Strike or no strike, pensions problematic for LA schools
LOS ANGELES — Strike or no strike, after a deal is ultimately reached on a contract for Los Angeles teachers, the school district will still be on a collision course with deficit spending because of pensions and other financial obligations.
School systems across California are experiencing burdensome payments to the state pension fund while struggling to improve schools.
The problem is especially acute for districts like Los Angeles Unified that will see a financial hit in part because of steadily declining enrollment.
As fewer students enroll, public schools get less in per-pupil funding from the state, said Helen Cregger, an analyst and vice president at the financial services company Moody’s.
“Then comes the tradeoff between making good on pension promises and what you’re capable of offering in salaries,” she said.
The downward trend in enrollment is due to skyrocketing housing costs that keep families with school-age kids out of the city and the growth of charters — privately operated public schools that compete for students and the funds they bring in.
Los Angeles is among the school districts across California that are not well-positioned to manage the coming confluence of slower revenue growth, declining enrollment and rising pension contribution rates, according to a Moody’s study published in September 2018.
The LA district’s contributions to the state’s two large pension plans — California State Teachers’ Retirement System and the California Public Employees’ Retirement System — amounted to about 5.5 percent of the budget in the 2014-15 school year. By last year, that number had climbed to nearly 8 percent, according to an Associated Press analysis.
The contributions ramped up quickly to chip away at plan underfunding and because of demographic trends: As retirees live longer, their lifetime pensions cost more. Meanwhile, the district is spending more on special education programs and seeing climbing health care costs.
Governing bodies in some places — though not LA Unified — have skipped pension contributions altogether to deal with other more immediate budget crunches, compounding the shortfalls. California’s major plans are short largely because they did not reach lofty investment return targets.
David Crane, president of the advocacy group Govern for California, said there’s nothing an individual school district can do about its rising pension costs. He said state aid — like a plan that new Gov. Gavin Newsom introduced Thursday in his budget proposal — could reduce the burden for districts, though.
Newsom, a Democrat, wants to make a $3 billion one-time payment to California’s teacher pension fund on behalf of schools to help districts that are seeing more of their budgets eaten up by pension obligations.
Crane said districts can reach deals with teachers unions to eliminate or scale back paying for retiree health care. He said those costs are not needed because they’re subsidizing care largely for people already eligible for subsidized coverage or Medicare.
“It’s coming out of current teachers’ pockets,” Crane said, and will only get more expensive in the future. Cutting the post-retirement benefits, which cost the district $343 million last school year, could mean raises of more than $10,000 for each of the district’s 26,000 teachers, he said.
LAUSD Superintendent Austin Beutner said he’s “delighted” by the new governor’s commitment to public education and added that it’s the district’s obligation to make good on current pensions.