School districts got a surprise last month when Gov. Jerry Brown announced a new plan to pay for the state's pension shortfall. If the budget revision goes through, school districts will pay millions more for teacher pensions, and could start paying more as soon as next month.
Right now school districts pay 8.25 percent of teacher payroll towards their retirement fund. Under the governor's revision, districts will have to pay 19.1 percent -- phased in over the next seven years.
The increase is to help offset the $74 billion funding shortfall of the California State Teachers' Retirement System, and the governor's plan is to eliminate that unfunded liability by the 2045-46 fiscal year. For local school districts, this means a 1.25 percent increase this year and a 1.6 percent increase every year after that.
At the Mountain View-Los Altos school board meeting last week, Associate Superintendent Joe White crunched the numbers: the school would have to reserve $340,000 for the increase this year, $786,000 the next year, and almost $1.2 million the following year.
"The real crux to it is that this is only the beginning of it, because (Brown) has a seven-year plan," White said at the meeting.
When contributions finally reach 19.1 percent, MVLA will be putting well over $3 million into pensions on top of what they're already paying -- and it may continue to increase after that.
White said for now, students and parents won't have to worry about any new budget constraints or cuts to programs in the 2014-15 school year. However, as costs continue to increase quickly over the years, the district may need to cut expenses to shoulder the costs.
The Mountain View Whisman School District is in a similar situation. The district will use cash reserves to deal with the initial 1.25 percent increase and there won't be any spending cuts for the coming school year, according to Terese McNamee, chief business officer for the district.
White said the district has been expecting increased pension costs for a long time, but not in a revision just a month and a half before the start of the budget year. He said the 2014-15 increase is still "up in the air," and there's action in the state Legislature for a lower increase this year or a a delay until next year.
Despite the weird timing, White said it's good that the governor is finally dealing with the shortfall.
"Should it be funded? Absolutely, the sooner the better," White said. "It would've been nice to have some action back in January, but it's great that it's finally being done."
Along with school districts, teachers and the state will also pay more into pension contributions -- albeit smaller increases. Teachers will go from paying 8 percent of their salary to 10.25 and the state will go from 3 to 6.3 percent -- both over the next three years.
White said the state wasn't able to increase contributions in the last three or four years because the economy was too bad, and school districts were already struggling without the increased costs. The budget revision is the first big step in the post-recession economy to turn around a retirement fund that's projected to run out of money in just a few decades.