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?
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.