By Ed Mendel
Monday, February 24, 2014

Getting CalSTRS back to full funding, if rates are steadily increased over the next half dozen years, would take an annual increase reaching more than $5 billion a year by 2020 — about what the state general fund currently spends on UC and CSU combined.

The Legislative Analyst’s Office made the comparison last week while giving the first in a series of Assembly hearings on CalSTRS funding this message: Each year of delay could add $150 million to the cost of full funding, compounding over time.

“In our view the best thing that the state can do to address these costs is to act quickly and to ramp up contributions as quickly as possible,” Ryan Miller of the LAO told the committee.

The analyst’s four preliminary scenarios, based on CalSTRS estimates presented to the board earlier this month, begin with increased payments of $900 million to $1.8 billion next fiscal that increase to $5.7 billion to $5.3 billion in fiscal 2020-21.

The high end figure, $5.7 billion, for beginning with the low $900 million scenario increase is roughly the same as the current total annual contribution, $5.9 billion, received by the California State Teachers Retirement System from all three sources.

So, getting to full funding in a half dozen years could nearly double the amount currently spent on CalSTRS. The big increase in pension costs would come as schools are struggling to restore what some say was $20 billion in cuts during the recession.

“As employer (CalSTRS) rates increase we will see a reduction of funding available for compensation restoration and program restoration and our classroom expenditures,” Sal Villasenor, a lobbyist for school administrators, told the committee.

A politically powerful union, the California Teachers Association, wants the additional pension contributions to be outside of the Proposition 98 school-funding guarantee and an increase in state CalSTRS contributions to a previous level.

“CalSTRS benefits are not collectively bargained at the local level,” said Jennifer Baker, a CTA lobbyist. “So this in a sense is the beginning of our collective bargaining cost, a much more complicated issue.”

Teachers contribute 8 percent of pay, an amount unchanged since 1972. CalSTRS thinks the teacher contribution could be raised 2.8 percent, if the current 2 percent cost-of-living adjustment is guaranteed to provide a legally required offset to a pension cut.

Most of the additional money will have to come from school districts, now contributing 8.25 percent of pay unchanged since 1986, and the state, which is contributing 5.5 percent of pay and providing most of total funding for school districts.

Unlike most public pension systems in California, the CalSTRS board lacks the power to set annual contribution rates that must be paid by employers, needing legislation instead.

“We would have started to adjust those contributions 10 years ago,” Jack Ehnes, the CalSTRS chief executive, told the committee. “That’s how long this now is starting to fester.”

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