Pensions really are in crisis, but the story is so full of large numbers, obscure projections, and dry terms like “unfunded liabilities” that not many people are paying attention.
The same is true for a lot of other big trends out there, which is why those sounding the alarm eventually settle on pithy/scary (if not always accurate) terms to get people’s attention. Global warming, for instance, or nuclear winter.
Now the pension crisis may have found its hook:
‘Silver Tsunami’ hits as pension costs devour California school budgets
(San Francisco Chronicle) – What happens when state funding improves, but local school budgets get worse? And how did we get into this situation in the first place?
It’s simple. School systems are getting hammered by the rising costs of pension and health care commitments. Meanwhile, they are being pinched by external factors including declining student enrollment, increased competition and frozen federal funding.
California is not an anomaly. Districts throughout the nation are facing the same squeeze.
So why isn’t anyone paying attention? Three main reasons:
Money is boring: And only boring people like chief financial officers talk about money and use phrases like “unfunded liabilities.” Interesting, cutting-edge people talk about “disruptive innovations” like personalized learning, or anything with the word “maker” in it.
Money is politically messy.Everyone wants funding for their favorite education project. In this zero-sum world, no one wants to talk about making tough choices. Even fewer want to discuss sensitive topics such as pension and health care liabilities.
Education finance has never been part of our nation’s education wars. Most of the opinion makers in education are like the Great Houses of Westeros in the HBO series “Game of Thrones.” They are much happier fighting each other to the death about issues like unions and charter schools than focusing on the more powerful forces that could destroy them all.
In “Game of Thrones,” that force is the White Walkers. In education, it’s the “Silver Tsunami” — the tens of billions of dollars in pension and other post-retirement benefits guaranteed to retirees.
In the olden days (before the mid-2000s), these budget problems seemed very far away. But over the past decade, millions of Baby Boomers have retired. Suddenly pension and retiree health care costs were at hand.
Most state and local officials failed to plan for these increased costs. During good times, they sweetened already generous benefits. During bad times, such as the Great Recession, they reduced the already inadequate amounts they were socking away.
The size of these unfunded liabilities is mind-boggling. Nationally, the estimate is $1.4 trillion. In California, it’s $97 billion for teachers and other school employees as of 2015-16. To put this into perspective, total venture capital investment in educational technology since 2010 was $2.3 billion.
In 2013, California state leaders attempted to address the shortfall by increasing payments from districts into the pension fund to $1,600 per pupil in 2023-24 from $500. This increase will only pay for part of the state pension obligation. Billions of dollars more will come directly from state coffers and never reach education budgets.
Just when you think it couldn’t get worse, California has more than $92 billion in unfunded health care liabilities. By 2030, Los Angeles Unified School District, serving more than a half-million students, is projected to spend half its budget on retiree pension and health care costs. Hundreds of other districts could make dramatic budget cuts or even go bankrupt.
District and charter leaders are beginning to talk about the impact of these rising costs. Unfortunately, everyone else is making things worse. Unions, foundations, and nonprofits still live in a world where an improving state economy was a reason to advocate for salary increases or fund the latest program.
That world is gone. Winter is already here. Unlike the fantasy world of Westeros, there are no magical solutions or heroes coming to save us.