New National Study: Pension Costs are Crowding Out Education Spending

The Manhattan Institute has published a comprehensive and provocative analysis of pension costs and education spending. (Full report.) The abstract: 

Almost every state increased retirement benefits for teachers in the booming 1990s, but the additional promises were not accompanied by responsible funding plans. By 2003, the funding for teacher pension plans overall was short by $235 billion; and by 2009, pension debt had more than doubled, to $584 billion. The strong bull market since the Great Recession has barely put a dent in the shortfall, which still totals approximately $500 billion.

Another way of understanding the scale of the problem is by looking at pension debt per pupil—which increased by an inflation-adjusted $9,588 between 2000 and 2013. Over this period, the growth of pension debt per pupil was more than nine times larger than the increase in total annual education expenditures per pupil. Almost every state has experienced large pension cost increases, but eight states—Arizona, Colorado, Indiana, Michigan, North Carolina, Nevada, Texas, and Wisconsin—experienced the double whammy of declining per-pupil expenditures and growing pension contributions.

As with other pension studies we’ve seen, Washington appears to be in relatively good shape, largely because of reforms put in place three decades ago.

It’s a good reminder of the importance of taking a long-term perspective in adopting benefit increases, a subject we addressed here and here.