In revised budget, Gov. Brown details costly 30-year plan to fix teacher pensions
May 13, 2014 | By John Fensterwald | 16 Comments
Gov. Jerry Brown is predicting that the state will take in $2.4 billion more in revenue in 2014-15 than initially estimated, but highly expectant education leaders won’t get a piece of it to implement the Common Core state standards or make a down payment for universal preschool. They can count on the double-digit spending increase that the governor proposed in January – but not much more.
Instead, consistent with his philosophy of fiscal restraint and a commitment to pay down long-term debts, Brown is proposing in the revised May budget to make a down payment on the $74 billion shortfall in the pension program for teachers and administrators, the California State Teachers Retirement System, or CalSTRS. His proposed 30-year payment plan, subject to negotiation with the Legislature, would cost an additional $5 billion per year by the time it’s fully phased in over seven years. The bulk of it – $3.7 billion annually – would be the burden of school districts, potentially eating away between one-seventh or more of the increased funding they had expected under the Local Control Funding Formula (see Department of Finance summary of budget revision, starting on page 66).
In a press conference Tuesday, Brown made clear the state cannot duck this responsibility. Meeting pension obligations to teachers is part of what it costs to educate kids, Brown said, and must be paid for.
“The key point that is sometimes hard to grasp is that this is what it takes to educate our kids,” he said. “To get what they need, they need teachers. Teachers get what they need by having a pension. The pension has to be paid for.”
In January, Brown proposed that his administration and the Legislature spend next year negotiating a CalSTRS deal and then start funding it. But now he is proposing to start with the fiscal year that begins July 1, with an initial $450 million toward the unfunded liability. The state’s portion would be $73 million, with teachers paying $40 million more out of their salaries and districts kicking in about $337 million – equal to about a half of 1 percent of the projected $61 billion in Proposition 98 funding next year. Proposition 98, the primary source of funding for K-12 schools and community colleges, determines annual funding based on increases in enrollment and per capita state income or state revenue.
Jack Ehnes, chief executive officer of CalSTRS, said that closing the funding gap “can be resolved through gradual and predictable contribution increases, and the sooner those increases begin, the less risk to the state. Clearly, state policymakers understand this urgency, and … we are encouraged that a funding plan will be enacted this year.”
CalSTRS’ defined benefit program for its 860,000 members is funded through contributions from the state, employers (school districts) and employees, and returns on investments. CalSTRS lost about 40 percent of the value of its investments when the stock market plunged in 2008. Though the $183 billion value has now returned to where it was, the pension program is only about two-thirds funded to meet projected pension payouts over the next 30 years.
Contributions are determined as a percentage of employees’ pay. Teachers and administrators currently pay 8 percent of their salaries into the defined benefit program; the state pays 3 percent and districts 8.25 percent. Once fully phased in over three years, teachers would pay 10.25 percent of salaries and the state would pay 6.3 percent. Districts’ share, under Brown’s plan, would soar to 19.1 percent of employees’ pay, paid for out of Proposition 98 funding. The phase-in for districts would be seven years.
Assemblyman Rob Bonta, D-Oakland, chair of the Assembly Public Employees, Retirement and Social Security Committee, which is tackling the pension fund issue, called Brown’s proposal “a reasonable plan and a strong sign of progress” that is consistent with his committee’s principles of shared responsibility among contributors. “No one said it would be easy,” said Bonta, who plans a hearing soon to review the plan.
Dennis Meyers, Assistant Executive Director of the California School Boards Association, agreed with Bonta, calling the proposed pension contribution increases “daunting” at a time when school districts are recovering from the recession and phasing in the new funding system. He said his organization would take a hard look at Brown’s pension cost-sharing formula.
Little change in Prop. 98 funding
In January, Brown proposed a near-record increase in Proposition 98 spending. That won’t change much, even with an additional surge in overall state revenue, because of the complex way that Proposition 98 funding is calculated and retroactively adjusted. More than half of the new state revenue will fund a rush in enrollment in Medi-Cal, the federal and state subsidized health care program for low-income families that was expanded under the federal Affordable Care Act.
For K-12 schools and community colleges, there will be $242 million more available under Prop. 98 than in January, but nearly all of that will be eaten up by increased enrollments (see Department of Finance summary of budget revision, starting on page 15).
The January state budget included a $10.5 billion increase in K-12 and community college spending. Brown is proposing to split the new money between one-time expenditures and more dollars for ongoing spending.
Brown would use the bulk of the money to pay off the remaining $6 billion in late payments to school districts, known as deferrals. Paying that off will clear the decks of that portion of what Brown calls the state’s “wall of debt.” It will also free up cash for districts while eliminating loans that some districts – disproportionately those serving low-income students – had to take out.
The remaining $4.5 billion would fund districts’ operating budgets under the Local Control Funding Formula – more than double the $2.1 billion increase this year. In a January analysis, the non-partisan Legislative Analyst’s Office estimated that overall per-student spending would rise about 10 percent, from $7,936 per student in the current fiscal year to $8,724 in 2014-15. Under the formula, which distributes extra money based on enrollments of English learners, foster youth and low-income students, the percentage increases would vary significantly among districts, however.
Josephine Lucey, a school board member from Cupertino and president of the California School Boards Association, said,“We are pleased with the continued commitment and investment in the Local Control Funding Formula … so school district and county leaders and board members can invest in programs to achieve academic success.”
Other education leaders vowed to take the case to the Legislature for additional money for Common Core and an expansion of transitional kindergarten, an extra year of kindergarten for some 4-year-olds.
“While we are pleased to see progress toward implementing the Local Control Funding Formula, we are disappointed to see the governor did not include additional funding for implementation of new content standards, and will urge him and the Legislature to reconsider,” Valerie Cuevas, interim executive director of The Education Trust-West, said in a statement.
Senate President Pro Tem Darrell Steinberg, D-Sacramento, had made a $1 billion expansion of preschool his top priority but, so far, has come away empty-handed. Brown, in a press conference, said that the state has increased Proposition 98 funding substantially for kindergarten through community college. Adding a 16th year of education, he said, would require shifting money from the other 15 years.
Noting that the state has not restored $1 billion in cuts to child-care and development programs since 2008, Deborah Kong, president of Early Edge California, a nonprofit that supports an expansion of the state’s early childhood services, said, “The governor and Legislature have a historic opportunity to make California a leader in education in these crucial weeks of the budget discussions. We urge them to make the wise investment in our future by making early learning a top priority.”
The May revision does include some new and expanded education programs:
- $27 million to expand the capacity of the K‑12 High Speed Network, which provides Internet service to county offices of education and school districts. There will be grants for districts that need the most help preparing for the computer-based Common Core tests next spring.
- $50 million to boost career-training programs at community colleges to help expand course offerings and purchase new equipment. The money comes on the heels of $250 million provided this year for the Career Pathways Trust, a state grant program that will fund partnerships between K-12 and community colleges for career technical education. Community college officials cheered the funding proposal, which they said would restore past cuts. Yet other advocates were disappointed there wasn’t additional funding for career technical programs at the K-12 level.
John Fensterwald covers education policy. Contact him at jfensterwald@