Alameda Unified facing pension cost hike

Alameda Unified facing pension cost hike

Michele Ellson
Alameda Unified School District

Chart courtesy of the Alameda Unified School District.

Updated at 7:52 a.m. Sunday, June 1

Alameda Unified’s pension costs could nearly triple and those of its teachers could rise by 25 percent under Governor Jerry Brown’s proposal to reform the California State Teachers Retirement System, or CalSTRS.

Brown’s “May Revise” – a revised budget proposal floated earlier this month – seeks to increase the amount school districts will pay toward teachers’ pensions from 8.25 percent of their salaries to 19.1 percent over seven years. Teachers would see their contributions rise from 8 percent of their salaries – the amount they’ve paid since 1972 – to 10.25 percent, over three years. The state would also contribute more to the pension system.

The district budgeted $3.7 million to cover its share of teachers’ pensions this year; under the governor’s proposal, Alameda Unified’s costs would rise to $9.6 million by 2020, the district’s chief business officer, Robert Clark, told the Board of Education on Tuesday. Local teachers’ pension costs could rise by $500 to $600 a month, though the amount would depend on their salaries, Alameda Education Association president Audrey Hyman said.

A district spokeswoman, who responded to questions from The Alamedan after this story was published, said the district agrees that the pension liabilities need to be addressed but said the "last minute" change to the district's budget projections is "significant." She said the district hasn't had the time to make budget decisions yet based on the pension proposal and that any adjustments that will be needed will come in lat summer and early fall.

Brown announced in January that he planned to address the unfunded pension liability, and that school districts “should anticipate absorbing much of any new funding requirement.” At that time, district officials said it was too soon to know what the final budget might look like.

Hyman said that the pension fund should be maintained – and that school districts should increase teachers’ compensation to help them meet their rising pension costs if the proposal is approved by lawmakers.

“At the end of the day, teachers deserve to have a retirement and a pension available to them,” she said.

The governor’s plan indicates that the increases are needed to close a $74.4 billion shortfall that Brown attributes to underfunding, increased benefits and poor stock market returns. Without the money, the state’s teacher pension system could go bankrupt in 30 years, projections from the governor’s office show.

Brown aims to erase the pension shortfall by increasing contributions to the system by $450 million between the state, its school districts and its teachers this year, an amount that under his plan would grow to an additional $5 billion a year. All told, an amount equal to 19.33 percent of the state’s teacher payroll goes into funding pensions; under Brown’s plan, that would rise to 35.7 percent of payroll.

In contrast, the city pays 36.5 cents per dollar of salary on public safety workers’ pensions, while the workers themselves contribute 15 cents for every dollar of salary; non-safety workers contribute close to 9 cents per dollar, while the city pays 15 cents per dollar of salary on pensions. The city spent $13.6 million on pension costs in 2013.

CalSTRS has about two-thirds of the money it would need to pay everything it owes now to the 862,000 active and retired teachers it serves, though the payments will come due over the next several decades. The fund’s managers have for several years pressed state lawmakers – who set contribution rates – to invest more in the 101-year-old retirement system.

The state’s contribution to the system is less than half what it was in 1998, a 2011 fact sheet says. Meanwhile, benefit enhancements were enacted in 1998 and 2000 to address a teacher shortage, though some of the enhancements have since expired, the fact sheet says.

Lawmakers raised the age at which teachers hired in 2013 and beyond could retire with full pensions – 2 percent of pay for each year served – from 60 to 62 and trimmed benefits as part of a 2012 pension reform package.

The median retirement age for members is 62, with retirees earning an average of $3,936 a month, according to CalSTRS’ website (a recent report said the median benefit equals 53 percent of retirees’ final compensation). Teachers enrolled in the system do not receive Social Security.

Separately, the governor’s plan could mean increased costs to cover pensions for the district’s non-teaching staff. Under Brown’s revised budget plan, pensions included in the California Public Employee Retirement System, or CalPERS, could rise from an estimated $1.7 million for 2014-15 to $3.3 million in 2020.

If the increases are approved, they could cost Alameda Unified an additional $26.3 million over seven years, Clark’s presentation to the school board showed. The district was prepared for CalPERS increases but not Brown’s proposal to increase teacher pension costs, Clark’s presentation says, though Brown said in January he planned to draft a plan to do just that.

On the positive side, Brown’s budget plan could mean Alameda Unified will get an average of $541 more per student than the district gets now, though the amounts will vary based on the percentage of low-income and English learner students each school serves. The state may also pay off $5.5 billion in IOUs for prior year funding owed to districts across California.

The deadline for adopting a state budget is June 15.

Related: School district’s pension costs could rise

Comments

Submitted by Tough Love (not verified) on Sat, May 31, 2014

Dear Taxpayers,

You should contribute NO MORE toward Public Sector worker pensions than YOU get from your employer .... which is RARELY more than your employer's 6.2% of pay (up to a cap) contribution into Social Security on your behalf, and perhaps 3% of pay into a 401K Plan.

Which of course means that IF the worker does get Social Security (and on average 75% of Public Sector workers DO get SS), you should contribute NO MORE than 3% of pay.

Guess what? You are ALREADY contributing MORE than that.

NO additional Taxpayer funding. If these greedy workers want these fat overstuffed pensions (and retiree healthcare subsidies that YOU don't get), tell them to fund everything above what YOU get from your employer by themselves.

Submitted by Tough Love (not verified) on Sun, Jun 1, 2014

Follow-up to my last comment ....

Per CalPERS own actuaries, the cost of providing retiree healthcare benefits to CA's Public Sector workers is equivalent to a level annual 12% of pay ..... per the following link (in the next to last paragraph):

http://www.publicceo.com/2014/02/resolving-one-debate-on-public-sector-pay/

It's the VERY rare Private Sector company that provides ANY retiree healthcare benefits to their employees today. And for the few that do, it's no longer a promised to pay the costs or premiums, but a modest (usually about $300) annual contribution into an HSA (Health Savings account).

There is ZERO justification for YOU, the Taxpayers, to pay for lavish retiree healthcare benefits that YOU do NOT get.

Demand that they end, and refuse to pay ANYTHING (above that same $300 annual HSA contribution) towards these benefits.

Submitted by Laura DiDonato (not verified) on Tue, Jun 3, 2014

Tough Love, I'll I can say is wow...your choice for public intervention is to anonymously suggest a dismantling of our country's government, and starting first in your very own town? Yikes! No wonder you don't want to use your name, your neighbors might find out there is an extremist living next door who doesn't believe the basic human rights of Americans: education and public safety provided by certificated civil service staff in each state.

If you insist on being an American despite approving of the rights we all share, I would suggest moving to a state with a lower tax rate. And then I can be assured that my neighborhood will remain safer and smarter too, bye! ;-)

Submitted by Tough Love (not verified) on Tue, Jun 3, 2014

Laura DiDonato,

Gee, I don't recall suggesting a .... "dismantling of our country's government" (your words), or that I am one ..."who doesn't believe the basic human rights of Americans".(your words).

In the context of your statements, yes, I believe we must indeed dismantle a structure in which Public Sector workers (who make no less in "cash pay") are granted pensions ROUTINELY 3x-4x greater in value at retirement than those of comparable Private Sector workers and for which Taxpayers are TYPICALLY responsible for 80-90% of Total Plan costs.

The SAME logic applies to retiree healthcare subsidies. WHAT makes only PUBLIC Sector workers so "special" and almost entirely at Taxpayer cost, that THEY should get free or heavily subsidized coverage than is virtually non-existent today for Private Sector workers?

Clearly you are a Public Sector worker riding this grossly unfair Pension/Benefit gravy train and don't want it derailed. Well, I promise that you're in for a rough ride as the Taxpayers that have been financially "mugged" for decades by greedy Public Sector Unions/workers and complicit Union-bought-off elected officials, are FED UP, and focused on doing something to stop it.

Submitted by Susan Davis (AU... (not verified) on Tue, Jun 3, 2014

Hi Michele,

Thank you for writing this article on the governor's proposal for financing CalSTRs over the next 7 years. It's an important topic and we appreciate your letting the community know about it.

We would like to clarify, however, that when the governor announced in January that he would be introducing a new plan for funding CalSTRS, he gave no details as to the amount districts would pay, and he suggested it would not start until next year, 2015-2016. Because of that, based on the county's recommendation, we included a 1.5% increase in pension costs in our 2nd Interim Report Multi-Year Projection to begin in 2015-2016. We presented this report to the Board of Education on March 11, 2014.(It is available here: http://ow.ly/xAdGw).

In the May revise, the governor proposed that districts increase their contribution starting July 1 of THIS year, for the 2014-2015 fiscal year and the six years following. The increase takes the current 8.25% employer contribution to 19.1% in 2020-2021. School districts across the state were shocked by this news, because it was not an assumption they built into the budgets they have just finished crafting under the state's new funding system for public schools, a funding system that was supposed to provide more money for the state's neediest students.

Here in Alameda, if the governor’s proposed budget is approved by the Legislature, our contribution to CalSTRS next year will increase approximately $600,000 – an amount we could not have predicted when the plan was originally mentioned in January and had not built into our budget for next year. By 2020-2021 – just seven years away -- we predict that AUSD will pay approximately $49M in STRS payments, an increase of more than $20M. Again, while the governor said last January that he would be proposing a new plan for funding CalSTRs, he indicated it would start next year and he did not even hint that the annual increases in percentages would be so dramatic.

Nor are we the only district to be surprised by the accelerated schedule. Over the last two weeks, school officials across California have expressed dismay over the CALSTRS proposal. A few examples, drawn from media reports:

"That's a huge change…[If enacted] it will depress salaries and put compensation toward CalSTRS instead. It will be that much harder to recruit teachers." -- Stephen McMahon, chief business officer, San Jose Unified School District. San Jose Mercury News: 5/13/2014. http://www.mercurynews.com/california/ci_25752478/jerry-brown-unveils-ma...

"Quite frankly, we are stunned. We agree that the pension shortfall is a problem that has to be fixed, but the burden is being smacked down on school districts at the last minute just as we are finalizing budgets created with extensive community input and hours of thoughtful planning around how to serve our most disadvantaged students." Richard Carranza, superintendent, SF Unified School District. San Francisco Chronicle: May 24, 2014.
http://www.sfgate.com/education/article/Governor-s-teacher-pension-plan-...

"[This proposal] has a lot of school districts reeling in terms of how to grapple with this unanticipated expense in the coming school year, throwing a major wrench into everything." -- Kevin Gordon, president of Capitol Advisors Group, a Sacramento company that lobbies on behalf of school districts. LA Times: 5/21/2014. http://www.latimes.com/local/education/la-me-schools-pensions-20140521-s...

"This is something I am very worried about. We've made commitments to the community. Everyone has a sense of: 'We want more, not less.' And now we have to decide what to cut. We will lose credibility." John Deasy, superintendent, LA Unified School District. LA Times: 5/21/2014. http://www.latimes.com/local/education/la-me-schools-pensions-20140521-s...

Submitted by Laura DiDonato (not verified) on Tue, Jun 3, 2014

Dear Tough Love:
I am a homemaker who lives in Alameda and a parent of two AUSD grads. Also, I contributed more than 10 years of volunteer work/10s of 1000s of hours to AUSD along with 1000s of hours of certificated volunteer service for Alameda County.

I am not financially mugging anyone.