Not Feeling the Squeeze

The Manhattan Institute just released a report on how pension costs are crowding out education spending. It is titled ‘Feeling the Squeeze‘ and fingers some novel villains:

Almost every state has experienced large pension cost increases, but eight states—Arizona, Colorado, Indiana, Michigan, North Carolina, Nevada, Texas, and Wisconsin—experienced the double whammy of declining per-pupil expenditures and growing pension contributions.

Where is New Jersey?

mi-pension-debt
As explained in the report:

Tables 1–3 compare the growth in retirement costs with the growth of state education budgets from 2000 to 2013, the last year for which education spending data are available. Over these years, total education expenditures per pupil increased by $1,050. Over the same time frame, taxpayers’ actual pension contributions per pupil increased by $226. Increased taxpayer contributions to teacher pensions were equivalent to roughly one-fifth of the total increase in per-pupil education expenditures. By 2013, pensions consumed nearly 7% of per-pupil expenditures, up from a little more than 4% in 2000. But this does not tell the full story.

That is correct. There is much more to the story.  In the case of New Jersey it is that Actuarially Determined Contribution Amount per pupil ($1,388) compared to the Actual Contribution ($160).  If New Jerseyans are not feeling the squeeze it is because they are not paying what they should be.

The report concludes:

The defenders of the currently configured defined benefit pension systems for public school teachers and other government workers—which include pension plan administrators and teachers’ unions—are quick to exclaim that there is no pension crisis. While it may be true that most teachers’ pension plans are not on the verge of running out of money, leaving retirees in the lurch, retirement costs have increased dramatically relative to government resources. Even now, they are having an impact on public services, including education. Retirement costs per pupil have more than doubled since 2000 and are approaching 10% of all education expenditures. The vast majority of taxpayer contributions into teachers’ pension plans are now used to pay down pension debt owed for past service rather than to pay for new benefits earned by today’s teachers.

As the value of this debt has increased, most current teachers have experienced stagnant salaries and reduced retirement benefits, while spending on classroom supplies, equipment, and building upkeep has declined relatively or even absolutely. Without reform, this trend will continue. It is not too radical to suggest that retirement systems be overhauled instead of waiting idly until a real crisis develops.

A real crisis has developed and if states like New Jersey were to pay nine times more* for pension costs then they had been paying using their contribution-by-whim funding methods it would be that much more obvious and painful of a squeeze.
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* twenty times more with honest funding assumptions.

5 responses to this post.

  1. Posted by dentss dunnigan on October 18, 2016 at 4:29 pm

    Last one to the exit loses…….

    Reply

  2. Posted by Anonymous on October 18, 2016 at 6:31 pm

    Do you mean this State or this Country? It’s like Mr. T (no not Rump) says, “don’t be a fool”!

    https://www.google.com/amp/s/amp.businessinsider.com/us-government-7-trillion-pension-shortfall-2016-4?client=ms-android-huawei

    Anonymous on October 12, 2016 at 10:34 am

    DCP for ALL – Local, State, & Federal – civilian, law enforcement & military. If it doesn’t work for some then it doesn’t work for ALL. Or are you one of those exceptions folk? BTW, it has nothing to do with the Feds ability to print money!

    dentss dunnigan on October 12, 2016 at 12:48 pm

    the fed ability to print money notwithstanding ,the fed can borrow at the lowest interest rate possibly .01%( presently)where as states NJ must pay quite a premium presently at about 6.75% …but for comparison sake what job would you compair to a marine fighting in the middle east to a cop in Newark ..? inquiring minds want to know …but the bottom line is the gov can and will print money look at our debt it’s doubled in the last 8 years …

    Anonymous on October 12, 2016 at 1:39 pm

    Ok but what ℅ of military is front line combat versus support staff here and abroad. In some cases military is in more harms way but in alot of ways their in less harms way then, in your example, the cop in Newark. So now what?

    Anonymous on October 12, 2016 at 1:41 pm

    And DD, I’m assuming your quick defense of the military means you and/or yours have a vested interest. Like I said, change is good so long as it doesn’t negatively impact who?

    dentss dunnigan on October 12, 2016 at 4:11 pm

    I have great respect for our men in Arms ,but I do find your jeliously of their benefits offensive …I will not comment on this subject further

    Anonymous on October 12, 2016 at 8:33 pm

    I as well respect our military and first responders but if it’s about jealousy, as you put it, then who’s jealousy of who? I always thought it was about the numbers so don’t make it appear so personal and untouchable. Self interest is a double edge sword!

    Anonymous on October 13, 2016 at 3:34 pm

    Just remember whether it’s Washington or Trenton, military, first responders, or civilians – individuals chose to accept employment based on the salary and benefits being offered. The fact that one level of government can “print money” (which we all know has negative economic consequences) and another can’t shouldn’t preclude the moral and, if not for CC’s NJSC, legal obligation to fulfill their commitments.

    Anonymous on October 15, 2016 at 10:49 am

    History will repeat itself, if allowed! Memories are short but think back to Christie v Corzine, the now Gov’s “promise” to teachers and first responders – your P&B are “safe” with me. Well fast forward and need I say more. IF Federal including Military workers think for one second some how what happens at the State and Local level won’t impact them eventually? Well then it’s like I said, history will repeat itself. BTW, the ability to print money won’t be the issue but time will tell.

    Reply

    Anonymous on October 15, 2016 at 7:38 pm

    Wonder why Fed pensions aren’t discussed, State & Local already a big nut to crack OR can’t think of going after the “Untouchables”. What a great show, don’t mess with Ness!

    Reply

    Reply

  3. Posted by MJ on October 18, 2016 at 7:46 pm

    It always starts at the bottom…localities, cities, cuts in lower skilled staff, then it works its way up to the states……only question who will be first to collapse?

    Reply

    • Posted by dentss dunnigan on October 19, 2016 at 10:36 am

      When you have the ability to print your own currency (IOU’s) and people freely accept it as payment you can make all the promises you want ..The error is letting banks create oceans of new (credit) money by lending against speculative financial assets instead of lending to entrepreneurs. These credit driven asset bubbles invariably pop and government predictably saves the bankers by printing more and more ..As for this state it believes it has a new way of saving the forever sinking SS New Jersey they now think that by drilling the holes on the outside of the boat it will let the water out faster …gas tax aside tax cuts will speed up the sinking .

      Reply

  4. Posted by TB on October 20, 2016 at 2:57 pm

    More and more people are beginning to realize that Defined Benefit plans like public pensions are not sustainable, including the private sector which has more or less done away with them. Here is my solution to this looming crisis that is only going to get worse without any correction of course:

    https://drive.google.com/file/d/0B90sU3A85q46OE9BZHJFSWEzbGM/view?usp=drivesdk

    Please help spread the word…

    Reply

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