Why We Need to Take Pension Costs Seriously
Our friends at the Illinois Policy Institute have a new report out on education spending in the Land of Lincoln. The numbers are gobsmacking.
In the 2021–22 school year, 39 percent (yes 3-9 percent) of education dollars will be spent on pensions. While education spending has grown 17 percent since 2000, teacher and administrator pension costs have risen 458 percent. 458 percent!
When the pension part of the state spending pie grows, the other slices of the pie shrink. That means that money that could be going to today’s teachers is going to yesterday’s.
Pensions are a perfect storm for governmental jiggery-pokery. The bill for bad decisions doesn’t come due for years after most of the people making decisions are out of office. The benefits are clear to those receiving them but are opaque to taxpayers (who tend to focus on metrics like teacher salaries, not total teacher compensation). Legislators can hide behind actuarial alchemy to obfuscate the magnitude of their decisions. Everyone wants teachers to have a safe and solid retirement, so quibbling with how much is spent can come off as teacher bashing.
Thankfully, Missouri is not nearly in the dire straits that Illinois is. Now, Missouri pensions are unfair. They invest in riskier assets to chase higher returns when they are underperforming. And, they are a bad deal for most teachers. But Illinois still serves as a cautionary tale for us.
And ballooning pension costs are bad for everyone (except, to be fair, those who are receiving them). It is bad for current teachers and students, who miss out on funding that could be used to support them. It is bad for current legislators, who have less money to spend on higher education, healthcare, roads and bridges, and more. And it is bad for future teachers, students, and legislators, who will be hemmed in by the decisions that their forebears made.
The great political philosopher Edmund Burke argued that the social contract is “a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born.” Irresponsible pension policy violates that social contract and should be roundly criticized. Well done to the good folks at Illinois Policy for doing so.