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Wake up, now! Snooze button no longer works for PA schools facing pension crisis

By   /   November 28, 2013  /   No Comments

By Eric Boehm | PA Independent

School districts across Pennsylvania are getting news that’s unpleasant yet not unexpected.

The Public School Employees Retirement System, or PSERS, this week began sending notices to school districts that their pension costs will climb to 21.4 percent of payroll in the 2014-15 school year.

Even though that total could change a bit before it becomes official at an end-of-year meeting of the PSERS board, it gives a pretty good indication of what school districts are facing.

HIGHER COSTS: School districts will face the highest pension costs in their history during the 2014-15 school year, but it will only get worse after that.

HIGHER COSTS: School districts will face the highest pension costs in their history during the 2014-15 school year, but it will only get worse after that.

For historical context, the 21.4 percent figure is the highest rate since at least the 1950s — and it’s quite a jump from the 16.9 percent districts paid this year.

The actual cost will vary greatly from district to district depending on the size of payroll, but statewide the PSERS pension obligation for next year will ring in around $1.4 billion – with roughly half that cost covered by school districts and the rest left to the state. Another $537 million will be needed to fund the State Employees Retirement System, or SERS, next year.

State Rep. Glen Grell, R-Cumberland, believes it’s time for the General Assembly to do something about Pennsylvania’s mounting pension costs. He said this week that it should be the next major priority of the state government, now that a $2.4 billion transportation infrastructure bill was signed into law.

“They have never been that high, yet the trajectory is still going up,” said Grell, referring to the school district contribution rates. “If we don’t act soon, the rate will certainly continue its rise until it exceeds 31 or 32 percent.”

Without changes, districts will be forced to raise property taxes, cut programs and lay off staff, he said.

Unless something is done, Pennsylvania’s pension obligations will continue to grow – at a rate of $3.9 million per day, according to Grell’s estimates.

Grell is one of a handful of lawmakers who have been pushing pension reform for quite some time in Harrisburg —  basically since the last reforms  enacted in 2010 to postpone dealing with the major costs associated with the pension spike.

Part of the problem this time around is a lack of agreement over what to do.

A fundamental part of Grell’s proposal includes borrowing as much as $9 billion to pay down a portion of the $49 billion debt. But the Corbett administration and legislative leaders are not keen to add so much debt to the state’s credit card in the name of paying down other debts.

Other options, such as a plan pushed by Corbett last spring, involve extending the existing “collars” on pension payments to ease budgetary troubles. But critics say that plan merely “kicks the can” to the next administration because it allows lawmakers to continue underfunding the already-underfunded plans and fails to address the desperate situation of the state pension funds.

But the administration maintains that action is needed. Pension costs could consume as much as 62 percent of all new dollars in next year’s state budget, which would equal about $500 million in taxpayer money, according to Jay Pagni, Corbett’s spokesman.

“Couple that with other mandated costs and it creates a budgetary problem for next year, and frankly, years to come,” Pagni said Monday.

Unlike the recent transportation bill, which garnered a wide swath of Democratic support in both the state House and state Senate, any changes to the state pensions will have to be a Republican lift.

Democratic leaders have repeatedly signaled their unwillingness to put up votes for an issue so important to union members. Instead, they suggest closing tax loopholes and raising taxes to meet the obligation.

In the meantime, school districts across the state are getting the sobering news about pension contribution rates as they plan for next year’s budget.

But the rates would be even higher without the artificial collars created by Act 120 of 2010 — even with historically high payments due next year districts aren’t getting a full picture of how bad things really are.  Those collars are budgetary devices that predetermine how much the state has to pay into the pension funds each year, regardless of how much should be contributed from an actuarial standpoint.

“I don’t like collars because we’re not putting in what we should put in,” said James McAneny, executive director of the state Public Employee Retirement Commission, which advises lawmakers on pension issues. “We’re not putting in the full amount that is necessary, and someday that is going to have to be paid.”

In the meantime, the debt keeps piling up. At a rate of almost $4 million per day, Pennsylvania’s pension obligation will grow by more than $15 million over the four-day holiday weekend.

Boehm is a reporter for PA Independent and can be reached at Eric@PAIndependent.com.  Follow @PAIndependent on Twitter for more.

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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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