LOS ANGELES — Moody's Investors Service issued a note on Aug. 13 warning that a new law requiring California's school districts and employees to increase their pension contributions to the California State Teachers' Retirement System will constrain school district budgets after 2017.
In the report, Moody's analysts said the increased pension contributions will be manageable for the next three years due to increased funding under the Local Control Funding formula, but the pension contribution hikes will grow significantly after 2017, challenging district budgets.
"Accommodating this mandate will weigh on school district operations, highlighting the consequences of years of inadequate contributions to CalSTRS from districts, employees and the state," according to the report.
School district pension contributions will rise from 8.88% of payroll in FY 2015 to 12.58% in FY 2017 and 19.1% in 2021, according to the report. The state will increase funding to school districts under LCFF, alleviating the near term financial impact on school districts. The state expects to increase LCFF funding by $5.26 billion from fiscal 2015 to fiscal 2017.
Despite the sharp increase, analysts also said contributions will still fall short of actuarial requirements until FY 2021.
On July 1, California Assembly Bill 1469 became effective, which increases the amount that the state, school districts and employees must contribute to the severely underfunded California State Teachers Retirement System's pension fund.
