California's public teacher pension system is considered "high risk” because it’s expected to run out of money in the next 30 years, according to a new state auditor report.
The report by State Auditor Elaine Howle adds the California State Teachers' Retirement System to a list of high-risk issues the state faces, including continued budget shortfalls, aging infrastructure and overcrowded prisons. The report also expresses concerns about the state's emergency preparedness and labeled the Departments of Public Health and Health Care Services as high-risk agencies.
CalSTRS, the country's largest public teacher pension system, doesn't have enough funds to continue paying teacher retirement benefits beyond the next 30 years, according to the report. Unless the Legislature takes action, the state "may be responsible for providing the necessary funding using taxpayer money," the report states.
The report helps to underscore the financial data CalSTRS already is providing the state, said pension fund spokesman Ricardo Duran.
"Neither the Legislature nor the Administration have asked CalSTRS to provide recommendations," Duran wrote in an e-mail. He said CalSTRS advocates "a gradual, predictable approach to reaching funding health."
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Duran noted that "the longer it takes to develop a plan, the more costly will be the solution."
Evan Westrup, spokesman for Gov. Jerry Brown, said the auditor's report was not a surprise.
"This highlights the critical need for pension reform," Westrup wrote in an e-mail. "However, we also need to address CalSTRS's unfunded liability as part of the bigger picture of education finance reform."
The state needs to fix its own budget problems before it can fix CalSTRS, said Sandra Jackson, spokeswoman for the California Teachers Association.
"Because it is something that we know has a 30-year span of time for the issue to be solved, we’re not in panic mode," Jackson said. "We’re in concern mode and know that something needs to be done. The Legislature has time to figure that out."
The pension system was nearly fully funded in 2001, but after getting buffeted by the economic crisis, its funding has dropped to 71 percent and is expected to decline further. A stable pension program should be funded at 80 percent.
"It’s a huge mayday," said Marcia Fritz, president of the California Foundation for Fiscal Responsibility. "There's nobody taking responsibility for the solvency of the fund, which is very, very scary."
Fritz is a leading critic of high public pensions and advocates an overhaul like the one recommended by the Little Hoover Commission, limiting pensions and combining them with a 401(k)-style plan.
But Fritz doesn't begrudge teachers their benefits. A recent report by her foundation found that teachers' benefits are "significantly less generous than most other public sector employees." Teachers do not get Social Security, and their retirement health benefits are small compared with state employees.
Fritz said school districts need to contribute more money to CalSTRS, which would force the state to overhaul and increase school funding.
Teachers currently contribute 8 percent of their salaries to the pension system. School districts provide 8.25 percent, and the state contributes 2 percent.
"I don’t think teachers need to contribute more," Fritz said. "Their benefits are not the problem."
The auditor's report also criticized the state's overall fiscal condition.
"Despite the history of continuing deficits, the state has not yet implemented effective strategies for achieving a balanced budget," the report states.
It noted that some past budget fixes, such as increasing the state's debt or allowing corporations to defer tax breaks into future years, simply push the problem farther down the road.
The report detailed other high-risk issues, noting that:
- The state's liability for retiree health benefits is growing, without a clear strategy for the future.
- Power plants using environmentally harmful cooling methods must be retrofitted or will have to shut down.
- An increasing number of state workers and officials with institutional knowledge are retiring.
In detailing concerns about the state's emergency preparedness, the auditor's report states that only 16 percent of personnel at the Department of Public Health have completed emergency management training. The department's strategic plan called for 90 percent of staff to be trained by June 30, 2010. The department also anticipates possible cuts in federal funding for emergency preparedness.
Because of a variety of problems at the Department of Public Health and the Department of Health Care Services, the state auditor designated the agencies a "high risk to the state." High-risk agencies must report back to the auditor on progress they're making.