Hoover Institution (Stanford, CA) — Education worker pension spending is rapidly crowding out direct outlays on K–12 education spending in several states, revealing a growing crisis in public education across America, according to new research from the Hoover Institution.
Senior Fellow Joshua D. Rauh and research associate Gregory Kearney have built a new online database, the US School Employee Pension Atlas, tracking the share of K–12 education spending across the US since 2015 that is devoted to school worker pensions.
They find that states and localities spent 10.6 percent of associated education expenditures on school worker pensions in 2023, up 2.1 percentage points from 2015. At schoolpensionatlas.org, users can see detailed breakdowns of K–12 pension spending in all fifty states. The database covers 12,800 school districts, participating in 95 different state and local defined-benefit pensions across the country.
The new resource reveals significant variation in pension burdens across states, as well as the share of additional education resources that have gone directly into teacher and school employee pensions. In New Jersey, pension contributions consumed essentially all the real growth in associated expenditures. Worse, in Illinois, where pension contributions absorbed nearly 21 percent of associated education spending in 2023, real growth in pension contributions exceeded real growth in associated expenditures by 152 percent, suggesting significant and direct crowding out of other important education imperatives.
“These numbers reveal a silent fiscal crisis in public education,” said Rauh, who also serves as director of Hoover’s State and Local Governance and Fiscal Policy initiatives. “Despite a decade of increased pension contributions and strong investment markets, many state pension systems remain deeply underfunded, and the costs of shoring them up are increasingly crowding out classroom priorities.”
The database allows users to examine how rising pension costs have diverted resources from other education needs. Maintaining 2015 pension contribution levels in 2023 would have freed up funds for hiring teachers, improving curricula, or expanding student support services in states across the nation: in California, nearly $6 billion; in New Jersey, $3.2 billion; and in Illinois $1.72 billion, to name just a few examples.
The researchers note that reported pension funding ratios likely understate the true budgetary pressures facing states and school districts. Most state pension systems assume long-run investment returns of approximately 7 percent. Rauh and Kearney’s database offers alternative calculations using more conservative return assumptions, including using Treasury bond yields matched to the timing of promised benefits.
Under the most conservative return scenario, the fiscal picture darkens considerably over the next 20 years. Illinois would need to increase annual pension contributions from roughly $7 billion to more than $15.7 billion to pay down existing pension debt, pushing the budgetary burden to nearly 37 percent of associated education expenditures. New Jersey's required contributions would rise from about $4.3 billion to $7.4 billion, increasing pension costs from just over 12 percent to nearly 21 percent of associated education budgets. California's required annual contributions would exceed $30 billion, more than double the current $13 billion total.
“The data shows that even substantial new revenue cannot meaningfully improve classroom resources if pension obligations continue to absorb an ever-growing share of education spending,” said Kearney. “This matters particularly in states facing tax-base erosion through population outmigration like Illinois, California, and New Jersey.”
The database tracks pension contributions at unprecedented granularity by combining school district–level budget data with pension disclosures from state retirement systems.
The researchers recommend that states begin enrolling new employees into defined-contribution or hybrid retirement plans to prevent the accumulation of new unfunded liabilities. They also advocate for adopting more realistic investment assumptions to provide policymakers with honest assessments of future retirement benefit costs.
The database will be updated annually as new financial data becomes available from school districts and state pension systems.
You can find an explainer from the authors about the implications of the dashboard's data at the Fiscal Reality Check Substack here.
For more information, please contact Jeffrey Marschner, assistant director of media and government relations, at jmarsch@stanford.edu or 202-760-3200.
