- States are cutting contributions to higher education, something we already knew.
- Tuition costs are rising to deal with the shortfall, and tuition increases are not being matched by a rise in median family income. We already knew that as as well.
- State pension costs are out of control and will absorb a larger and larger share of most states' budgets.
This last point--the catastrophic rise in pension obligations--is also something we already knew, but DiSalvo and Kucik's report drives this point home with brutal clarity.
As the authors explain in their introduction, the stock market crash of 2008 led to a sharp devaluation of pension fund assets--about a $1 trillion loss. In addition, persistent underfunding of pension funds "has led to a net deficit across all states of about $4 trillion, or one-third of total U.S. GDP." (p. 5, emphasis supplied).
All states have reformed their pension programs in some way to respond to the shortfall, but these reforms are not enough to bring pension fund liabilities in line with pension fund assets.
Meanwhile, the average number of pension beneficiaries per state has tripled from 500,000 to 1.5 million, while the number of active public employees paying into pension funds has stayed roughly constant. (p. 7). Clearly, state pension funds are rapidly moving toward collapse
Let's look at the numbers for a few states.
California's pension liabilities have increased by 41 percent over just seven years to $890 billion in 2015. That was two years ago. By now California's pension liabilities must be nearly $1 trillion.
New York's pension liabilities were nearly half a trillion dollars in 2015, a 30 percent increase over 2008. And Governor Andrew Cuomo is offering free college tuition to New Yorkers!
Texas, where my pension fund is located, had about a quarter of a trillion dollars in pension obligations in 2015--a 42 percent increase from 2008.
How is higher education impacted by this looming train wreck? States have no other choice but to reduce expenditures for higher education even further if they have any hope of meeting their pension obligations.
Thus, it is clear, students will be forced to borrow more and more money in coming years in order to pursue postsecondary education.
Is anyone in higher education worried about this? No, college leaders are absorbed with more pressing matters--trigger words, safe spaces, and controversial commencement speakers.
In short, everyone in higher education--students, professors, and administrators--are behaving very much like the romantic couple in the movie Titanic--dancing in steerage while their ship steams closer and closer to a lethal iceberg.
|Dancing on the Titanic|
Daniel DiSalvo and Jeffrey Kucik. On the Chopping Block: Rising State Pension Costs Lead to Cuts in Higher Education. Manhattan Institute Report, May 2017.
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