Unfunded Pension Liabilities Cost Louisiana Schools $853M Last Year
BATON ROUGE, La (The Center Square) – Louisiana’s public school system had $853 million less to spend on education in fiscal year 2020 because of debt payments schools made to employee pension systems.
The finding comes from a new legislative auditor report evaluating the impact of unfunded accrued liability (UAL) payments for two of Louisiana’s largest public pension systems: Teachers’ Retirement System of Louisiana (TRSL) and Louisiana School Employees’ Retirement System (LSERS).
The UAL is the debt the state owes when the retirement systems’ actual funding falls short of promised pension benefits. Debt payments made fund the difference.
According to the legislative auditor, that meant education funding losses across the state.
“For fiscal year (FY) 2020, participating schools collectively had $852.8 million less to spend on non-retirement educational expenses, such as teacher salaries, classroom materials and facilities, as a result of required UAL contributions,” the audit said.
State law requires the two retirement systems’ 1,355 participating public schools to make payments toward the systems’ debt obligations based on a percentage of employee salaries.
Auditors said the payments accounted for 10% of the participating schools’ total taxpayer-funded revenues and 24% of their Minimum Foundation Program (MFP) funds, or the amount a Louisiana Department of Education formula determines is necessary to fund each student.
The result was $1,302 in UAL payments per student, auditors said, which Louisiana’s 112 nonparticipating charter schools – responsible for 58,068 students – did not have to pay.
“Although the 112 nonparticipating schools have to contribute to Social Security and may also offer their own employer-sponsored retirement plans, the employer-sponsored retirement plans offered by these schools on average cost less than the normal retirement contribution and UAL payments that participating schools have to make,” the audit said.
The pension liability payments also affected school districts differently. The audit showed Calcasieu Parish paid 11.7% of its total revenue toward UAL debt, while Bienville Parish paid only 7.4%.
In response to the audit, State Superintendent of Education Cade Brumley said, “The cost of the UAL is a large portion of city and parish school systems’ budgets and is tied to the biggest expense in education, staff salaries.”
Brumley said the state Legislature is responsible for funding the MFP and accrued pension benefit liabilities, though school system retirement costs are funded from a combination of federal, state and local funds.
A response letter from TRSL said paying down the retirement system’s UAL has been a long-term goal.
“By 2029, the UAL is projected to decrease 43% from the 2020 total of $10.37 billion; and by 2040, the UAL is projected to be less than $1 billion,” wrote Katherine Whitney, TRSL director.
State legislatures traditionally keep public pension debt outside the scope of the normal balanced-budget process.
Fiscal watchdogs such as Truth in Accounting, a Chicago-based open government nonprofit, assert the practice allows lawmakers to defer enormous taxpayer burdens into the future while maintaining the appearance financial responsibility in the present.
The group’s recent Financial State of the States report showed Louisiana has nearly $19,000 in off-the-books debt per state taxpayer, mostly because of unfunded retirement obligations.
“Louisiana did not have enough money set aside to weather the pandemic, and the state has been in poor fiscal shape for years,” the report said.
By William Patrick | The Center Square