By Anthony Randazzo, Jonathan Moody, Max Marchitello, and Patrick Murphy
Pension Debt Challenges for Equity in Education: The Effect of Teacher Unfunded Liability Costs on K–12 Education Funding in California uncovered that the rising costs for public school retirement benefits continue to squeeze K-12 school district budgets in California, undermining the state’s ability to improve education outcomes for students. What is important to note is that this report documents the fact that these growing costs hit the districts that already have fewer resources the hardest because of regressive funding mechanisms that compound disparities between low- and high-wealth communities. Calling attention to the equity implications of underfunding of teacher pensions is not a critique of public pensions but rather a call for greater transparency which can lead to solutions that have equity at the core.
Our new report notes that despite steady contribution rate increases since 2014, as of the close of fiscal 2022 the California State Teachers' Retirement System (CalSTRS) only has 81.2% funding and carries roughly $70 billion in unfunded liabilities. The costs of paying down this pension debt, which now accounts for 65% of every dollar contributed to the pension plan
by CalSTRS employers, are effectively siphoning funds from the classroom.
The report lays out how growing teacher retirement costs are creating a challenge to efforts aiming to improve education resource equity in California:
Part 1 shows generally How Teacher Retirement Costs Affect School Finances.
Part 2 shows specifically that Pension Spending Has Exacerbated Existing Funding Inequities.
Part 3 shows in detail how Underperforming Investments and Contribution Shortfalls Caused Pension Debt to Grow for California School Districts.
Part 4 asks Who Will Pay Pension Cost Increases in the Future?