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Why California Is Losing Teachers and Laying Off Secretaries

Sacramento is flush, but cities and school districts can’t keep up with rising public

pension costs.

By Allysia Finley from the Wall Street Journal

Nine years into a bull market, housing prices in California have reached record highs.

Investors are enjoying soaring capital gains, which in turn has created a windfall for the state budget. California is now sitting on $16 billion in budget reserves while many states struggle to balance their budgets. But beneath this patina of prosperity, many cities are careening toward bankruptcy. Schools are laying off employees and slashing programs. Some districts complain they are having trouble retaining teachers. What gives? California property taxes, which fund local governments, are capped by the state constitution’s Proposition 13 at 1% of a home’s value and can’t rise by more than 2% annually. So although housing costs have soared since the recession—the median home price in San Francisco is $1.6 million—cities and school districts aren’t rolling in the dough.

At the same time, municipalities are getting socked with big bills from the California

Public Employees’ Retirement System and the California State Teachers’ Retirement

System, known as Calpers and Calstrs. For years the two funds overestimated their

investment returns while underestimating their expected payouts. This helped keep local-government and worker pension costs low for a while, but now the state, cities and school districts are having to play catch-up.School-district pension costs have more than doubled since 2013, and the state legislative analyst’s office predicts they will climb another 30% over the next two years. For every dollar cities spend on worker salaries, they have to pay 32 cents to Calpers. This effective payroll “tax” charged by Calpers will increase to nearly 50 cents on the dollar by 2024. Retirement costs already equal 44% of teacher pay in San Francisco.“Cities want to make it clear that our foundation is rocky at best,” Dane Hutchings, a representative of the League of California Cities, told the Calpers Investment Committee last month. “It’s crunch time, and quite frankly, we simply cannot stand another market slowdown or substandard returns.”

Mr. Hutchings warned of impending municipal bankruptcies and urged Calpers to shoot for higher investment returns to forestall layoffs and cuts to public services. Schools last year issued thousands of pink slips. Hundreds more have gone out this year. Many are laying off secretaries and support staff to pay for teacher raises and pension benefits that have been collectively bargained.Meanwhile, California’s high cost of living is making it harder for districts to recruit and retain teachers. A Sacramento Bee analysis found that about 18,000 teachers left the state between 2003 and 2016, with the biggest losses occurring during the housing-price peaks. A third of the teachers went to Texas, where the average teacher salary is $53,167, compared with $81,126 in California.

Golden State teacher salaries are the second highest in the country after New York and about $13,000 abov