SAN FRANCISCO, Sept 23 | Mon Sep 23, 2013 3:27pm EDT

(Reuters) – Bigger payments to California’s pension fund for teachers and other rising costs will challenge school district finances despite an increase in education spending by the state, a report released by Fitch Ratings said on Monday.

“Fitch views California school districts’ credit quality as confronting considerable pent-up cost pressures after years of service reductions, wage stagnation and substantial pension underfunding,” the report said.

“These pressures in some cases could neutralize or overwhelm recent state funding improvements and potential outyear gains,” the report added.

It noted some solutions proposed for improving the California State Teachers’ Retirement System’s funding “could result in substantially increased costs to school districts if implemented.”

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