As predicted, pensions eating up Prop. 30 education funds

◼ As Bill Clinton might put it, it’s in the math. - John Seiler/Cal Watchdog

In the lead up to the November 6 election last fall, CalWatchDog.com ran several articles on Proposition 30 and pensions. We warned that the $7 billion tax increase would go not to schools, as advertised by Gov. Jerry Brown and others in TV ads, but to teacher pensions and other spending. I’ll quote some below.

The news now is that this is exactly what is happening. David Crane, a Democrat who was a budget adviser to Republican Gov. Arnold Schwarzenegger, has the facts in a Bloomberg article:

“Most Californians would be surprised to learn that 100 percent of education’s share of the tax increase proposed by Governor Jerry Brown will go to pensions instead of classrooms. But that would be no surprise to longtime observers of the California State Teachers’ Retirement System, which administers teacher pensions.

“Here’s why: After retirement, teachers are unconditionally guaranteed lifetime pensions by their school districts. Everything works out fine if Calstrs, as the retirement system is known, earns the investment returns it forecasts and from which upfront contributions are derived.

“But if they fall short, school districts must make up the difference. Because of compounding, the failure to earn forecasted earnings translates into huge deficiencies down the road.

“Unfortunately, “down the road” is where school districts are now.

He noted something Katy Grimes reported here in March on a Legislative Analyst Report, which found that the California State Teachers Retirement System needs $4.5 billion a year in new funding to keep afloat. Prop. 30 now is pected to bring in $7 billion in new revenues. Crane noted that, because of Proposition 98, about 40 percent of any new revenue must go to schools. He wrote, “[T]hat means almost $3 billion a year for the schools to use for pensions, or two-thirds of the Calstrs $4.5 billion request. A good start to meeting pension costs, but none of the tax increase will benefit students.”

So the pensions will eat up all the $3 billion from Prop. 30 going to “schools” — plus another $1.5 billion from other general-fund dollars.