California schools facing $24B in retiree health costs
SACRAMENTO, Calif. (AP) — California schools are on the hook for $24 billion in future health care costs for their retirees, a mountain of debt that’s forcing some districts to curb benefits or spend less on teacher salaries and classroom equipment, according to a new state report.
Los Angeles Unified School District boasts a whopping 56 percent share — or $13.5 billion — of the unfunded liability, although it educates nine percent of California’s public school population. It’s historically provided some of the most generous retiree health benefits, including lifetime coverage for retirees and their spouses.
Teachers’ union representatives argued good health care is an essential tool for recruiting and retaining teachers. But the looming debt means newer teachers are offered skimpier benefits and less money is available to spend in classrooms.
“Districts have to pay our bills and our basic bills are employee costs,” said Teri Burns, a lobbyist for the California School Boards Association. “As that goes up, there’s just that much less that’s available for everything else — books and modernization, computers, professional development.”
Beyond retiree health benefits, California’s teacher pension fund is facing nearly $100 billion in future payments it can’t currently afford.
“A hundred and 25 billion is like an anchor for families with kids in public schools,” said David Crane, a Stanford University lecturer who writes on state pensions. “It drags down the performance of schools because the money doesn’t even make it into the classroom. It’s a really big problem.”
Shannon Haber, a spokeswoman for the Los Angeles Unified School District, said no one was available to comment Tuesday on the district’s unfunded retiree health costs because they were in meetings.
Spending on retiree health benefits nearly doubled between 2003 and 2016, from the equivalent of $91 per student to $171 per student, the report said.
That spending varies widely among districts, which decide on an individual basis what benefits to give and for how long. Los Angeles, for example, offers lifetime benefits, while most districts stop covering health care when a retiree hits age 65 and is eligible for Medicare.
As costs skyrocket and debts loom, schools are starting to scale back benefits for newer hires. In the 1980s, a teacher in Los Angeles earned benefits after five years of teaching. Now, a hire’s age and years of service must combine to be 85 or higher. Fresno Unified, meanwhile, ended lifetime benefits in 2005. Many other districts are raising the age and years of service needed to qualify for the benefits, according to the report.
Good health benefits, even into retirement, are a strong incentive for districts looking to hire and keep teachers, said Jennifer Baker, a lobbyist for the California Teachers Association, the largest teacher’s union.
“You want to make sure that you’ve got a healthy population and you want to make sure that you’re able to recruit and retain educators because they are serving our kids,” she said.
Only seven percent of districts opt to fully pay for expected retiree health costs in advance, while about 40 percent choose to pony up more when the payments come due, according to the report. The rest combine the two approaches, which costs more in the long-run than pre-funding payments.