The Senate Appropriations Committee met on March 30 to discuss the proposed 2015-16 education budget with Acting Education Secretary Pedro Rivera. Three topics were discussed at the committee hearing that will be key to understanding the upcoming budget process:
- How well public schools are doing and whether all children are given a fair chance to succeed;
- The role of unfunded pension costs in budget concerns; and
- Property tax reform.
Today, we look at the second topic: pensions.
During the hearing, senators kept emphasizing the impact of unfunded pension costs on school districts, with Republican lawmakers making clear that pensions will be their top priority in budget talks. Three important things to know in the pension debate are: how we got to this point, why pensions matter, and how to move forward:
- We’re here because of past state decisions. Various factors caused the unfunded pension liability, as shown below, but employer funding deferrals remain the largest factor. The decision to defer payments was ultimately made by legislators.
Source: PSERS analysis
- Pensions are a critical part of our investment in public education, helping to attract and retain good teachers. Of all the factors within the control of a school district, teachers are the most influential on student performance by two- or three-fold. Pensions are especially important to improving teacher quality because salaries for teachers are 25% or more below private-sector salaries for the college-educated.
- We need to be responsible to move forward. We must beware of potential “reforms” that would offer new public workers 401(k)-type retirement accounts. Among other problems, these accounts would have a “transition” cost of $42 billion and would not offer any pension debt relief. Gov. Wolf’s proposal to buy down debt, on the other hand, would help us dig out of this mess.