Dennis Leone on unfunded liability: fewer teachers and smaller raises do not paint a rosy picture

".....there are now fewer teachers contributing to STRS and they are getting smaller raises. All of this hurts our unfunded liability."

Dennis Leone to Nancy Hamant, July 8, 2006

Subject: Unfunded Liability

My understanding, Nancy, that much of the benefit of the 3 positive years in investments earnings has been offset by 3 horrible years with the dollars that STRS receives from active teachers. Throughout all of the 1990s and up until 2002, STRS could count on receiving a 4.5% increase per year from active teachers. (The expected growth in the 10% employee contribution.) This reflected that 611 school districts were giving approximately a 3.0% base raise and a 1.5% step increase per year for nearly 15 years. Suddenly, in 2003, the salary growth slowed to 3.2%, followed by a 2.6% growth in 2004, then a 1.9% growth in 2005. This shows 2 things: (1) Raises are smaller statewide, hurt also by lower charter school salaries; and (2) Cuts in teaching staff, which STRS has a difficult time predicting. Simply, put, Nancy, there are now fewer teachers contributing to STRS and they are getting smaller raises. All of this hurts our unfunded liability.

DL

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Nancy Hamant to Dennis Leone and John Lazares, July 7, 2006

Subject: Calculation of STRS Smoothing--Impact on "unfunded liability"

Dennis and John,

Since STRS has three consecutive years of positive returns on STRS investments won't this impact calculation for "smoothing" purposes? Consequently, shouldn't this impact calculation of STRS "unfunded liability" in a positive direction?

Nancy (Hamant)