No closer to a solution
Another year, another real estate tax increase.
Rapidly escalating pension costs are once again causing concern and wreaking havoc on local school districts as they prepare their 2015-16 budgets. Many, including Chartiers-Houston and Bentworth, have increased taxes or slashed budget line items to keep their districts afloat.
Debra Babirad, Bentworth business manager, said the district eliminated items like new textbooks, supplies and technology to combat the growing pension contribution costs.
“If it weren’t for the (pension) increase, we would have a balanced budget,” Babirad said. “We have decreased our spending. We only buy what we need to function. We do more with less.”
Over the last five years, Babirad said the district purchased new textbooks just twice. Other years, they zeroed out the funds budgeted for physical education, art and music supplies.
“You have to move the funds around,” she said. “You can’t zero out the same line item every year.”
Bentworth isn’t alone. As pension costs continue to grow, school districts throughout Western Pennsylvania are being forced to make tough choices. Former Gov. Tom Corbett was unsuccessful in his attempts to push through pension reform, while new Gov. Tom Wolf, in his election platform, vowed to tackle the pension crisis. More recently, he addressed business groups in Harrisburg about increasing school funding.
Some factors that created the current pension situation include “short-sighted political decisions that led to nearly a decade of underfunding by state governments and local school districts,” and failed investment returns, according to the Keystone Research Center, a research and policy development organization. As a result, the state’s public pension plans, which include public school employees and state workers, are underfunded by an estimated $47 billion to $60 billion.
The General Assembly enacted the Pension Reform Act in 2010, which reduced pension benefits for new employees by more than 20 percent, increased the age of retirement to 65 for new employees and implemented a shared-risk provision for new employees that increases employee contributions if investment returns fall. But it’s still not enough.
The average annual pension benefit for school workers, as of June 30, is $24,942, according to the Public School Employees’ Retirement System. All public school employees, including teachers, superintendents, aides and bus drivers, are eligible for pensions.
PSERS administers the pension plan. Public school employees receive a defined-benefit plan, which means that each individual’s retirement benefit is determined by a formula that includes years of service and an employee’s final average salary.
Some districts, like Ringgold, have cut programs to help defray costs. Ringgold’s business manager, Randall Skrinjorich, said programs like industrial arts and home economics were removed years ago to lessen the blow. Additional items were removed from the budget over the last four years, and Skrinjorich said athletic programs were consolidated or cut to help.
While they were difficult decisions to make, he said the district needed to be proactive. Additional actions included raising taxes by 2 mills last year to help fund an $800,000 pension contribution increase and the construction of a new middle school. Skrinjorich is unsure if the district will increase taxes again but said that Ringgold has prepared for the pension crisis to worsen.
“We set aside funds,” he said. “We knew a long time ago that it was a bomb waiting to go off.”
Districts have known for years about the increases, because contributions are projected several years in advance. However, not all districts were able to find ways to meet the burden.
Last year, two districts in Washington and Greene counties asked for permission to raise taxes above the percentage allowed by the state Department of Education for the 2014-15 fiscal year to assist with pension costs. This year, more districts are seeking exceptions to raise taxes by more than the 2.7 percent index.
Currently, PSERS has projected data out to the 2024-25 school year. The contribution rate is expected to rise from 25.84 percent of payroll for 2015-16 to roughly 32 percent in 2020-21, before decreasing slightly.
Don Bennett, Chartiers-Houston business manager, said the district experienced a $400,000 pension contribution increase. While the state reimburses districts for as much as half of the total cost, it still takes its toll.
“Last year we had furloughs and the elimination of programs,” Bennett said. “It will be a burden again this year. We will be filing for an exception and possibly looking at taking the millage above and beyond.”
Not every district is affected to the same degree. In Greene County, Southeastern Greene has managed to take pension costs into consideration when hiring.
“We make sure we always have contracts we can afford,” said Patrick Sweeney, Southeastern Greene business manager. “We look at what we can adjust due to class size and staffing. We can’t see any additional staffing needed in this year. In contract negotiations we always take that into consideration, including not only salaries but benefits.”?
But school officials agree that something must be done to address immediate concerns and future contribution amounts.
“Unless something is changed, (the increases) will have devastating effects on us for year to come,” Bennett said. “We tried to stretch it out as long as we could, hoping something would change at the state level, but nothing did.”
A report prepared by the Pennsylvania Association of School Administrators found that last spring an “overwhelming number of school districts implemented projected budget cuts, staff reductions and tax hikes in their final spending plans for fiscal year 2014-15. Ninety-nine percent of respondents project more of the same or worsening fiscal conditions in 2015-16.” The survey also found that the burden of funding increases fell most heavily on Pennsylvania’s poorest communities.
State Rep. Pete Daley, D-California, said the state is no closer to a solution than it was years ago when the pension crisis was first discussed.
“I have proposed a 30 (years)-and-out bill for 10 years,” he said. “It is an early-out (retirement) process that would get the high-end pension folks out. (Former Gov. Ed) Rendell supported it, but it never made it. Corbett didn’t support it. I plan to reintroduce it within the next two weeks. But if we would have passed it five years ago, we wouldn’t be in this situation.”
Daley said his office fields regular complaints about pensions, and that he is in constant contact with area school boards. He said the state has failed to provide the necessary contributions needed to fix the problem.
“It’s a major problem, it’s a major crisis and it needs major attention,” he said. “It has to be addressed. I don’t see many school districts surviving if we don’t.”
State Sen. Camera Bartolotta, R-Carroll, agreed.
“We need to recognize that our commonwealth must act now to address the financial pressures surrounding the underfunded public pension systems. Ignoring the pension crisis has undeniably led to increased property taxes, fewer educational opportunities and the tragic layoff of good teachers throughout the state.
“Pension costs are eating up more than 60 cents of every new dollar in state general fund revenue. The unfunded pension liability has grown larger than our entire state budget,” Bartolotta said in an email.
She acknowledged that while the Legislature has taken steps to address the matter, there are no immediate plans for a comprehensive pension reform bill to be debated.
Steve Robinson, spokesman for the Pennsylvania School Boards Association, said there are so many varying circumstances for each school district that there is no simple fix.
“We’re not going to see a drop in the increase. Nothing will provide immediate relief. But we need a plan that includes short- and long-term solutions,” he said. “Mainly something needs to be done, and the time for waiting is done.”