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California pensions facing hit as charter schools consider leaving

California’s public pension crisis is bad and getting worse

California's two major public pension systems are underfunded and are asking local governments to pay more. Critics want to reduce benefits, while others say policymakers should allow time for recent changes to take hold.
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California's two major public pension systems are underfunded and are asking local governments to pay more. Critics want to reduce benefits, while others say policymakers should allow time for recent changes to take hold.

One of the state’s largest charter school organizations is exploring whether it wants to withdraw from CalPERS, raising alarms among unions and public pension officials who fear a gradual weakening of the fund.

Aspire Public Schools, which operates 36 schools in California, opened talks with the California Public Employees’ Retirement System after the charter school organization’s board of directors unanimously voted in November to consider leaving the $345 billion pension fund.

Aspire has three schools in Sacramento, three in Modesto and eight in Stockton. It also has campuses in the Bay Area and in Los Angeles. Its representatives did not return multiple calls and email messages seeking comment.

Wayne Davis, a CalPERS spokesman, confirmed that Aspire had contacted the agency to request information about how it can terminate its participation in the fund. Organizations that leave CalPERS pay hefty termination fees that are invested into low-risk pools to support pensions owed to their retirees and workers.

Minutes from Aspire’s recent board meetings show that its leadership had grown concerned about the rising ongoing cost of funding pensions. California’s public pension funds have been raising those charges since 2012 while they try to catch up with their recession losses.

Aspire’s annual financial reports show that its spending on pensions doubled since 2014. Last year, it spent $12.2 million on bills to CalPERS and the California State Teachers’ Retirement System.

Aspire has not taken steps to separate from CalSTRS, the $225 billion fund that pays pensions to teachers. Aspire’s classified employees belong to CalPERS, while its teachers participate in CalSTRS.

One school district on its own choosing to break from CalPERS would not worry the pension fund or the unions that advocate for public employees. About 900,000 people are enrolled in CalSTRS, and 1.9 million workers and retirees are in CalPERS.

But Aspire’s inquiry about leaving CalPERS comes at a moment when a rising share of new charter schools are declining to enroll their employees in CalPERS and CalSTRS. Instead, they’re offering alternative retirement plans.

Until 2014, about 90 percent of new California charter schools offered retirement benefits through CalSTRS. That ratio dropped to 80 percent four years ago and 67 percent in 2015, according to CalSTRS.

CalSTRS believes that the charters are choosing alternative retirement plans because of climbing employer contribution rates. A decade ago, schools paid about 8 percent of an employee’s wages to CalSTRS. Now, the contribution rate is 14.4 percent and rising to 19 percent.

“It’s a very different financial equation for new charter schools,” CalSTRS Chief Executive Jack Ehnes said on Thursday at a CalSTRS board meeting.

Today, California’s 1,275 charter schools teach about 10 percent of the state’s K-12 students, up from 2 percent in 2000.

“At some time, if they become 20, 40 percent of the public schools, that could cause a serious shortfall in the pension systems,” said Dave Low, president of the California School Employees Association, the union that represents classified public school workers.

The California Federation of Teachers in 2012 sponsored a bill that would have required charter schools to offer retirement plans through CalPERS and CalSTRS. The California Charter Schools Association opposed the bill, arguing that charter schools needed flexibility in setting their finances.

The political dynamic remains the same as it was six years ago. Unions, which generally oppose charter schools, want charters to join CalSTRS and CalPERS.

“We’re disappointed that charter schools would choose to put the retirement security of their teachers at risk,” said Matthew Hardy, spokesman for the California Federation of Teachers.

Charters want to keep their options open.

“California’s charter public schools have been granted flexibility to demonstrate innovation in important aspects of school operations like the administration of teacher retirement plans. Teachers are at the heart of what makes schools great and flexible, portable, and secure retirement plans are essential to charters’ ability to recruit and retain excellent teachers while also managing limited financial resources,” the charter school association said in a written statement.

Also Thursday, the Alameda County Office of Education appealed to CalSTRS for help in collecting a pension bill from a defunct charter school.

Tri-Valley Learning Corporation, which operated charter schools in Livermore, closed in June without paying its final bill to CalSTRS. CalSTRS is demanding the $50,000 payment from the Alameda County Office of Education

Karen Monroe, Alameda County’s superintendent, asked CalSTRS to instead file a lien against the defunct company. “I worry that this scenario establishes a precedent that affects not only our county but others across the state and that this issue is the tip of the iceberg,” Monroe told the CalSTRS board.

When local governments quit paying bills to CalPERS without making termination payments, the pension fund slashes benefits to their retirees.

Derick Lennox, a lobbyist who represents school districts, said “there is clearly a burgeoning, systemic threat to educational services across the 58 counties. We know CalPERS and CalSTRS do not relish placing their partners, the county offices, in this position. It’s going to take a joint effort with education stakeholders to find ways to keep the systems sustainable without simply shifting costs to local educational agencies that, in the first place, did not create those costs.”

The Sacramento County Office of Education and the San Juan School District were trying to figure out if they faced a similar problem this week when Paramount Collegiate Academy abruptly closed. They did not know yet whether Paramount had outstanding pension debts. CalSTRS confirmed that teachers at the school were enrolled in the pension fund.

Paramount received its charter through the state Department of Education and the local offices did not have a clear picture of its finances.

“We’re not entirely sure yet,” said Sacramento County Superintendent David Gordon. “We just found about it last night, so we’re looking into whether they’re current with their financials.”

Charter schools are one option in the growing "school choice" movement. Funded by taxpayer money, these schools are growing nationally, though some states have yet to pass related laws. Find out what sets them apart from traditional public and pri

Adam Ashton: 916-321-1063, @Adam_Ashton. Sign up for state worker news alerts at sacbee.com/newsletters.

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