An insightful Donnell-Kay Hot Lunch on Friday focused on pensions [update: see this piece and linked podcast]. Now I think pensions are pretty important, but I understand why eyes glaze over when the topic arises. And even if you don’t get a little tingle in your cold financial heart when you hear about stacked hybrids or a cash balance approach, there a number of reasons why, if you care about public education, you should pay attention to the pension debate.
Let’s look at a few:
- Less money in classrooms: to fund the current pension shortfall, a larger and larger amount of education spending is going to need to be diverted to pay for growing pension obligations, and less and less will be available for classroom activities. Unless it is fixed, the pension burden is going to grow considerably over the next few generations, siphoning even more dollars from an educational system that is already stretched thin.
- Teacher attrition: Currently about half of all new teachers quit within the first five years, and many people (myself included) believe that we need to do a better job to reduce the barriers to keeping talented young people in the profession. But the pension system is built in large part on contributions by teachers in the first few years of their career, who then leave the professions and do not collect distributions at the end of their career. If we improve teacher attrition, the pension problem will get even worse.
- Teacher pay: Likewise, many people (myself included) would like to see our best teachers paid more. But currently, the pension system backends compensation so heavily that increases in salary are compounded by the additional pension costs, (which continue well past the end of a teacher’s career). This imbalance depresses wages and makes salary increases harder to accomplish. The current pension system is a sharp disincentive to increasing teacher pay, particularly for starting teachers — a perverse incentive if there ever was one.
The pension system is a current barrier to all of these worthwhile goals — most of which are supported by reformers and traditionalists alike. So perhaps it is an issue where all parties can come together to try to address an obvious and critical problem.
How bad is it in Colorado? Well, according to the Pew Foundation, here are some brief highlights of the increasing squeeze the pension burden is placing on our public education system: In 2007, prior to the financial crises, PERA was just 75% funded. In 2011, this level had fallen to 61%, a deficit of $23.5 billion — or three times the revenue from the entire Colorado tax system the same year. That’s correct – currently we would need to divert all tax revenues in Colorado for three years to cover the current shortfall.
If you want to improve teacher pay, reduce attrition, and get more money into the classroom, pensions are going to be a mountain sitting in your way.