Analyst's note: Review this summary, then read the entire article to fully understand that underreporting education spending by tens of billions of dollars—somewhere around $900 to $1,000 per pupil in current expenditures, and an additional $700 to $800 per pupil in debt service—is not a trivial omission.
The annual government contribution to the teacher's pension fund is an inaccurate estimate of actual pension costs. To understand why this is the case, a brief review of the primary artilcle of how pensions operate is needed. This is detracting from our overall national security which has a foundation of economic security. A review of the U.S. Constitution would also be in order. See if you can find the justification for the U.S. Department of Education ... I can not.
AbstractDespite the centrality of pensions in debates over government budgeting and education policy, the federal government dramatically underestimates teacher pension costs in its official education spending figures. States report to the federal government only the yearly contributions to teacher pension funds rather than the present value of accrued benefits. Since states and local school districts routinely contribute less to their pension funds than is needed to cover future benefits, correcting this accounting problem could add tens of billions of dollars—somewhere around $1,000 per pupil—to official education spending estimates. The federal government should revise its data collection procedures to require proper accounting of teacher pension costs, giving taxpayers a more accurate picture of education expenditures.
The cost of pensions for public school teachers is a major focus of debates over education spending. In Wisconsin, for example, Democrats strongly opposed reforms championed by Governor Scott Walker (R) that prevented teachers and other public employees from collectively bargaining over pensions. In Florida, teachers filed a lawsuit in response to a new requirement that state employees contribute 3 percent of their salary to their pension plan, which had been funded exclusively by taxpayers.[1] Part of the intense media coverage of the recent teacher strike in Chicago was the fact that the city—instead of teachers themselves—paid most of the “employee contribution” to the teacher pension fund.[2]
Despite the prominence of pensions in these debates, however, the federal government dramatically undercounts the cost of teacher pensions in its official education spending estimates, which include the widely cited per-pupil spending figures. This undercounting occurs because the National Center for Education Statistics (NCES), a division of the U.S. Department of Education, allows states to define teacher pension costs as whatever school districts happen to contribute to their pension funds each year. Because governments frequently underfund their pensions, the contribution does not reflect the true costs of their pensions. The correct accounting, which is embraced by other federal agencies and virtually all economists, measures pension costs based on the present value of future pension benefits that teachers have accrued.
Using proper accounting, teacher pension costs are several times higher than the amount recorded in NCES estimates. Although exact figures are not available, making this correction adds somewhere around $1,000 to the current per-pupil spending estimates. The NCES should revise its data collection procedures to require proper accounting of teacher pension costs, giving taxpayers a more accurate picture of education expenditures.
[....]Based in part on previous Heritage Foundation research, replacing the government’s pension contribution figure with the risk-adjusted normal cost of teacher pensions will increase overall teacher benefits by 42.6 percent. The cost of all employee benefits in the NPEFS is currently reported as about $109 billion, which translates to $2,215 per pupil.[16] This means that benefit costs should be augmented in the NPEFS by $46 billion (which is 42.6 percent of $109 billion), or about $944 per pupil.
This $944 figure represents the additional ongoing cost of teacher pensions that is not reflected in official per-pupil estimates. In other words, current expenditures per pupil are not $10,652 as reported by the NCES, but something closer to $11,596.
What about total expenditures? When the government contribution figure is replaced with both the risk-adjusted normal cost and the payments toward unfunded liabilities (a form of debt service), the cost of overall benefits goes up by 78.8 percent. (See the Appendix.) This adds about $86 billion (which is 78.8 percent of $109 billion), or $1,745 in per pupil expenditures. Official total expenditures per-pupil would rise from $12,309 to $14,054.
[....]Conclusion
Despite the centrality of pensions in debates over government budgeting and education policy, the NCES dramatically underestimates pension costs in its official education spending figures. States report to the NCES only the yearly contributions to teacher pension funds rather than the present value of accrued benefits. Since governments routinely contribute less than is needed to cover future pension benefits, 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. The NCES should join other federal agencies in measuring the cost of pensions with actual risk-adjusted pension liabilities rather than annual contributions.
[....]governments would need to contribute 17.8 percent of wages to guarantee that their unfunded liabilities from teacher pensions will be paid off in the average 30-year time frame. [....]
