LAO’s Report Calls for Additional $4.5 Billion Annually to Fund Teachers’ Pensions

Autumn Carter
Executive Director, California Common Sense

As state’s unfunded pension liabilities more than doubled since 2007-08, most state services shrank as portion of budget. Long delayed but necessary increase in pension contributions will further crowd out spending on classrooms and services.

The California Legislative Analyst’s Office (LAO) released a report stating that the California State Teachers’ Retirement System’s (CalSTRS) $73 billion unfunded pension liability “may be [the] state’s most difficult fiscal challenge.” The LAO recommended that the state Legislature adopt a plan providing an additional $4.5 billion to fund CalSTRS each year, most if not all of which would come from the state or school districts. Fully funding the CalSTRS will enable the state to ensure that it can cover promised pension benefits for the state’s teachers.

Last month, California Common Sense released a report that compared changes in the state’s 2013-14 and 2007-08 proposed budgets. The report illustrated that funding to most state services shrank as a percentage of the state budget, while unfunded retiree benefit obligations, health care costs, and long-term debt grew. Unfunded pension liabilities more than doubled during that period (see figures below).

The LAO report makes it clear just how significant CalSTRS’s needs are and how important it is that the state Legislature act immediately to address those needs. By CalSTRS’s own reporting, it requires an additional $4.5 billion each year to return to full funding. The State Budget Crisis Task Force estimates that CalSTRS actually requires $7 billion annually. Either way, that money will have to come from either the state or school districts. While it’s unfortunate that service crowd-out will continue as a result, that crowd-out will only worsen if the state delays in addressing the CalSTRS issue.”

Find California Common Sense’s budget report at http://cacs.org/ca/article/62.

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