Purchasing Power Threat
CTA fiscal experts are predicting that legal action will be required to protect $500 million in funding from the State Teachers' Retirement System (STRS) that lawmakers are borrowing without setting a time certain for repayment.
At issue is $500 million that lawmakers wrapped into SB 29x, an urgency measure designed to move ahead a bi-partisan budget deal to help the state cope with a looming budget deficit. The new budget accord moves the state about $3.6 billion closer to bridging the $34.6 billion revenue-spending gap.
CTA experts point out the state is under obligation to provide general funds to cover the costs related to the pensions of hundreds of thousands of retired teachers. The Association and the STRS have in past years gone to court to protect this entitlement. CTA and STRS are exploring their legal options to defend the STRS fund against the latest raid.
Under terms of the pending deal, the state would be allowed to miss its annual $500 million payment due to STRS's Supplemental Benefit Maintenance Account. That payment is due July 1.
CTA experts point out that taking money from the teachers' retirement fund, without any guaranteed repayment plan, is illegal and jeopardizes future retirement incentives for teachers.
CTA representatives in Sacramento are working with lawmakers on a proposal that would ensure the funds would be paid back.
The issue is an important one to current and future retirees because funds in Supplemental Benefit Maintenance Account are used underwrite costs related to providing teachers with the purchasing power guarantee.
Currently, inflation adjustments prevent any STRS pension from dropping below 80% of its original purchasing power. CTA and its supporters have been trying to boost the figure higher than 80%, but "borrowing" $500 million from the account would undermine any future gains in purchasing power guarantees.
SB 29x also reduces Proposition 98 funding by $162 million in the current year and another $166 million in the budget year, primarily by delaying some staff development repayments from June 2003 until July.