Schools, students face fiscal pain from pension crisis
By Walker Stapleton
The budget challenges facing public schools throughout Colorado are in the news daily, and on the minds of parents and taxpayers. But we don’t often hear about one of the current and future sources of the budget squeeze: the ballooning burden of paying for a bloated pension system.
Whatever one thinks about the state of public education and the role of teacher unions, we can all agree that schools exist for the education of children, not the comfort of adults. But, over the years, policymakers in both parties have allowed the state Public Employee Retirement System, known as PERA, to make promises to future retirees that, on its current course, it cannot keep.
Today PERA maintains more than a $23 billion dollar unfunded liability, which is money owed to beneficiaries but is not in the fund. Who is on the hook for backfilling that gap? State and local government and school districts and, by extension, the taxpayers whose dollars fund government — and public pensions.
This challenge is particularly acute for school districts. Their budgets, like all budgets, come down to basic math with expenditures on one side and revenues on the other. Most of their expenditures are mandatory, and the mandatory line item for pensions will grow massively as PERA’s unfunded liability grows.
It’s a zero-sum game. Dollars that must be devoted to pensions are dollars that can’t be spent on classroom instruction, improving the facilities where our children learn or expanding educational offerings to our students. School board members will be powerless as they see dollars that they hoped to see help kids will instead go to fix a problem that adults have allowed to fester for decades.
This is a massive problem in good economic times. But school districts across Colorado, buffeted by falling tax revenues, have faced the fiscal reality of having to slash programs and rein in their budgets. In some cases, this has resulted in cutting teacher salaries or, even worse, laying off teachers. Some districts are now asking voters to approve tax increases to try to shore up sagging revenues.
Sadly, the math tells us that whatever new dollars districts think they might get, a portion of those dollars will bypass classrooms and go right into our unsustainable public pension system.
Here are the numbers to show you PERA’s fuzzy math.
PERA leaders, with straight faces, maintain that their investments will yield an 8 percent return every year for the next half-century. Nobody who doesn’t draw a PERA paycheck believes that.
But, for argument’s sake, let’s assume their 8 percent estimate is right. This means that, over the next five years, school districts’ contributions to PERA will rise to more than 20 percent of their annual budgets for teacher salaries. That amounts to one dollar out of five not devoted to the people we have hired to educate our kids.
The reality, however, is that experts — particularly those in the private-sector financial community — know the reality-based rate of return will be far less than PERA’s rosy 8-percent scenario.
In fact, PERA’s own recent report showed that the system is generating a 1.9 percent annual return. For every 1/2 percentage point that PERA’s estimates are off, school districts’ contributions will rise 15 percent over time. That means that there is a canyon-size gap between the income that PERA predicts it will receive and the far lesser amount it actually will receive from its investments.
In the gap are public employees — including teachers — who expect that retirement promises made to them will be kept. They are right to believe that, and it’s a promise that must be kept.
Somebody has to make up the difference. In our public school system, that challenge falls on elected school board members. These men and women — volunteers all — who ran for office in the hope of building a better education system in their communities, will increasingly see their job as pinching pennies for the classroom while dollars flow to PERA.
All of us — parents, taxpayers or job creators eager for a well-educated workforce — have the future riding on quality public schools. No matter how pension executives or union leaders want to deny it, the growing pension crisis will do severe damage to already-strapped school district budgets. A budget hole will continue to grow that no tax increase can fill.
I will continue to propose reforms to this system that protect current retirees and make promises to future retirees worth the paper they’re printed on. I will work with the governor and other Democrats to see them enacted. Regardless of where school-board members are politically — Republicans or Democrats, liberals or conservatives — I believe that this dire fiscal reality should turn all of them, and us, into energetic reformers. In the end, Colorado’s children will be the real winners.
Walker Stapleton is Treasurer of Colorado. Learn more about the pension crisis at http://www.colorado.gov/treasury.