Teacher Pensions Blog

Education funding is hard to come by these days. Most states still haven’t raised their school funding to the pre-recession levels. In Illinois, for example, the Chicago Public School system is almost bankrupt. Earlier this year in Michigan, Detroit teachers staged a “sick-out” to protest the deplorable conditions in their schools.

But, the grass is much greener in Maryland. For the second year in a row, they have a surplus of state funds.  Included in the surplus, the state legislature allocated around $20 million to help counties fund their teacher pension systems.

But, Governor Larry Hogan won’t release the money.

Hogan argues that he is withholding the funds because the money is tied to “good and bad things,” and since it was a package deal, he chose to fund none of them. Understandably, teachers are upset and accuse the Governor of cutting the education budget.

Governor Hogan disputes this claim and points out that his administration has raised the state’s K-12 budget to record levels, even without the additional funds. While it is true that Maryland’s total spending on K-12 education is up, districts still did not receive the full amount of money allowed by the state funding formula. Therefore it becomes clear that withholding the additional funds set aside by the legislature to help counties pay their teachers’ pensions only adds to the problem. Moody’s credit rating service warned that the decision could adversely affect the counties’ bond ratings.

This fight over teacher pension funding raises an important philosophical question: Does money spent on teacher retirement count as education funding?

The answer is yes.

If states and districts consider funding teacher retirements as separate from their investments in K-12 education, it becomes much easier for legislators and governors to kick the funding liabilities down the road and leave them for others to sort out. It also creates the odd situation like the one we see in Maryland in which the state is both raising and cutting education funding.  This happens because the state increased its allocations to districts, but those districts will be required to come up with a larger share of the funding for their pension funds. In other words, Maryland is robbing Peter, the county pension funds, to pay Paul, the state funding formula.

There are a few key reasons why teacher pension spending is education spending and should be recognized as such:

First and foremost, a pension is part of the deal that states and districts made with teachers: less money in salary in exchange for a healthy and sustainable retirement. In other words, pensions should be thought of as part and parcel of teacher compensation. With that in mind, pensions are certainly education spending.

Even though, as my colleagues have pointed out, pensions are not an effective way for the majority of today’s teachers to save for retirement, that isn’t an acceptable reason to retreat on existing pension obligations that current teachers rely on and need in their retirement. States may want to consider offering alternative retirement plans for new teacher to better meet their needs since only around half of teachers leave the profession with a pension. Furthermore, this would help states avoid adding to their existing pension liabilities.  While such a change would not erase a state’s current obligation, it would help to make sure that the problem doesn’t grow.          

Regardless of the model chosen, spending on teacher retirement should be counted as education funding since such investment cannot be extracted from the state’s general K-12 budget. This is because – as is the case with Maryland right now – each jurisdiction will need to make up for that lack of pension funding. To do that, districts either need to raise additional tax revenue, which will disproportionately burden low-income communities, or they will need to cut back on other education expenditures. The third option would be to ignore their pension liabilities altogether. But, that approach can be disastrous, just ask Illinois or New Jersey. Finally, thinking of funding for teacher pensions as education spending will force policymakers and the broader public to reckon with the fact that teacher retirements spending is extremely high, rising, and cutting into the available funds for teacher salaries.                                                                      

For many governors and state legislators, funding pensions can seem politically challenging. It’s not a sexy topic, either. And for some constituents, it can seem less relevant to education than more direct budget items, such as new books or a computer lab. Nevertheless, investing in teacher retirement and in schools are intertwined. Thus, resolving the impending pension crisis in many ways in not only integral to school funding writ large, it is fundamental to high quality schools.