The Challenges of Employee and Retiree Health Benefit Costs for California Districts

Researchers in the Getting Down to Facts II project showed that while the financial picture has improved in recent years for California’s school districts, several important challenges remain. This report explores one of these challenges in greater detail: the costs of health and welfare benefits for district employees.

In reality, employee health benefit costs pose two distinct challenges for districts. First, the cost of providing benefits to each employee has increased substantially over time. Because districts require employees to pay only a relatively small portion of these annual costs, most of the growing costs are directly paid for by districts.

Second, most districts continue to provide health benefits to their employees after they retire. As more workers retire, the costs of these retiree benefits consume a larger share of districts’ budgets. Moreover, districts have often not set aside funds to pay for these benefits while employees earn them. In some districts, this has resulted in unfunded liabilities totaling many thousands of dollars per student.

These health benefit costs and liabilities put strain on district budgets. This makes it more difficult for districts to address their other priorities, such as increasing teacher salaries or supplementing services for disadvantaged students. This is particularly true as districts also navigate other financial pressures, such as growing costs for special education programs and teacher pensions.

Districts can and should do more to navigate these health benefit costs and to make sure that they are sustainable. State policymakers may have a role to play as well. Taking these steps will not be easy, and different solutions will be appropriate for different districts. However, postponing these hard choices will only make them more painful.