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School Budget Cuts Despite More Education Spending? Blame PERS

Despite an 8 percent budget increase, schools are cutting teachers and programs in the face of spiraling pension costs. How big do Oregon class sizes have to get before Governor Brown gets serious about fixing PERS?

Oregon schools cut staff and programs despite big budget increases


Oregon’s public schools have seen their budgets increase by more than $400 million this year, roughly double the bump they’ve gotten each of the past three years. But sharply escalating personnel costs, including for employee pensions, forced many districts to trim teaching positions and programs.

That such a large budget increase — 8 percent year over year — is not enough to maintain existing class sizes and school services underscores the fragility of school budgets and longstanding challenges from retirement costs.

Oregon’s largest district, Portland Public Schools, will receive $29 million more from the state school fund this year than last. Ryan Dutcher, the district budget chief, said that’s not enough to cover rising salary and pension expenses, with retirement costs alone surging by $18 million. As a result, 55 fewer teachers will work at district’s 77 schools this fall.

In the Salem-Keizer School District, the state’s second-largest, the state school fund allocation rose $31 million. But employee pension costs skyrocketed by $10 million and 67 teacher positions got cut, said Michael Wolfe, chief operating officer. Eliminating that many teaching jobs saved $6.8 million, he said.

That’s typical of the situation around the state. The cuts are generally mild — but coming at a time that the economy is roaring, and many educators see them as a disservice to students’ educations.

For Kelsy Dunlap, who teaches physics at Salem’s McKay High School, lagging budgets also make it harder to be an effective teacher. She said her freshman physics class will have 40 students, making it harder to learn names, grade assignments and give each student the time they deserve.

Dunlap, 35 and entering her sixth year teaching, said teachers in her district have come to expect budget cuts.

“That’s Oregon. That’s what we do here,” she said. “It’s demoralizing.”

In Beaverton, the schools budget increased $21 million. But the district still had to make cuts, as pension costs rose by $14 million. The district is also opening a new high school and a refurbished elementary school, and those costs didn’t help with budgets already stretched thin, said district spokeswoman Maureen Wheeler.

District leaders decided to trim library staff, reduce professional development programs for teachers and cut spending on classroom supplies.

Matters are only expected to worsen for the state’s nearly 200 districts in 2019 and beyond, as bills for employee health plans and pensions continue to balloon, say district officials and specialists at the Oregon Department of Education.

“I don’t think the pain is done,” said Michael Wiltfong, the department’s head of school finance. “School districts — the state as a whole — is anticipating more bad news.”

Adding to school administrators’ frustration is that they don’t decide at the local level how employee pensions are structured or how much pension payments increase. The Legislature, the courts and the board of the Public Employees Retirement System make those calls.

“People say, ‘You’re getting a 10 percent increase. You ought to be able to survive on that,'” said Wolfe, the Salem official. “I mean, yeah. If my costs weren’t increasing more than that, sure. We get told what the PERS rate is. I have no influence over that.”

The rates that public employers pay to the retirement system are sky high primarily because of the system’s lucrative guarantees to the most-tenured employees and inadequate contributions by employers to cover those obligations. To reduce the $24 billion unfunded liability that has built up, schools and other employers will see their rates rise sharply in 2019 and in 2021.

State lawmakers agreed to a new two-year schools budget in June: $8.2 billion, an 11 percent increase from 2015-17. Fiscal analysts for the Legislature said that should be enough to cover rising district costs.

To arrive at 11 percent, they combined various cost drivers. They projected teacher pay — factoring in raises for bothcost-of-living and seniority — would rise an average of 2 percent next year, for example, and that pension payments would go up 45 percent.

Many of the big players in education, particularly the state teachers union and superintendents association, painted that as woefully inadequate. They said at least $8.4 billion was needed to reach even a hold-steady budget.

In a time when the economy is booming and schools need to beef up their offerings, state outlays of just $8.2 billion would lead to cuts, they complained. Some advocates predicted those cuts would be drastic.

Many champions of K-12 education pushed for lawmakers to pass new taxes on corporations to make up the difference. But those proposals died without a vote.

Morgan Allen, deputy executive director of policy and advocacy at the Confederation of Oregon School Administrators, said the budget reached by lawmakers will pay for a system that continues to under-perform. “The reality is it’s buying a school system that has one of the shortest school years, one of the biggest class sizes and lowest graduation rates,” Allen said.

Yet advocates and state officials acknowledge the situation could have been worse. Better-than-expected revenues and minor cost-trimming helped lawmakers pass an education budget that avoided significant teacher layoffs or weeks of furlough days. Advocates who predicted dire cuts have been largely proven wrong.

But school district officials are still uneasy.

The North Clackamas School District, for example, plans to leave open eight teaching positions at elementary schools, delay raises and cut the school year by a day, said superintendent Matt Utterback. The district is dipping into its reserve funds to stave off even bigger cuts, he said.

Last year, pension payments cost North Clackamas schools $17 million. This year, payments jumped to nearly $23 million — a 35 percent increase. Utterback, who was named the top superintendent in the nation early this year, described the state pension system as “broken.”

School districts currently spend about a quarter of compensation costs on employee retirement benefits, including pension and Social Security tax payments, said Phil Keisling, director of the Center for Public Service at Portland State University. Given current projections, school districts could pay as much as 45 percent of compensation on retirement benefits in just a few years, he said.

Teachers hired in the past 15 years don’t get the super-generous pension guarantees extended to Tier I and Tier II employees and retirees. But their working conditions are directly affected by the high costs for school employees and retirees who do.

“The buildup of rates in the next five years is unlike anything we’ve seen in the previous 50,” said Keisling, who was Oregon’s secretary of state for two terms in the 1990s.

In rural Klamath Falls, declining enrollment, the end of a local levy and big pension payments meant six teachers will lose their jobs, said Paul Hillyer, superintendent of Klamath Falls City Schools. He called the situation a “triple-whammy.”

“We’ve gotten so used to budget cutting that it’s something that you just take as part of what you do,” Hillyer said. If pension costs were more manageable, the district could hire more teachers and “lower class sizes across the board,” he said.

Now that budgets have been set for the upcoming school year, district officials are turning their attention towards future budgets. It’s not a pretty picture.

“The numbers in the out years look horrible. There’s a lot of negative,” said Wolfe, the Salem official. He said the Legislature needs to rewrite Oregon’s tax code.

“This state does not have a sustainable revenue model,” Wolfe said. “We’re tired of it.”

Utterback, the North Clackamas superintendent, said his district anticipates budget problems for at least another decade. In practice, that looks like no new teachers or programs, he said.

He added, “We’re being as fiscally conservative as we can be. Even taking those steps, we will financially fall off a cliff in the next biennium.” He warned of “massive” teacher layoffs and a shorter school year if pension payment rates continue to rise — as they all but certainly will.

“It’s the last thing that we want to do,” Utterback said, “but we don’t have a lot of choice.”

— Gordon R. Friedman

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