Louisiana has been pouring money into its schools over the last ten years at twice the rate of inflation, but that money isn’t reaching teachers or students.
There are two basic trends that explain this riddle. One, large increases in spending on noninstructional “support services” accounts for about half of the difference. And two, Louisiana has doubled the amount of money it is paying toward employee benefits. As a state, Louisiana’s schools and districts are now spending more than $3,000 per student on employee benefits.
Much of this is driven by huge increases in the cost of paying down unfunded liabilities in the state’s teacher pension system. Today, Louisiana has one of the most expensive teacher pension system in the country — and also one of the least generous.
To make up for a shortfall of almost $12 billion, Louisiana school districts are now forced to pay more than 30 percent of each teacher’s salary toward the state pension fund. The vast majority of that contribution goes to pay down debts, not for actual benefits for teachers. For at least the last 25 years, Louisiana has never paid its pension bills in full, causing the debt to grow and grow.
This is the expensive part.
Due in large part to rising pension costs, the state has also cut the value of the retirement benefits it offers its teachers. That is, even as school districts’ total pension contributions have grown substantially, teachers’ own retirement benefits have decreased. The high costs of the system belie the fact that the average retirement benefit offered to today’s teachers is not even that generous.
Moreover, Louisiana is one of 15 states that has chosen not to offer Social Security coverage to its teachers, leaving them solely dependent on their state pension. After accounting for their lack of Social Security, the average Louisiana teacher receives total retirement benefits that are far worse than what they might receive in other states or in the private sector.
This cycle is likely to continue unless Louisiana policymakers act. While there are no good solutions to the debt — it has to be paid by someone — there are solutions that would stop the debt from growing even more, while providing all teachers with adequate retirement benefits.
First, Louisiana should mitigate the consequences of the existing debt for students, teachers, and schools. The state’s pension debt was not caused by students or teachers, and legislators should not continue forcing schools to bear the full burden. As such, the state should treat its pension debt as it does all its other debt obligations. It’s neither fair nor good practice to ask current and future students to pay for past debts.
Second, Louisiana should close its expensive, backloaded pension plan in favor of something more predictable for employers and more portable for workers. According to the state’s own actuarial estimates, nearly half of all new teachers will not qualify for a pension at all. Due to the backloaded nature of the plan’s benefit formula, just 1 percent of teachers will stay in the classroom long enough to earn the maximum retirement benefit.
Louisiana can’t cut its retirement contributions much without seriously jeopardizing teachers’ retirement prospects. Still, there are ways to address these structural problems with the current pension plan without significantly raising costs.
For example, simply extending the retirement plan already offered to state university employees to public school teachers would significantly improve benefits for Louisiana’s K-12 teachers. It’s slightly more generous, but it would be good for the vast majority of teachers and carries no debt. Similarly, in 2012 the state Legislature nearly approved a type of retirement plan called a cash balance plan. That same plan, adopted today, could put all teachers on a path to a secure retirement at no additional cost. Either of these options would be better for Louisiana’s teachers and would ensure that the state does not take on any additional debt going forward.
Because of rising pension costs, Louisiana’s school districts have already made noticeable cuts to their expenditures on instructional programs, textbooks and other school supplies, and special education services. It’s not too late, but Louisiana must reform its teacher pension plan as well as its funding policy to prevent further cuts and preserve the financial health and security of its communities.
The childhood parable of the grasshopper and the ant appears to have faded from the memories…