Increased Pension Funding Comes at Expense of Higher Education

Report says pension cost increases tied to education cuts, calls for states to reprioritize pension reform.

Public higher education is paying the price for rising state pension costs, which are contributing to the disinvestment of public universities and colleges, says a new report from think tank The Manhattan Institute.

“Ever-rising pensions and ever-depleting funding for higher education are inextricably linked,” said the report.

The report found that between 2008 and 2015, total state pension expenditures (and liabilities) increased by an average of 61%, while states decreased per-student higher-education spending by an average of 22.4%. It added that state funding for higher education is nearly $10 billion below what it was in 2008, when adjusted for inflation.

It also said that from 2000 to 2016, public universities lost 25% of their state funding per student, while during that same time, tuition and student debt skyrocketed.

The report blames the budget cuts on increased spending on public-worker pensions. Six states saw their pension expenditures rise by more than 100% in that time span: Pennsylvania (172%), Illinois (166%), North Carolina (158%), South Dakota (144%), North Dakota (143%), and Minnesota (106%).

“Forced to adhere to balanced-budget requirements, many state governments have been confronted with tough fiscal choices,” said the report. “One choice that nearly every state has made is to cut funding for higher education.”

The report also says that the bevy of pension reform bills proposed nationwide will not be enough to fix the problem.

“In the wake of the Great Recession, all 50 states enacted pension reforms of some kind, unfortunately, these reforms didn’t go nearly far enough, and pension debt has continued,” said the report, adding that “public-pension reforms will have only a limited impact on state finances for years to come.”

The report attributed the imbalance to the strong legal protection afforded to pension funds that educational institutions are not entitled to. It said that as a result, altering benefit levels for existing employees or those already retired is “difficult, if not impossible,” while the same is not true for public colleges or universities.

“States are in a difficult legal and political position when attempting to rein in pension costs,” said the report, adding that by contrast education funding “is not set by a legally fortified formula, and the possibility of shifting costs to the federal government implicitly incentivizes states to reduce higher-education spending.” 

The report argued that state governments should “reprioritize pension reform” in order to boost higher education “for the good of younger Americans—particularly those from families of modest means—and for the good of the nation’s future economic health.”



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