yang refers to is the Public Employees’ Pension Reform Act of 2013, known as “PEPRA,” and pushed through the state legislature by Democratic Governor Brown. PEPRA was a last ditch attempt to rescue California’s public employee pension systems from insolvency. It was a compromise, balancing necessary increases to employer contributions with modest reductions in pension benefits, reductions that only affected new hires.

The result of PEPRA was a plan that, if CalSTRS investments can earn on average 7 percent per year, will finally achieve full funding by 2046, over 30 years later. Meanwhile, CalSTRS is on thin ice. Its still most recent available actuarial valuation, scandalously out-of-date, shows that as of 6/30/2018 the “amount of assets on hand to pay for obligations” stood at 64 percent. But did PEPRA reduce pension benefits or increase the member contribution rates? Not much.

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The Real Reason Behind the Drive to Unionize Charter Schools

Want to know another reason California’s teachers unions are desperate to unionize charter schools? They want the leverage to force these schools to participate in CalSTRS, because CalSTRS charges all its participants the same pension contribution rates.

This is a truly amazing, grotesquely unfair, astonishing scam. It means that new schools have to pay for the every financial mistake that CalSTRS ever made, and they’ve made plenty. CalSTRS is only 64 percent funded. CalSTRS is $107 billion in debt – that’s $238,000 per active member. Better get more active members!

Even CalPERS, the largest public employee pension system in the U.S., and one that has engaged in its own share of accounting gimmicks, doesn’t make its financially responsible participants pay for the negligence of its financially irresponsible participants. Every agency that relies on CalPERS has its funded ratio individually calculated. If a local governing board managed to negotiate financially sustainable benefits, or increased their contributions, or otherwise managed to do something right, they have a higher funded ratio, a lower liability, and make lower payments.

Not so with CalSTRS.

A grim gallop through the latest financial reports for CalSTRS will vividly illustrate just how royally CalSTRS will abuse any newcomer to their system, and you don’t have to look very far. Page two of the report for 6/30/2018 has a table displaying the 38.7 percent contribution rate – expressed as a percentage of pension eligible payroll – that participants pay. Employers pay 18.13 percent, the […] Read More

Pricing A Taxpayer Bailout of California’s Pensions

Last month both of California’s largest government employee pension funds, CalPERS and CalSTRS, released their portfolio earnings numbers for the most recent twelve months. In a statement released on January 24th, “CalSTRS Calendar Year-End Investment Returns Show Slight Gains,” CalSTRS disclosed “Investment returns for the California State Teachers’ Retirement System (CalSTRS) ended the 2011 calendar year posting a 2.3 percent gain.” CalPER’s statement released on January 23rd, was titled “[CalPERS} Pension Fund earns 1.1 percent return for 2011 calendar year.”

These funds, and the rest of California’s many local government employee pension funds, are still clinging to long-term rate of return assumptions of between 7.5% and 7.75% per year. So how much would taxpayers be on the hook for if rates of return stay this low?

The first step towards determining this would be to estimate the average pension paid out to a state or local worker in California, based on recent retirees who have worked a full 30 year career. Despite the claim that “The average CalPERS pension is $2,220 per month” (made yet again in the final paragraph of their above-referenced press release), for a more accurate figure, one must look at the average pension awarded recent retirees, based on a full 30+ year career. The problem with the low figure used by CalPERS and others is that it includes people who retired decades ago when salaries […] Read More