Gov. Gavin Newsom’s proposal to pay down pension liability would save California school districts an estimated $50 per students. It wasn’t enough to head off the Los Angeles teachers strike, but districts are welcoming it anyway.
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Gov. Gavin Newsom’s $3 billion plan to pay down California public schools’ pension obligations may not have been enough to prevent teachers in Los Angeles from striking. But it’s not nothing, school officials across California say.
Newsom’s proposal, made last week as part of a record $80.7 billion budget for K-14 education, threw school districts a modest lifeline on one of the public school system’s more widespread financial pressures—the rapidly rising cost of teacher pensions.
The suggestion alone was enough to briefly raise hopes at the Los Angeles Unified School District, and to prompt officials there to make a fresh offer to the local teachers union, based on an estimate that Newsom’s idea could generate $40 million or more for classroom size reductions and more nurses and counselors.
The union wasn’t buying, but other districts say they’re already looking at what they could do with the estimated $50 per student the plan could save them, by the California School Board Association’s calculation. For example, Torrance Unified, which educates more than 23,000 kids in Los Angeles County, estimates it could save $2.6 million over the next three years from Newsom’s proposal, according to superintendent George Mannon.
“It’s a tremendous first step, which lessens the impact on districts and frees up more resources to be used for students,” said School Boards Association spokesman Troy Flint. “Schools will be able to direct more resources to the classroom as a result of what the governor proposed in his budget, and we’re very excited about that.”
Under Newsom’s proposal, $2.3 billion would be earmarked to help pay down school districts’ long-term unfunded pension liability into the California State Teachers’ Retirement System (CalSTRS), while another $700 million would lower districts’ contribution rates over the next two fiscal years.
The one-time funding would save schools $700 million in the short-term and about $6.9 billion over the next three decades, according to projections by the Newsom administration. It essentially would free up operating dollars that districts could potentially spend in classrooms.
Michael Fine, CEO of the state’s Fiscal Crisis and Management Assistance Team, said in an email that Newsom’s proposal would have a “positive impact on districts.” While schools’ pension contribution rates would still rise slightly next year, the impact is “certainly not small,” Fine noted.
“Maybe more importantly,” he added, “it [Newsom’s proposal] is a public recognition by Sacramento that districts are struggling.”
California has increased spending for K-12 education by an unprecedented $23 billion since Gov. Jerry Brown signed the Local Control Funding Formula into law in 2013. The new school funding mechanism restored steep cuts made during the recession and channeled more money to schools that have higher concentrations of disadvantaged students.
But despite a flourishing economy and increased state spending, the benefits of recent funding boosts have not been fully realized by districts, school finance experts say, in part because of fixed costs that have climbed at a faster rate than operating budgets. Student enrollment, and the per-pupil funding that comes with it, continues to decline across the state while the number of costlier special needs students has risen, along with pension costs that have more than doubled since 2013.
In 2014, the state Legislature required teachers and school districts to make higher payments into CalSTRS, which had been severely underfunded and threatened retirement savings for teachers, who don’t receive Social Security.
For school districts, that meant increasing payments from 8 percent of payroll in 2013 to 19 percent by 2020. While these pension costs would continue to increase under Newsom’s proposal, they would do so at a lower rate.
So instead of having districts’ contribution rate go up from the current 16.28 percent to 18.13 percent, as state law mandates, the rates would only go up less than 1 percentage point in 2019-20, to 17.1 percent. The following year, the rate would rise to 18.1 percent instead of 19.1 percent.
“If you are a member of a school board, you are enthusiastic about this,” Newsom said Thursday when he unveiled his budget.
“This is a big deal. This is not paying down the state’s obligation—this is helping relieve the districts’ burden… I know it’s still 18.1 (percent in 2020-21), but it’s a relief to the system, and I think it’s an important one as well.”
Newsom’s budget also includes a four-year, $2.9 billion pay down plan of the state’s long-term CalSTRS obligations, which he said would save the state $7.4 billion over the next 30 years.
A November 2017 survey by the School Boards Association found that practically all districts have either dipped into their reserves to cover pension costs or made budget cuts.
“While this is helpful, we don’t want people to think that school districts are in good shape financially,” said Steve Ward, legislative analyst for Clovis Unified in the Central Valley, which anticipates about $2 million in savings from Newsom’s plan.
Ward said the district, which educates more than 42,000 students, could perhaps restore some student programs and resources while deficit spending at the current rate, or use the money to pay off more debt. But the money, he added, would hardly be a cure-all.
“Districts all around the state are severely stressed. We’ve got to continue advocating and educating people as to why it is that school districts are making cuts when the economy is booming.”
Flint of the School Boards Association agreed that rising pension costs “have had a negative impact on every California district in one way or another, and the governor’s proposal is not going to completely eliminate that.”