Soaring Pension Costs Breaking School Budgets, Crimping Teacher Pay

On Nov. 22, the news site MLive quoted a teachers union official who suggested that school pension reform is a solution in search of a problem. On the same day, the Battle Creek Enquirer ran a story about how local school finances are so precarious the state may have to step in with more loans.

The two stories ran independently, but when combined they capture the biggest financial challenge facing public school districts across this state.

In the MLive story, MEA spokesman David Crim dismissed the need for pension reform. Speaking about possible reform legislation, he said, “This provides a solution to a problem that does not exist. This seems like another political attack on school employees that we will fight vigorously.”

The MEA should ask the leaders of the troubled Battle Creek Public Schools what they think, because the burden of paying the $26.7 billion unfunded liability of the state-run school pension system is helping drive districts, including this one, closer to insolvency.

The Battle Creek Enquirer story attributed the district’s financial crunch largely to declining enrollment, which tells a big part of the story but not all of it. Enrollment in the district fell from 5,216 students in 2012-13 to 4,474 students in 2015-16. Since Battle Creek gets $7,511 per pupil to pay for operating expenses, that represents a $5.6 million decline in state funding.

However, Battle Creek Public Schools also saw its required annual payments to the pension system go from $5.3 million in 2013 to $7.9 million in 2016. The $2.6 million, 49 percent increase in just three years is money that won’t be available for teacher raises, smaller classes, newer textbooks and more.

When the hits to the budget from enrollment declines and pension cost increases are combined, they leave Battle Creek with $8.1 million less to spend on operations than just three years earlier. According to the district’s audited annual 2016 report, Battle Creek school district overspent in 2016 by $1.7 million.

Not all districts are seeing declining enrollment, but the rising pension costs generated by past state underfunding are hitting every school district. If those costs had stayed steady, the Battle Creek district would have a surplus this year, not a deficit.

Enrollment declines usually translate to hard times for school district budgets. But having to pay more every year to catch up on state pension underfunding is also part of why Battle Creek teachers saw no salary increases in 2015-16.