Properly reporting teacher pensions would add about $1,000 to per-pupil costs, study finds

Politics,Beltway Confidential,Michal Conger

Education costs taxpayers billions of dollars more each year than they’re being told, and teacher pensions are the culprit, according to a new Heritage Foundation study.

The study found states are improperly reporting their education spending and hiding a serious expense.

School districts report pension spending as the amount they contribute to retirement costs each year, instead of the amount teachers will receive in the future. But because they routinely underfund their pension costs, this method hides the real price tag of education, according to Jason Richwine, a senior policy analyst for Heritage.

“Proper accounting would reveal tens of billions of dollars in extra teacher pension costs, equivalent to somewhere around $1,000 in unreported spending per student,” Richwine wrote.

Other federal agencies report their pension costs based on the present value of future benefits. This method would reveal much higher spending than districts’ current system.

“Correcting this accounting problem could add tens of billions of dollars to official education spending estimates—somewhere around $900 to $1,000 per pupil in ongoing year-to-year costs, plus roughly $700 to $800 per pupil in annual debt service,” Richwine said. The federal government estimates spending per student at about $10,652. Using proper accounting methods, that cost is closer to $11,596, he estimated. The problem for taxpayers is that no matter how much school districts contribute to teachers’ pension funds, their retirement benefits must be paid. If districts underestimate their costs now, they put future taxpayers on the hook. “Underfunding pension plans today does not reduce benefits or save money in the long term,” Richwine wrote. “It simply delays paying for steadily accruing benefits, forcing future taxpayers to deal with the growing problem.”
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