Ukraine is thousands of miles away from the United States, but the deadly conflict that has been unfolding there for the last month is already hitting the wallets and pocketbooks of America鈥檚 K-12 schools and their employees.
Educators and parents are feeling pain at the pump as the per-gallon cost of gas crosses the $5 mark in some places. Bus drivers who contract with districts worry they鈥檒l have to leave the business if fuel and maintenance cost spikes persist. And a further surge in the already-high inflation rate is raising the price of everything from food and paper to building materials and HVAC systems.
Teacher pensions are another area that鈥檚 feeling the war鈥檚 financial ripple effects. Specifically, numerous states including Kentucky, Ohio, Pennsylvania, Rhode Island, and Missouri, and localities like Chicago and New York City, have raised the possibility of divesting pension funds, including those set up for teachers and other school employees, from Russian assets.
Educator pension funds have been woefully underfunded for much of the 21st century. Most educators likely aren鈥檛 aware that their future income sources are partially tied up in foreign money. Given that their costs have swelled to roughly 10 percent of per-pupil K-12 spending in the United States in recent years, these pension funds bear close watching.
Education Week called two pension experts鈥擫eonard Gilroy, vice president of government reform at the Reason Foundation, a libertarian think tank, and Josh McGee, a professor who serves as associate director of the University of Arkansas鈥� Office for Education Policy鈥攖o help explain what鈥檚 going on, and how it might affect educators in the short and long-term.
Why are states talking about divesting from Russian assets?
Several states are taking aggressive financial measures to distance themselves from companies that enrich the Russian economy. They see pension funds as a mechanism for achieving that goal.
This isn鈥檛 the first time there鈥檚 been discussion of divesting pension funds from certain assets for political reasons. Previous targets for divestment pushes, McGee said, have been Iran, Israel, gun manufacturers, and oil manufacturers. Just this week, a group of middle-school students in Oakland urged California鈥檚 school pension system to .
How much of school pension funds are tied up with Russia?
It鈥檚 difficult to say for sure, because pension funds are extremely complicated and often inscrutable, even to the people in charge of maintaining them, Gilroy said.
Experts say it鈥檚 safe to assume Russian assets make up a miniscule percentage of school pension funds, though. Divesting from them likely wouldn鈥檛 cause a noticeable difference in the size of the pension a teacher or school employee ends up receiving upon retirement. Rhode Island, for example, found that roughly .03 percent of its pension fund was invested in Russian assets, and in Pennsylvania, that figure was half of 1 percent.
Will states end up actually divesting pension funds from Russian assets?
Some states, like , have already started.
But figuring out how to divest from Russian assets isn鈥檛 as simple as doing a simple 鈥渇ind and replace鈥� on a keyboard. McGee points out that some assets might be ambiguous: Does a company need to be located in Russia to count as Russian? Should any company that鈥檚 even partially owned by Russian citizens be disqualified? Who draws those lines?
Even after deciding the criteria, discerning which ones meet those criteria won鈥檛 be easy. Some investments are multilayered, making pulling apart Russian components from the rest particularly challenging.
How else might the war in Ukraine affect teacher pensions?
Broader economic instability wrought by sustained disruption on the global stage could cause pension funds鈥� array of investments to underperform their target returns.
McGee also worries about the potential for what he calls 鈥渟ocial investment,鈥� using pension funds as a tool to signal political support or opposition, to become a broader trend that鈥檚 somewhat at odds with maximizing investment returns. That trend could lead to bigger costs for school districts and employees, he said.
That increase would follow several decades in which pension costs have exploded, scrambling school budgets and prompting allegations of mismanagement in .
鈥淎ny time you鈥檙e talking about investment or divestment, it鈥檚 all coming in a context of a very complicated system that鈥檚 having its own struggles working,鈥� Gilroy said.
