Teachers’ Pensions Threatened in California

The California teachers’ pension fund, CalSTRS, has been placed on the state’s high-risk list by State Auditor Elaine Howle, according to a recent article, “State Auditor calls CalSTRS a high risk,” by John Fensterwald - Educated Guess.

The move was largely a capitulation to slash and burn bosses and millionaires who want to preserve their historically low tax rates, business subsidies and lavish lifestyles by imposing austerity on the rest of us. CalSTRS is actually reasonably healthy and able to make payouts to retirees for many years. It is NOT facing an impending catastrophe. In fact, it is not projected to become insolvent until 2042, leaving plenty of time to deal with its unfunded liabilities. Even CalSTRS CEO Jack Ehnes criticized the Little Hoover Commission’s recommendations to slash CalSTRS and called many of its suggestions naïve or impractical. He also pointed out that many of its premises are wrong.

However, this fabricated crisis (or exaggerated problem) is being used to justify benefits cuts for retirees and increased contributions by current employees (equivalent to pay cuts, since they would decrease take-home pay), slashing living standards for both groups. At the same time, these “reforms” would increase income to the state and decrease pressure to increase taxes, something that benefits the wealthy far more than the rest of us.

It is true that there are large unfunded liabilities. However, it is important to understand why and address these fundamental causes, not only to close the gap but to prevent it from growing or returning again later. None of the causes, by the way, has anything to do with teacher greed or luxury. In fact, most teachers receive only $3,000 per month, which is barely enough to live on in most parts of California without other supplemental income.

One major cause was the financial collapse, which resulted in a 30% drop in the value of the CalSTRS portfolio, Fensterwald wrote in his piece. This was an unnatural disaster caused by the greed and, in many cases, criminal behavior of bankers, insurance giants and finance capitalists who, instead of being punished and forced to pay restitution, have received generous taxpayer funded bailouts that have enabled them to grow even wealthier. One obvious solution to any pension woes is to have the rich or, more specifically, bankers and financial giants, pay greater taxes and use the increase revenue to help bail states out of all their financial problems, including their unfunded public employee pensions.

Another major cause of the unfunded liabilities has been states’ refusals to make the required payments on time. Unfortunately, none of the states are in any position right now to pay for their past mistakes (they can’t afford to pay for their current ones). Their biggest mistake was to buy into the anti-tax orgy and allow their own budgets to be decimated through declining corporate and marginal rate personal income taxes.

When we hear pundits demand that the state learn to live within its means, they are implying cuts, and nothing but cuts. However, the metaphor is meant to appeal to working families who must budget according to their incomes. Obviously, when one has a low wage job, one must make many sacrifices at home in order to make ends meet. However, with higher wages or investment income (as is common among the wealthy), one can spend more lavishly and carelessly. The state does not have to slash social programs and job creating spending in order to live within it means. It could (indeed, it must) increase its income, not just to live within its means, but to solve its myriad problems, like funding its pensions, paying decent wages to its employees, improving its schools, caring for its children, elders and infirm.

Pension Reform: A Union-Busting Trojan Horse

Attacking teachers’ pensions is a Trojan horse in the war against teachers unions. Any attack on pensions takes time and energy away from other important battles, of course. However, the attacks also serve to divide and conquer teachers as they generally offer existing and/or veteran teachers a more generous benefit than younger teachers and future hires.

An example of this is SB 27 , which would eliminate spiking – the practice of bolstering employees’ pay in their final year in order to increase their annual pensions. This is generally done by getting a promotion and pay increase or taking on additional work for extra pay. It would also stop double dipping—the practice of coming back to work as a contractor (e.g., substitute teaching) while still collecting a pension.

The bill has passed the Senate, but is being opposed by roughly a dozen public employee groups, including the CalSTRS board and the CTA. They argue that the bill would take away benefits already promised to and earned by existing employees. Proponents say that applying the “reforms” to all employees, current and future, is the only way to get the house back in order. The alternative, which they would probably accept, and CTA would likely concede, would be to apply the new rules only to future employees, effectively creating a two-tiered benefits package in which younger teachers get a much worse stake than their veteran colleagues. This would exacerbate generational tensions that already exist within the union and significantly reduce the chances for effective organizing and mobilization around other important issues.