Education is the largest and potentially the most important public service to suffer from the $1.7 trillion municipal pension funding crisis, said a report by the Manhattan Institute for Policy Research.
"Almost every state increased retirement benefits for teachers in the booming 1990s, but the additional promises were not accompanied by responsible funding plans," Josh McGee, a senior fellow for the New York-based, market-oriented think tank, wrote in a report released Tuesday.
By 2003, according to McGee, 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 shortfall now totals roughly $500 billion despite a strong market since then.
"To be sure, there is no immediate national 'crisis,' insofar as most teacher pension plans are not on the brink of failure," McGee wrote. "Nevertheless, retirement costs per pupil are already approaching 10% of all education expenditures. Without meaningful reform, these costs, as well as the aggregate pension debt owed to teachers' plans, will continue to rise and continue to crowd out education spending on the state and local levels.
"It is not too radical to suggest that retirement systems be overhauled instead of waiting idly until a real crisis develops."
Manhattan Institute defines pension cost crowd-out as the situation in which retirement costs are rising faster than the overall budget and thus consume a larger share of education spending over time.
Pension debt per student, said the report, increased by an inflation-adjusted $9.588 between 2000 and 2013. Almost every state has experienced large pension cost increases, but eight states – Arizona, Colorado, Indiana, Michigan, North Carolina, Nevada, Texas and Wisconsin – experienced what McGee called the "double whammy" of declining per-pupil expenditures and rising pension contributions.
According to the report, teachers' pension plans now use a vast majority of taxpayer contributions to pay down debt owed for past service rather than pay for new benefits today's teachers earn.
"As the value of this debt has increased, most current teachers have experienced stagnant salaries and reduced retirement benefits, while spending on classroom supplies, equipment and building upkeep has declined relatively or even absolutely," wrote McGee.