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Budget Commentary
‘Silver Tsunami’ Hits as Pension Costs Devour School Budgets

May 3, 2018

By Arun Ramanathan and Chad Aldeman

The pro- and anti-reform houses of education land are prepping for the next big battle between charter schools and teachers unions. The great houses in philanthropic foundation land are deciding where to place their bets. But winter is coming, and no one can avoid it.

Schools in Tracy faced a deficit of $8 million. The hole was $124 million deep in San Diego Unified. After making millions in cuts, Oakland Unified faces a $9 million deficit next year and $20 million in 2020. These are just a few of the hundreds of districts that made cuts.



These deficits appeared at a time when California isn’t facing a budget crisis. In fact, after years of increases, California’s education spending will be the highest ever.
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.

In this new world, resources will continue to shrink regardless of the strength of the economy. Unless we respond, every promising education innovation will starve from a lack of money. To keep that from happening, the warring houses of our education Westeros must behave very differently. They must:

--Prepare for winter: Everyone must focus on doing less with less. The Houses of Government, Philanthropy and Nonprofits should stop making absurd promises to fund everything from free college to universal preschool. The public should be wary of any politician or interest group that proposes a new program without identifying long-term funding to support it.

--Sound the alarm: If it’s this bad when the economy is good, then imagine what happens in a downturn. Our education system will be devoured by a horde of unfunded obligations. The Houses of Philanthropy, Government and Education Systems must sound the alarm so that the public recognizes the crisis and consequences of inaction. Voters should demand solutions from their elected leaders and candidates for public office.

--Don’t fight — unite: The upcoming elections for superintendent of public instruction and governor are already rehashing the same old education wars between unions and charters. These battles sap attention from the real fight. Charters, unions, parents and district leaders are confronting the same crisis. Costs are predictable and rising, and funding will be cut regardless of responsibility. The warring houses must unite and convince the public that the solution will include some mix of cost controls and increased education funding.

Winter is already here. Unlike the fantasy world of Westeros, there are no magical solutions or heroes coming to save us. The problem may seem insurmountable, boring and politically dangerous, but ignoring it places the future of California’s education system and our children at risk. Responsibility for its solution lies with all of us.

Arun Ramanathan leads Pivot Learning, the largest nonprofit provider of technical assistance to school districts in California. Chad Aldeman is a principal at Bellwether Education Partners and editor for TeacherPensions.org. This article appeared in the San Francisco Chronicle on April 20.

Sources: SF Chronicle



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