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Philly’s school funding crisis driven by pensions, and it’s only going to get worse

By   /   August 16, 2013  /   No Comments

By Eric Boehm | PA Independent

HARRISBURG — As the Philadelphia School District scrambles to come up with enough cash to open for students in September, a new report suggests the city’s school funding crisis is on par with municipal issues in Detroit, Chicago and elsewhere.

At the heart of it all: pensions.

Payments to retired teachers and public employees are a growing threat to government budgets everywhere, and it is no different in Philadelphia. A new report from the Thomas Fordham Institute, a conservative education nonprofit, estimates the district’s total retirement costs will balloon from $73 million in 2011 to $349 million by 2020.

On a per-pupil basis, that works out to $900 per pupil in the district for 2011, growing to $2,300 per pupil by 2020.

NO CLASS: Philadelphia may have to postpone the start of the new school year, scheduled for Sept. 9.

Robert Costrell, a professor of economics at the University of Arkansas and an author of the report, says that trend is unsustainable.

“We’ve only just begun to see how bad it is going to be,” Costrell said Thursday.

The report examines the pension costs of the Philadelphia School District. Costrell said the financial mess unfolding in Pennsylvania’s largest city is on par with what has been seen recently in Detroit and Chicago.

“Pennsylvania hasn’t gotten as much play nationally as Illinois, but it should be,” Costrell said, referring to media coverage of Illinois pension woes and the trouble in the Chicago School District. “It might not be on the same level as Detroit, but it’s getting there.”

The drama in the district started to attract some national attention this week, after district officials said they would be unable to open the new school year on time unless the state or city chipped in an additional $50 million. The state is holding onto a $45 million federal grant meant as rescue money for the district, but Gov. Tom Corbett’s administration will not release the cash until the district and its teachers’ union comes to terms on a new contract.

For now, Philadelphia is moving forward with plans to borrow $50 million by issuing municipal bonds so school can start Sept. 9.

To repay those bonds, the city would have to extend a 1 percent sales tax that was supposed to be temporary. It could generate $15 million per year for debt service, the New York Times reported Friday morning.

But those figures pale in comparison to the district’s pension issues.

Because pension costs for public school employees are split between the local and state level in Pennsylvania, the situation is Philadelphia is partially a symptom of the $30 billion unfunded liability in the state’s Public School Employees Retirement System, or PSERS.

Because of that split, the state now picks up about $450 of that $900-per-pupil price tag, but as the costs rise, it will hurt both the district’s and the state’s bottom line.

And when the district spends about $15,000 per pupil — but will soon have to spend $2,000 per pupil on payments to retired district workers — that means fewer dollars are available to cover the actual costs of education.

Lawmakers in Harrisburg must solve the crisis because the state runs the pension system. Little progress has been made toward that goal.

Changes to the pension system approved in 2010 affected only future hires, which does little to affect the pension obligations in the short-term, the report notes.

Since most of the cost growth in the next decade is due to deferred payments of benefits owed to current workers or those who are already retired, changing benefit structure for new employees has little effect, Costrell said.

HERE’S THE DEAL: Gov. Tom Corbett says the state won’t release additional cash for Philly schools until there is a deal with the teachers’ union.

This spring, Corbett and some Republican lawmakers backed a plan to overhaul the state pension plans by changing future benefits for current and future employees, but the effort never moved out of either chamber in the General Assembly.

At the school district level, a new contract is being negotiated between the district and the Philadelphia Federation of Teachers, one of several unions representing workers in the district.

The current contract expires Sept. 1.

Unless the union agrees to some $133 million in concessions at the bargaining table, the Corbett administration is adamant there will be no additional aid to the district.

“The key remaining piece to addressing the district’s long-term financial and academic challenges remains an agreement with the Philadelphia Federation of Teachers that puts in place needed fiscal savings and academic reforms,” Corbett said in a statement Thursday.

In the meantime, cuts continue.

At the recommendation of the state School Reform Commission, Philadelphia announced the closing of 24 schools in June.  The district also laid off about 3,000 employees.

The commission said the district did not have a large enough student population to justify keeping the schools open.

Indeed, population in the Philadelphia School District has been dwindling for some time. Student enrollment is down 11 percent since 2008 and 29 percent since 2001, according to state figures.

Contact Eric Boehm at eric@paindependent.com

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Eric is a reporter for Watchdog.org and former bureau chief for Pennsylvania Independent. He lives in Minneapolis, Minnesota, where he enjoys great weather and low taxes while writing about state governments, pensions, labor issues and economic/civil liberty. Previously, he worked for more than three years in Harrisburg, Pennsylvania, covering Pennsylvania state politics and occasionally sneaking across the border to Delaware to buy six-packs of beer. He has also lived (in order of desirability) in Brussels, Belgium, Pennsburg, Pa., Fairfield, Conn., and Rochester, N.Y. His work has appeared in Reason Magazine, National Review Online, The Freeman Magazine, The Philadelphia Inquirer, The Washington Examiner and elsewhere. He received a bachelor's degree from Fairfield University in 2009, but he refuses to hang on his wall until his student loans are fully paid off sometime in the mid-2020s. When he steps away from the computer, he enjoys drinking craft beers in classy bars, cheering for an eclectic mix of favorite sports teams (mostly based in Philadelphia) and traveling to new places.

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