Tuesday, January 6, 2015

Pension Reform

Do not go gentle into that good night,
Old age should burn and rave at close of day;Rage, rage against the dying of the light.

-Dylan Thomas, 1914-1953

I guess this is the answer to folks who wondered what would happen to my blog after I left office.  I still have a significant interest in public education and public policy, so I plan to continue to write as often as the mood strikes me.


I've written in the past about the need for pension reform, stretching back to 2010.  This isn't an attack on our teachers.  To the contrary, I greatly value the work they do, and I want to make sure we can honor the commitments we've made to ensure they have a reasonable life in retirement.  However, we are burying our heads in the sand if we don't acknowledge that we have a drastically under-funded pension system.  A recent article in Cabinet Report puts the national pension shortfall for teachers at $325B, and the State of California makes up $74B.  That's a lot of money, folks.

Again, this isn't an attack on teachers.  Schools need to balance two competing goals: fulfill the promises to fund retirements, and also fund ongoing operations.  I don't think that any of our teachers would want to see a future education system in which so much money was being diverted to pensions that the quality of education is compromised for the students then in school.  At the same time, we've made a contractual promise to teachers today, and they will need to retire at some point.

Gov Brown has pushed through a pension reform bill that will substantially increase the payments school districts make to pay for pensions.  That change will take effect over 7 years, and will increase our contribution from 9.5% of payroll to 19% of payroll.  That's a massive increase.  I can accept that it is necessary to do this in order to shore up CalSTRS (the teachers' pension fund).  However, I have concerns about what happens down the line.  How do we get to a sustainable model?  How do we keep it sustainable, even if we manage to weather the "shoring up period" that is starting now?

At bargaining tables across the state, we'll be faced with the same conversations that districts and their teachers have had for years.  Teachers will want to see an increase in their current salary, and districts will point to their other expenses (pensions, health care, etc.) and be faced with cutting in-classroom staff to pay for raises.  

When I was on the Board, we were setting aside money every year to cover our unfunded medical liability, so that we wouldn't be faced with big bills down the line.  The problem is, there's little ability to do this for retirement pensions.  You see, while medical liabilities are incurred locally, and it's a local expense, the retirement pension is a state-level liability, and is managed at the state level.  Local school boards have zero control over the amount that is saved each year, what the payout will eventually be, or what investment assumptions are used to calculate the pension funding formula.  It's all completely out of our hands.

LASD has a great relationship with our staff, and I'm very proud of that legacy.  We participate in interest-based bargaining, and our staff has embraced a risk-sharing model in their compensation that means they get more when times are better, and less when times are lean.  We are truly ahead of the pack in our labor relations.  I honestly believe that we could accomplish a great deal together if we had that freedom with the pension funding equation.  So here's a thought:  How about letting local school districts manage our own pension funds.  Instead of CalPERS/CalSTRS making the investment decisions, why not let local districts make that choice?  I would guess that if local districts have to work on the investment assumptions, they'd make much better choices than the politicians in Sacramento.

It doesn't have to be the Wild West.  We could still have a state safety net, much like the federal system for various pensions out in the private sector.  However, it would incentivize the districts and teachers in CA to solve this problem together, and to keep the problem fixed in the future.  Otherwise, we're just going to get to a "new normal" where an increasing chunk of the budget goes to pensions every year, and the kids in the classroom have less.  That is hardly the way for CA to climb up from the bottom of the national education ladder.

For those who are wondering, this problem affects traditional public schools and charter schools alike.  BCS and every other charter school in the State of CA still pay into CalSTRS, just like a traditional school district.  That cliff out there- it exists for everyone.