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

A recent guest editorial published by 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 Its still most recent available actuarial valuation, scandalously out-of-date, shows that as of 6/30/2018 the “amount of assets on hand to pay for obligations” stood at 64 percent.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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