Big Pension Bite Likely On Kellogg's $51 Million Battle Creek Schools Gift

Underfunded state-run system erodes school budgets and donor largesse

As the policy differences between those involved in efforts to reform Michigan’s underfunded school pension may be narrowing, the W.K. Kellogg Foundation has announced it is giving Battle Creek Public Schools $51 million over five years. The gift highlights how corrosive the unreformed retirement system is to public school finances.

The state-run pension system has for years made retirement benefit promises to teachers but not made the pension fund contributions needed to keep them. As those unpaid debts come due, an ever larger share of current school budgets goes to catch up on past underfunding.

This means current school funding is going to cover lifetime benefits for teachers who may have left the classroom years or even decades ago. The result is a $29.1 billion gap between the cost of benefit obligations and how much the state has saved to cover them.

Those legacy costs will also eat away at Kellogg’s generosity to Battle Creek schools. In 2009, the district was required to pay $3.66 million into the Michigan Public School Employees Retirement System. By 2016, Battle Creek’s annual payment had risen to $7.86 million.

Battle Creek Public Schools paid $3.6 million in 2009. That expense has gone up every year since, and those yearly increases have added up to an additional $13.6 million over the years. That's money that could have been spent on paying today's teachers.

For every new employee Battle Creek schools might hire with the Kellogg gift money, 25 cents out of each dollar of compensation will go to cover past and future pension costs.