Time for district officials to get serious about fixing teacher pension system
School district officials are wrong on two counts when they complain about education "cuts."
Not only will they get increases in state funding, but they also will receive close to $400 million more to pay for employee pensions.
Under the new state budget, taxpayers will send $882.7 million to school districts to pay for retirement contributions, up from $505.5 million last year. That is $377.2 million more in payments that will support public employee pensions.
The $882.7 million total is just a fraction of the total cost of the school pension fund. The annual contributions required for the system total $2.4 billion, meaning that $1 out of every $6 provided by taxpayers to public education goes to paying for retirement benefits.
Of that $2.4 billion payment, 18.7 percent of the contribution pays for the benefits earned by members; 8.5 percent covers the costs of prefunding retiree health care; and 72.8 percent goes to catching up on unfunded liabilities for pension benefits.
Unfunded liabilities for teacher pensions increased to $25.8 billion in 2013, up from $24.3 billion in 2012.
Normally, the state assesses teacher retirement costs as a percent of a school district's payroll and ensures that districts pay those amounts. But as a result of the 2012 pension reforms, the state now sends millions to districts to defray some of their required pension contributions in addition to foundation allowance and other education funding.
School district officials prefer this. The vast majority of charter public schools do not to participate in the school retirement system, but they do receive money from the foundation allowance. Thus, most school districts will get more money for pensions than they would have if the state had simply increased the foundation allowance. The end result is that charter schools receive less and conventional school districts receive more
This year, taxpayers will pay $177 million to increase each school's per-pupil foundation allowance, and $377.2 million in additional pension contributions. Had the state decided to use all of that extra money to increase the foundation allowance, districts and charter schools would have seen a $370 per-pupil increase, instead of the at least $50, and up to $175, per-pupil increase that was approved.
School officials often say retirement contributions are a state problem. To an extent, they are correct. The gaps between what has been saved to pay for retirement and what the state expects to pay out are the result of the state's assumptions and management of the system. It is definitely the state's responsibility to prevent underfunding from occurring in the future.
There are some school district board members speaking out to close the system, which would contain the state's ability to rack up unfunded liabilities. Sadly, few others are taking this approach. They ignore the increased costs of the Michigan Public School Employees Retirement System and choose to complain about funding.
Unless school officials get serious about forcing the state to fix its pension system, then they ought not complain about "cuts" to their budgets represented by rising retirement costs. Confusing retirement costs with funding will only ensure that the broken retirement system will continue to drain school finances.