The Pension Monster Rises Again

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Here’s an old tune you’ve heard before: The Los Angeles Unified School District could face bankruptcy with one of the chief contributing factors being high pensions and health care costs for retired employees.

The LA School Board will discuss a new report raising that ominous red flag this week.

Pensions are not the only issue driving the school district toward insolvency. The report cited declining enrollment as a factor driving down revenue. Enrollment is falling due not only to fewer potential school age children but the fact that many students have decamped to independently operated charter schools.

Still, the pension issue is cited as part of the problem as it has been with so many financially struggling government agencies.

One year ago this week, the University of California announced it would have to seek a series of tuition increases. At the time, the UC Chief Financial Officer cited retirement costs in explaining the need for tuition increases. He said tuition hikes could be avoided if the state helped with retirement costs.

City bankruptcies or near bankruptcies in California also highlighted the pension burden. Stockton, for example, was spending $13 million in pensions at the turn of this century, a decade later the cost was $30 million and was predicted to double again in only a few years.

The possibility of the state’s largest school district facing bankruptcy will play into the push to extend the Proposition 30 tax increases beyond the date the so-called temporary taxes were to end. Voters won’t hear much from supporters of the tax extension about funding pensions – the campaign rhetoric will be about the students – but pensions are a major factor for those supporting the extension.

Last January, the Manhattan Institute’s Steve Malanga wrote in a Wall Street Journal op-ed that a good portion of the original Prop 30 tax increase was dedicated to pensions. (Disclosure: I was quoted in the article.) He wrote that the problem of school pension costs would continue and an effort would be made to continue the Prop 30 tax increase to cover those costs.

Now it is almost certain a form of the Prop 30 extension will be on the November 2016 ballot just as he predicted. Malanga concluded his piece: “It’s a reminder that in some places the long struggle to pay off massive government pension debt is just starting.”

It is not starting but continuing in the Golden State.

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