“We cannot continue. Our pension costs and health care costs for our employees are going to bankrupt this city.”
— New York Mayor Michael Bloomberg, April 9, 2009
You might think that with stock indexes reaching all-time highs, California’s pension crisis is now, if not solved, at least manageable. It’s not.
CalPERS decided in late March to raise employer rates another 50 percent over six years to stabilize its fund. In February, CalSTRS reported that it needs its funding by state taxpayers increased another 75 percent.
That PERS rate hike will not just devastate our city, county and state. It also will injure the Davis school district, even though most of its pension funds go to the California State Teachers Retirement System.
The PERS rates for school districts will begin climbing in 2014-15; for cities, the start date will be a year later.
The DJUSD currently has 1,019 full and part-time employees who have pension benefits: 385 with PERS; 634 with the STRS. Five years ago, the district had 40 fewer people with PERS, but 87 more teachers.
In 2007-08, the PERS cost for the district was $1.08 million on a payroll of $11.61 million. This year, the cost is $1.41 million, a 30.3 percent increase, on a payroll of $12.33 million.
If non-classroom salaries inflate by 3 percent per year, the district’s funding cost in 2020-21 will be $2.67 million on a payroll of $15.62 million. That additional $1.26 million will eat the salaries of 18 full-time teachers.
A factor in pension funding going forward is that new district employees will have a slightly less lucrative PERS plan. Today, the district’s non-teachers are on a 2 percent at age 55 formula. The reform of 2012 puts new hires on 2 percent at 62. Unless the DJUSD has massive turnover soon, that will offer no relief for a long time.
Unlike with other PERS-affiliated agencies, school districts in California have had no flexibility to decide what pension formulas they gave their teachers or other employees. They are set by state law, and our laws are written by and for the unions.
Likewise, local districts have no power to decide how much the employees pay and how much the employer pays. The current employer rate for PERS is 11.417 percent; the employee rate is 7 percent. The state requires that each pay those exact shares.
By contrast, most city of Davis employees have not had to pay any percentage of their salaries to fund their pensions. Per their “negotiated” contracts, the taxpayers of Davis have contributed both the employer and employee shares.
When the schools’ rates increase by 50 percent, that will likely all fall on the employer share. The new rate will be 17.126 percent.
However, Bruce Colby, the Davis district’s associate superintendent for business services, told me last week that “current state law caps school districts at 13.02 percent,” the employer rate in the 1981-82 school year.
The education code says if the rate set by PERS is greater than 13.02 percent, the state will increase its funding to schools to make up that difference.
Because the state is going to be drowning in debt for decades, it won’t have the money to pay those costs. The Legislature will have to change the law to allow higher rates.
Unless our school board gets employees to take a pay cut — how likely is that? — the only state-permitted response to the increase in PERS rates will be to lay off junior personnel — mostly teachers. That means for the same tax bill, Davis students can expect worse schools.
I suggested to Colby that the district ought to consider the route the city of Davis took with its tree maintenance crews. When their union would not play ball, City Manager Steve Pinkerton outsourced their jobs. Pinkerton laid off nine city workers and replaced them with private landscaping contractors who do better work.
The new workers make the same wages and receive the same medical benefits. But they are less expensive to employ, because Davis does not fund their pensions or pay for their post-retirement medical care.
Why couldn’t the DJUSD outsource its facilities’ maintenance and janitorial work?
Alas, Colby informed me state law prohibits that. The education code — written by and for the unions — describes rare circumstances where outsourcing is permitted, but only if “the contract does not cause the displacement of school district employees.”
Most Californians likely think we’ve come through the worst of times. The unemployment rate is finally under 10 percent. Tax hikes on the rich are supposedly going to be our salvation. Home prices are up.
However, the worst is yet to come. We have not solved the problem of unsustainable compensation for public employees. Their pensions and medical bills continue to mount.
Because our corrupt Legislature is of, for and by the unions who pay for their campaigns, one thing is certain: The resolution to the crisis in pension funding will not improve educational outcomes. It will be rigged to improve the lot of the employees who own our politicians.
— Rich Rifkin is a Davis resident; his column is published every other week. Reach him at [email protected]