As Congress considers a $100 billion Covid-related financial-support package to help states and localities gear up for the coming school year, California should act quickly to plug leaks that will cost its own schools their likely share of that aid. The San Francisco Unified School District (UFUSD), for example, which serves 60,000 students, received more than $1 billion in revenues last fiscal year. Even before the pandemic—and despite a 30 percent gain in revenues over the previous five years—SFUSD reported a deficit because spending on retirement costs rose more than 100 percent over the same five-year period. Indeed, the district now spends more than $100 million per year on retirement costs, equivalent to $1,750 per pupil. To make matters worse, that $100 million doesn’t even include accrued-but-unpaid retirement costs for which debt is issued—and the balance of which now exceeds $1 billion.
The schools provide two benefits to retired employees: pensions and subsidies for retiree health insurance. Over the five-year period, pension expenses rose more than 200 percent despite a surging stock market. This explosion in costs was due to sharp growth in pension liabilities that were hidden by deceptive accounting. Less known, though, are the insurance subsidies—the Other Post-Employment Benefits, or OPEB. Not all states offer such benefits to public employees, and even when they do, the benefits aren’t nearly as generous as California’s. San Francisco’s insurance-subsidy program, for example, provides medical-insurance benefits to retirees and their spouses—even when those beneficiaries are already eligible for Medicare, Obamacare, or additional subsidies unique to California residents that provide premium support for families of four with incomes up to $154,000 per year.
But even though the school district’s retirees and their spouses enjoy sufficient coverage from those sources and income from their pensions, money is still diverted from students to provide the subsidies. Without subjecting any SFUSD retirees or their spouses to the risk of no insurance coverage, reforming the school district’s OPEB program could translate into an immediate increase in teacher staffing and salaries.
Today, San Francisco serves just 1 percent of California’s 6 million K-12 public-school pupils. At $1,750 per pupil, and another $3 billion per year spent by the state for retirement costs on behalf of school districts, that implies that more than $13 billion per year is being diverted from California’s K-12 education services to retirement costs. Based on its population, California’s share of Congress’s $100 billion K-12 package would be $12 billion. Thus, more than 100 percent of federal support for California’s schools would be consumed by retirement spending. California residents have been down this road before. In 2012, voters passed a 30 percent temporary income-tax increase for the benefit of the schools, only to discover in subsequent years that more than 100 percent of the revenue increase from that tax hike went to expanding retirement spending.
To be clear, California’s failure to deliver public education isn’t the result of inadequate funding. In 2018, California’s own Legislative Analyst Office ranked the state in the middle of U.S. states in school funding based on 2015 data. The National Center for Education Statistics ranked California even higher based on 2016 data. Since those rankings, California’s school spending has grown faster than any other state’s. In fact, the 2020-21 budget, just enacted by the state legislature and Governor Gavin Newsom, held school budgets harmless from revenue declines.
To worsen the situation, earlier this year, San Francisco’s school board—aligned with public-employee unions on the receiving end of retirement spending—blamed its pre-coronavirus deficit on unanticipated spending on special education for 7,400 kids. The real cause, though, is retirement spending. After all, Sacramento’s school district started laying off young teachers even before the pandemic because of a deficit caused by excessive retirement spending. Meantime, Fresno’s school district, already hard-pressed to attract teachers, diverted more money from its staff in order to finance a nearly 300 percent increase in pension spending. And Los Angeles’s school system could afford $10,000 per year raises for its teachers just by reforming the insurance subsidies it provides its retirees.
The evidence is clear: before sending more money down the drain, California should plug these leaks.