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FINANCIAL TIME BOMB?

Retirement funding costs growing faster than pay

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FINANCIAL TIME BOMB?

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HIME ROMERO/The Bulletin/


POSTED February 2, 2017 1:22 a.m.

Manteca Unified is on target to spend at least $13.9 million more for a 50 percent jump in teacher retirement contributions within three years.
At the same time overall teacher salaries are expected to rise by only $8.1 million. That means retirement costs will go up 70 percent more than salaries by 2019-2020.
Unfunded retirement liability is the 900-pound budget gorilla not just for Manteca Unified but for every school district throughout California as well as municipalities, counties, and the state government.
Public employee pension costs were front and center during the depth of the Great Recession when scheduled hikes in contributions to the California Public Employees Retirement System (CalPERS) and the California State Teachers Retirement System (STRS) threatened to sink general funds as jurisdictions scrambled to deal with plummeting revenues.
And while public attention has receded significantly as cities and school districts were able to regain funding, the basic problem with CalPERS and STRS funding shortfalls has actually worsened. That’s because targeted returns on investments for both funds have not been met in recent years. It is why on Wednesday STRS (See retirement story on Page A3) lowered its earnings target from an annual rate of 7.5 to 7 percent starting July 1. As of July 2016, STRS projected it had only enough assets to cover 64 percent of the benefits teachers have been promised.
CalPERS made a similar move earlier this year. CalPERS now has a $139 billion shortfall with assets on hand to cover only 68 percent of their retirement obligations.
The only way the gap can be made up is by increasing assessments on school districts and other public sector employers participating in the retirement funds as well as what the covered workers contribute.
Every time the percentage of a teacher’s salary that the district has to pay into retirement funds increases it sets up a dicey ripple effect. That’s because roughly 90 percent of every dollar Manteca Unified spends from its general fund goes to cover employee salaries, benefits, and retirement.
Many educators have been warning that the situation is likely to get to the point where it will impact the ability of schools to maintain staffing levels. The most likely scenario in such cases is not replacing 100 percent of staff lost to retirement and for other reasons should retirement funding bumps starting cutting into the financial bones of general funds.
Manteca Unified is currently contributing 13.88 cents for every dollar it pays a teacher who elected to be covered by CalPERS. The cost is 12.58 cents on every dollar of salary for a teacher enrolled in STRS.
In real numbers the district this year will pay $39.4 million to staff covered by CalPERS with an additional $5.4 million going into the retirement fund. For STRS the salaries come to $167.8 million with the district’s share of the retirement contributions costing $21.1 million.
Before Wednesday’s announcement by STRS, Manteca Unified projected the current 12.58 percent STRS contribution would ratchet up to 14.43 percent for the 2017-2018 school year, 16.28 percent for the 2018-2019 school year, and 18.13 percent by the 2019-2020 school year.
 As for CalPERS it will go from 13.88 percent this year to 15.8 percent in 2017-2018, 18.7 percent in 2018-2019, and 21.6 percent in 2019-2020.
By 2019-2020 Manteca Unified will be paying $40.4 million toward retirement costs as opposed to the $26.5 million they are paying this year. That represents a jump of $13.9 million.
Meanwhile, overall salaries are projected to go from $207.2 million this year to $215.3 million by 2019-2020. That represents a jump of $8.1 million.
The dollar cost of the district funding retirement costs will increase almost 70 percent more than what teachers will be paid.
To contact Dennis Wyatt, email dwyatt@mantecabulletin.com

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