Scary stuff from San Jose

Look no further than San Jose, Calif. to get a sense of how pension and other benefit costs can escalate exponentially, devouring every spare dollar like Pac Man run amok.

An analysis of San Jose Unified School District budget numbers now and into the near future shows that by the 2019-20 school year, $3,500 of the district’s $9,500 in per-pupil revenue will be consumed by employee benefits, an increase of 80 percent over six years.

And this downward spiral is occurring during a period of robust economic growth in California. As article author David Crane of Stanford University points out:

To protect current and future students and young and future teachers, elected officials should address rising school district retirement costs now, before the revenue tide goes out. Solutions are tough and must also include changes to pension fund governance, but they get tougher every day they delay.

Here’s another cut at the numbers: In 2013-14, employee benefits comprised $58.6 million of the district’s total expenditures, or 19.6 percent. By 2019-20, employee benefits will cost San Jose $104.1 million, or 28.7 percent. Writes Crane:

…it will get worse. That’s because the unfunded liability for teacher pensions has grown an additional 33 percent since a 2014 bailout already forced districts to double pension spending and the unfunded liability for other school district employees has more than doubled since 2011. On top of that, the pension funds managing pension assets are unlikely to earn the returns they project, portending even greater liabilities and therefore more costs for districts.

The implications are clear. More money pouring into pension costs means less money for classrooms, more belt-tightening, and really no rational efficiencies to show for it.

Yet legislative bodies and executives across the country continue to demonstrate a lack of the courage needed to address these challenges before they bring on ruin.

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