State government spending on public pension funds is not taking resources away from spending on public education, according to new research from the National Conference on Public Employee Retirement System.
The 2023 research update — "Do Pension Expenditures Impact Education Spending?" – examines pension contribution data, education expenditures, revenues and the overall economy and finds that education funding grew at an annual rate of 2.48% during the period between 1993 to 2019, compared to the growth of pension-related spending at an annual rate of 0.82%.
Authored by NCPERS Director of Research Michael Kahn, the research update is a reaction to recent claims that the money spent on public pension funds is having an adverse effect on education funding. NCPERS cites a March 2022 study by the Opportunity Institute that claimed California spent 13% of its education budget on pension benefits for teachers, up from 5.6% ten years previously. In the study, the institute claimed that the average teacher would have earned nearly $20,000 if pension costs had not increased. In his research update, Mr. Kahn says the study overlooks increases in healthcare costs and other employee benefits, and says the focus of the institute's study was simply promoting the idea of closing CalSTRS' defined benefit plan.
In the research update, Mr. Kahn argues that it is highly unlikely that pension funding could ever displace education funding.
"Another reason pension funding is unlikely to displace education funding is that pension contributions are such a small part of state and local revenues. For example, during the past quarter century, the average pension expenditures were 3.6 percent of state and local own-source revenues (taxes and fees collected by municipalities)," Mr. Kahn writes. "The same figure for education expenditures was 33.8 percent. In such a situation, pension expenditures would be unlikely to crowd out education funding even if pension expenditures were rising faster than education expenditures."
In a news release Thursday, NCPERS Executive Director and Counsel Hank Kim said: "Critics of defined benefit pension plans continue to spread false claims about pension costs negatively impacting education funding, but the data doesn't lie. Further, pensions play an important role in attracting and retaining teaching staff. It's vital that we protect these benefits as teacher shortages across the U.S. become increasingly dire."
The NCPERS research update is available on its website.