For Immediate Release:
May 22, 2013

Contact: Bob Schneider
517.485.9444

New CRC Report Shows how K-12 Funding has been Limited by Growing Retirement Liabilities

Michigan public schools have seen fewer dollars remain available for classroom education in recent years as more of their revenues have been needed to meet unfunded retirement system liabilities, according to Funding for Public Education: The Recent Impact of Increased MPSERS Contributions a new report from the Citizens Research Council of Michigan.

Public school contributions to the Michigan Public School Employee Retirement System (MPSERS) have increased dramatically over the last decade. MPSERS provides for retirement benefits for public school teachers and staff as well as the staffs of community colleges and certain universities and public libraries. The contribution rate for public schools increased from 13.0 percent of payroll in FY2004 to 24.5 percent of payroll in FY2012. The primary cause has been sluggish growth in value of pension fund assets, an issue that came to a head with the severe financial market declines in 2008 and 2009. What followed was a significant increase in unfunded liabilities within the system, which fueled the increase in employer contributions to make up for the shortfall.

These new retirement costs have taken up a growing share of overall school revenues, leaving less for other educational purposes. Measured on a per-pupil basis, districts’ contributions to the retirement system increased from 8.7 percent of per-pupil revenues in FY2004 to almost 14.8 percent of those revenues in FY2012 when public school employers contributed over $2.0 billion to cover their MPSERS obligations. The report shows that per-pupil revenues available to all public school districts in FY2012, after netting out the revenues needed to meet MPSERS contributions, declined by 8.8 percent from FY2004 levels after adjusting for inflation. For traditional K-12 school districts, the situation was even worse with inflation-adjusted per-pupil revenues after accounting for MPSERS costs falling by 13.1 percent from FY2004.

“Traditional public school districts are required to participate in MPSERS, and they really have no control over their contribution levels,” said Bob Schneider, CRC’s Director of State Affairs. “From their perspective, a big increase in the MPSERS contribution is effectively the same as getting a decrease in their foundation allowance or other state aid. It means something else has to go to make the budget balance. In effect, the MPSERS costs end up crowding out other spending.”

The report notes that while funding from the state has increased in recent years, most of the increase has been related to meeting these growing retirement costs and to restoring funds that had been offset by temporary federal stimulus funding.

“During his budget presentation, the Governor noted that per-pupil state appropriations for K-12 schools would increase by $735 per pupil under his FY2014 proposal from the level in FY2010,” said Schneider. “That’s absolutely correct, but the FY2010 budget also included $282 per pupil in temporary federal stimulus that’s now gone. And about $364 per pupil of the FY2014 state funding is directly tied meeting the increases in MPSERS costs. That eats up much of the increase. What’s left over to meet other K-12 operations is pretty limited and isn’t keeping pace with inflation.”

The report notes that recent legislative changes aimed at reforming MPSERS should help contain and eventually reduce future public school contribution costs. But, in the near term, the crowding out effects of increased MPSERS contributions will remain an issue for public schools.

CRC’s report is available at no cost on the Citizens Research Council’s website, www.crcmich.org.

Founded in 1916, CRC works to improve government in Michigan. The organization provides factual, unbiased, independent information concerning significant issues of state and local government organization, policy, and finance. By delivery of this information to policymakers and citizens, CRC aims to ensure sound and rational public policy formation in Michigan. For more information, visit www.crcmich.org.

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