Question: How do you make a dry analysis of public education pensions seem interesting to the masses?
Answer: Tell schoolteachers they’re missing out on a 14 percent pay raise.
If you’re paying attention (and it seems few people are), you’ll know that the nation never really recovered from what the so-called “great recession” (just as civil wars are not civil, recessions are not great) did to pensions.
If you work for a private company, you know that
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the nation never really recovered from what the so-called “great recession” (just as civil wars are not civil, recessions are not great) did to pensions.
If you work for a private company, you know that new employees generally are promised a less generous retirement package than those hired a few years ago. Private employers, worried about survival, don’t hesitate much to make such decisions.
But survival takes on a different meaning if you work for government. There, the severe market downturns of 2008 and ’09 still are trickling into budgets, often hidden beneath a pile of boring numbers.
Utah State Auditor John Dougall shed some light on them this week in a report provocatively titled, “The Cost of Yesterday’s Pension Promises to Public Education.”
The study found that Utah taxpayers paid almost $204 million in 2015 alone to keep the pension system sound. Dougall listed a number of things he said taxpayers could get for that money, including the 14 percent raise for teachers.
The rest of the list included operating “an additional 40 elementary schools or several hundred new classrooms,” or doubling the number teacher’s aides and paraprofessionals.
This is Utah, where few things are as popular as funding schools without raising taxes. Only this money isn’t available — not unless the state is willing to break its promises to retirees.
Of course, teachers aren’t the only state employees with pension plans. The Utah Retirement System’s 2015 financial report shows the state’s overall annual unfunded pension liability is $386 million.
Granted, that wouldn’t even be a down payment on Illinois’ deficit of $130 billion, a figure that keeps getting worse as previous long-range investment assumptions turn out to be little more than wishful thinking. But it’s still hundreds of millions of dollars every year that could go elsewhere.
When I reached Dougall this week, he said only part of the problem could be attributed to the recession. The rest has to do with an age-old problem — politicians and fund managers making promises today that won’t come due for many years.
Even before ’08, he said, the state funded only about 96 percent of the actuarial costs of pension funds, and it assumed an unrealistic return of 8 percent on investments.
“Decades ago, more funding should have gone in for the pension system than they put in, and we’re paying for it today,” Dougall said.
Because of that, the state is more or less stuck. It can hope the stock market continues to surge, bringing a better return on pension funds and reducing the deficit. But the yearly unfunded balance has to be paid.
Dougall said his hope is that the report will stand as a warning to politicians who want to go back to old ways.
“The economy has since turned around, and we saw pushes last (legislative) session to start to increase benefits and other things in the pension system, which would have placed a greater burden,” he said. “Now those weren’t passed, but there were attempts to do that. So it’s almost like we haven’t fully learned from the past. Or at least, some haven’t learned from the past, and thankfully others were able to block the legislation, recognizing the lessons from the past.”
Despite it all, Utah has done far better than many other states. When it became clear the recession had created a gaping hole in public pension funds, Dan Liljenquist, who then was a state senator, pushed through a bill that staved off disaster. Because of it, new employees have a 401(k) plan instead of a pension, and state lawmakers no longer will receive a pension.
And at least the state is “paying for the past expenses and not just kicking them down the road until people actually retire and start claiming the money,” Dougall said.
But it’s important for Utah politicians today, and in the future, to understand that their long-term promises do not come without cost.