Are pension costs creating a new school fiscal crisis?

Are pension costs creating a new school fiscal crisis?

(Calif.) The number of school districts teetering on insolvency may be far higher than the most recent state data suggests, and the culprit appears to be swelling pension costs.

According to a new survey from Pivot Learning and the California School Boards Association, nearly 60 percent of districts may be forced into deficit spending before the end of this fiscal year.

That number would stand in sharp contrast to the five local educational agencies that just last month reported they might not be able to meet all their financial obligations this year and next.

The annual spring fiscal report from schools did, however, include 47 LEAs that said they might not be able to cover all their costs this year and next.

The sudden shift in outlook for schools comes even as the state funding guarantee has swung from $47.3 billion at the nadir of the recession in 2011-12 to a record $77.8 billion this year, and close to $80 billion in 2019-20.

Arun Ramanathan, chief executive at Pivot, a non-profit advocacy group based in Oakland, said there’s a striking misconception about what is really going on with district finances.

“There’s this incongruence going on where you see the school budgets statewide going up but you also see school districts all over the state talking about making cuts,” he said in an interview.

“I’ve had districts tell me that they are basically running on a razors edge,” he said, noting that if changes are not made soon, schools will be back in crisis “the minute there’s even a mild recession.”

At issue is the burden of baby boomer retirement costs and the inability for the Legislature to deal meaningfully with the problem until the unfunded liability of the California State Teachers Retirement System was close to $75 billion.

To help right CalSTRS, legislation approved in 2014 imposed higher cost-sharing requirements on employees as well as the state and local educational agencies.

The impact on LEAs, however, appears especially steep with their share going from 12.5 percent in 2016 to over 19 percent by 2021. At the end of that five year period, districts will be paying a combined $9 billion just on pension benefits.

While the notion that LEAs were struggling with pension costs was well known, the survey results from Pivot show how much more wide-spread the problem is.

The research—which was conducted in collaboration with a team from the University of Missouri—sought to explore the degree to which pension costs were undercutting support for the state’s most at risk students.

A major share of the additional money schools have received in recent years target low-income students, English learners and foster youth under the Local Control Funding Formula.

Perhaps not surprising, the study team found the answer was yes: To pay for pension costs, districts are increasingly using LCFF sources.

The answer, advocates say, is more money, but how much remains at issue. Gov. Gavin Newsom proposed in his January budget $3 billion in one-time money to help reduce the burden on school districts. But Ramanathan and others say that will not be enough, to really fix the problem will require a statewide debate.

“The community and others think that the revenues are going up and everything is going great and that we should be adding more services and that teacher salaries can keep going up,” said Ramanathan.

“That puts superintendents and school board members in an untenable position,” he said. “Part of fixing this is creating a larger constituency that understands what districts are facing.”

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