Many school district administrators and board members across the country say they’ve recently had to cut investments in facilities and instruction to make room for the ballooning cost of pensions for their retired staff members. And a substantial share of school district officials who oversee budgets lack familiarity with how pensions operate in their state or even in their own district.
Those are among the key takeaways from a report recently published by the EdWeek Research Center and commissioned by the nonprofit Equable Institute, which researches public pensions and advocates for improving them. The report draws on survey responses the EdWeek Research Center collected earlier this year.
Pensions are a perennial thorn in the side of many school finance administrators. They’ve been cited as a key driver of the budget crisis facing the Chicago school district, where pension obligations for the current school year topped $660 million. In Providence, R.I., state officials have weighed withholding funds from the city’s state-run school district following a series of late payments from the district into the pension plan.
Nationwide, out of roughly $800 billion invested in K-12 public education each year, state and local governments devote more than $60 billion to educators’ pensions.
That figure has roughly tripled in the last three decades. And it appears set to grow even more, thanks to hundreds of billions of dollars in unfunded liabilities. When pension investment returns fall short of what states and districts have committed to spending, they have to make up the difference—and pay mounting interest on the unfunded amount.
Thirteen states—including Illinois, North Carolina, and Texas—pay for most or all of the employer portion of school districts’ pension obligations.
The remaining states either cover a smaller fraction of the employer cost or none at all, leaving the bulk of the obligation for school districts to cover. Six school districts, including Chicago and New York City, maintain their own pension funds.
Districts must provide pensions they’ve committed to retired employees regardless of how much their overall operational funding grows or shrinks from one year to the next. District leaders typically have little control over how pension systems are structured.
That’s one reason why school districts regularly devote more than 80 percent of their annual operating budgets to compensation. Unlike salary obligations, which can decrease if the number of employed staff drop, the number of pension-eligible employees stays relatively flat from year to year, and might even grow as more people retire.
With the line item for pensions affixed to the budget, districts sometimes have no choice but to make cuts elsewhere. Respondents to the EdWeek Research Center survey—970 school board members, and 211 school district leaders with a moderate or major influence on their district’s budget—cited a wide range of priorities that have lost out in the last five years when pension commitments dictated cuts.
Most common among them: fewer dollars kept in savings or rainy day funds; less investment in construction and maintenance; and fewer resources for employee recruitment and retention. A smaller share of districts listed support for students with disabilities and English learners among the priorities that have faced cuts related to swelling pension expenses. Districts are required by federal law to support equal educational opportunities for those students, regardless of cost.
In the states that leave districts on the hook for some pension costs, respondents also cited a wide range of initiatives they either postponed or canceled to keep pension obligations on track. Some districts canceled pay raises for teachers, held off on beefing up staffing, delayed new construction, or declined to enhance extracurricular opportunities for students.
At least one state has recently taken action to reduce the pension burden for school districts. Michigan passed a law earlier this month reducing the rate of school districts’ contribution to pension expenses by 5.75 percent, and eliminating a 3 percent payroll tax Michigan teachers hired before 2012 pay into the state pension fund.
Widespread confusion clouds the complex task of pension funding
All of these details might seem confusing. That’s true even for the school district officials tasked with managing pension spending.
The EdWeek Research Center asked participating district leaders and school board members whether their state’s contribution to districts’ pension obligations had increased, decreased, or stayed the same over the last five years.
Only 10 percent of school board members and 16 percent of school district leaders got the answer right. More than half of each group got it wrong.
Even when asked about their district’s own obligation to contribute to pension expenses, many respondents were confused about how much their district pays. Fifty-seven percent of district leaders and 47 percent of school board members answered incorrectly. Another 10 percent of school district leaders and 31 percent of school board members said they didn’t know.
A lack of knowledge is particularly acute among the least experienced professionals overseeing school district operations.
Slightly more than half of respondents who had less than a year’s experience with those duties said they were very unfamiliar with or completely ignorant of how their state approaches retirement funding for educators. Slightly more than 1 in 4 respondents with one to three years of experience with those duties said the same.
Experience doesn’t entirely solve this problem. Among respondents with more than 20 years of experience in a role that includes working with pension spending, 18 percent said they were very unfamiliar with or didn’t know at all how pension funding works in their district. Another 34 percent said they were somewhat unfamiliar.
Education officials who don’t know enough about pensions now may have no choice but to learn in the coming years. Pension obligations are here to stay, and will likely grow, regardless of what happens to the national economy and as funding lifelines like the federal infusion of COVID relief aid fully disappear.
One in 5 respondents said they expect pension obligations will force them in the next five years to reduce existing expenses and defer or cancel plans for new initiatives.
“It’s a zero-sum game,” one district leader in Wisconsin said in the report.
Data analysis for this article was provided by the EdWeek Research Center. Learn more about the center’s work.
