Topeka School teachers in Kansas have worried about the state pension system for years. By 2009 the fund only had about 60 percent of the assets needed to cover public employees' retirement benefits, one of the worst shortfalls in the nation.
Now a solution is finally at hand. But teachers aren't feeling very relieved about it. To help close the financial gap, Gov. Sam Brownback wants to shift money from the state education budget and cut the annual base payment to school districts by about 6 percent. The cuts will increase class sizes and probably spur layoffs this spring, thereby solving the future problem by causing hardship in the classroom today.
The idea has come as a bitter irony to many in the schools.
"It should not be an either-or," said Mary Sinclair, a mother of two and Parent Teacher Association official in Fairway, a Kansas City suburb. "We're really going to shoot ourselves in the foot."
The plan to take money out of classrooms to pay retirees' benefits has made the national problem of underfunded state pensions more immediate in Kansas than in most other places. It has heightened tension between parents and educators, retirees and working teachers and taxpayers and public employees. Legislative committees debated the pension issues this month and are expected to produce budget proposals close to Brownback's recommendations soon.
In funding pensions, "You get to the point of a trade-off," said Ron Snell, a budget specialist at the National Conference of State Legislatures, adding, "Budgeting right now is almost a zero-sum game."
Across the nation, states are tens of billions of dollars behind in paying for the retirement benefits they've promised teachers, police, firefighters and government workers, fueling a fierce debate about what to do.
The nonprofit Pew Center for the States reported last year that only three states had public employee pension plans that were fully funded, and 19 states' systems were in serious arrears, with less than 80 percent of the assets needed to cover projected costs. A survey of 126 large public pension systems gauged their overall gap at about $700 billion.
Not so long ago, state pension plans were a stable nest egg. But the recession helped change that, chipping away at the investment earnings that were supposed to keep the funds current with promised benefits. States that counted on an 8 percent return often got less than half that. And in many cases, officials made the problem worse by shortchanging annual pension contributions to spend tax money on infrastructure, social services and other immediate uses. .
Now, the yawning pension gap finally seems to be setting off alarms in state capitols. Officials confronting a broader state fiscal crisis are considering a wide range of action, led by newly elected governors like Brownback who campaigned on putting their states on sounder financial ground.
Despite strong resistance from public employee unions, many states are considering changing their retirement benefits. In New Jersey, Republican Gov. Chris Christie and legislative leaders are proposing to end automatic cost-of-living adjustments and roll back pension increases granted a decade ago. Massachusetts is considering raising public employees' retirement ages. California Gov. Jerry Brown, among others, has proposed increasing workers' contributions to their plans. A Kansas House committee this week endorsed cutting future benefits for current workers and raising the retirement age.
Few states have yet embraced the most drastic step— scrapping their traditional plans for a 401(k)-style program that would guarantee only a certain state contribution for employees, not a particular level of benefits when they retired. But it may only a matter of time until that change comes, says Barry Poulson, a retired University of Colorado economist who advises conservative think tanks like the American Legislative Exchange Council, which have been promoting the change.
"You're essentially at a point there where there's no way you can sustain that kind of plan," he said of states struggling with traditional defined benefit pensions. Most private employers have already made the switch because they "quite simply decided they couldn't afford them."
In most cases, the changes states are exploring now would only prevent their funding problem from getting worse, not actually fix it. But Kansas, ranked as having the second -most-underfunded pension system among the states, is one of the few that plans to actually start paying down the deficit now, which would bolster its pension fund faster but also worsening the battering schools and other services will be suffering this year. More spending cuts are planned to help the state address its projected $493 million budget deficit.
The pension fund gap in Kansas is almost $7.7 billion, and Brownback has ruled out tax increases or other revenue-raising answers.
His budget proposal includes an 11 percent increase in the state's annual contribution to teacher pensions, funded by cutting base state aid to its 289 school districts by $232 per student, dropping it to the same level as a decade ago.
In the view of many educators, a pension debt owed to them is being paid with money from their own pockets.
"The state has an obligation, in our opinion, to do both," said Alan Cunningham, schools superintendent in Dodge City.
But Brownback and his aides contend the state is stuck. They say that when economic times were better, school districts hired new teachers and paid them better, increasing the state's pension costs. Now, they say, the bill is coming due.
And some Kansas residents are irritated by the idea of funding teacher benefits that are better than what they have.
"There's a matter of fundamental fairness to the rest of the population," Ken Daniel, a construction company executive, told legislators last week.
School officials say the funding shift will exact a clear toll on schools, although the number of teacher layoffs couldn't be estimated because the decisions are made locally. Teaching staffs have shrunk 3 percent in the past few years.
In Louisburg, south of the Kansas City area, the district lost five teaching jobs last year, about 6 percent of its total for some 1,700 students. Class sizes in elementary classrooms grew by five or six students to reach approximately 27.
"I just fear that we're letting education become the whipping boy," said Superintendent Sharon Zoellner. "We'll see businesses looking at the schools and saying, 'Hmmm, they're slipping, and I don't want to go there.' Then it will be too late."
And some educators feel conflicted, saying future retirees shouldn't be benefiting at the expense of children and working teachers now.
"I would much rather have money for kids right now and have them come up with another fix for the pension problem," said Barton Goering, superintendent of the Spring Hill school district near Kansas City.