Pension crisis a costly matter
By: RACHEL CANELLI
Bucks County Courier Times
Local property owners face hefty tax increases to pay for underfunded state retirement benefits over the next several years.
As school district officials across the county were approving final budgets this month, they weren't just thinking about the next school year.
Even though Neshaminy and Bristol Township school districts still have to approve their budgets this week, administrators have also been trying to plan what to do for at least the next several years because of a looming state pension crisis.
Many districts are stockpiling money in rainy day funds to make up for stock market losses and contribution rate spikes to the Public School Employee Retirement System of between 16 percent and 35 percent from 2012 to 2016.
But with the size of the storm that's brewing, school officials are worried that it won't be enough without legislative action.
The increases translate to tax hikes of anywhere from $200 to $2,000 a year over the next several years, according to the Pennsylvania School Boards Association. This means current tax bills could double or triple by the end of the coming spike in retirement costs.
For instance, a homeowner with a Neshaminy School District tax bill of $4,400 this year could see it go up to almost $5,000 by 2015, officials said.
"Local districts will be able to pass this added funding burden onto the local taxpayers, who will be powerless to stop it," said Council Rock taxpayer John Rasiej, who lives in Wrightstown . "And it's not a one-time hike.
"I'm gearing up for a tax increase of 10 percent next year," he said. "I wonder how much more I'll have to trim from the (family) budget in the coming years. I know a lot of people are going to be in the same boat."
And coming up with the funds to cover the increasing pension cost is still a hazy proposition, said Isabel Miller, Pennsbury's business administrator.
"We're all struggling to figure out how we can plan for it in the long run," she said.
In Pennsbury, when the PSERS rate jumps from 10.59 to 29.22 percent, or an additional 6.1 mills to 16.6 mills, the tax increase will go from $190 to $521 in a single year. The district has set aside $1.2 million to help cover the cost.
"No other issue affects homeowners as much as this one over the next five years," said Tim Allwein of PSBA, an advocacy group for the state's school boards.
Besides increasing school district contributions by more than 700 percent between now and 2014-15, the pension crisis also creates a long-term problem in which those rates will remain abnormally high for another 20 years. That's partly because a 2001 law increased pensions, but deferred the bill until 2012.
Legislators recently approved House Bill 2497, which would cap taxpayer payments for the next several years and defer higher costs to future years.
If it is also approved by the Senate, the legislation would reduce pensions for employees hired after Jan. 1. It would also push the retirement age to 65, eliminate lump sum payouts and push the time frame for workers to become 100 percent vested workers from five years to 10, officials said.
State Rep. Steve Santarsiero, D-31, said the bill is a necessary step.
"We have to do this," said Santarsiero, a former teacher. "If we don't, we're looking at a huge burden for all of us in the future. That's unacceptable."
Santarsiero has co-sponsored House Bill 2559, which would create a public employee pension commission to prepare a report within six months recommending long-term changes to the system.
PSBA has backed House Bill 2135, which would transform the pension program from a defined benefit to a defined contribution program, That would take it from a 100-percent employer-funded plan in which retirement pay is based on salary history and length of employment to a combination of that and a program in which school employee and employer contributions would be deposited into individual accounts and invested for each member.
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Local school board members have said that bill doesn't do enough. They want to see the pension system become more of a 401(k) plan, to which employees and employers would both contribute.
The Pennsylvania State Education Association believes the bill could harm the state's ability to attract and retain quality teachers because the current plan encourages people to become and remain educators in the state's public schools. But PSBA also believes the state needs another source of funding as well as changes in the structure for future employees.
Liquor taxes an answer?
State Rep. Frank Farry, R-142,
doesn't believe deferring higher costs goes far enough. In about two weeks, he hopes to unveil his own plan, which would dedicate some liquor taxes to help school districts pay pension costs.
Farry estimates that about $300 million would be distributed to districts based on their individual PSERS obligations. He said it's difficult to predict whether that amount would cover every penny of every district's retirement obligation, but it would make a deep dent.
"This bill is geared toward preventing districts from having to raise taxes to cover their retirement responsibilities. It would make the pension fund healthier and would protect the property taxpayers from increases," Farry said.
Many school districts are adding money to their fund balances, or savings accounts, to try to ease potential tax increases, including: $3.8 million in Bensalem; $2.4 million in Centennial; $6 million in Council Rock; and $250,000 in Morrisville.
And some say they expect to add more.
"If and when the rate goes up, we will have to access how the shortfall, if any, will be addressed," said Tim Vail, Centennial's business administrator.
Council Rock Superintendent Mark Klein said the pension crisis won't only affect taxes. There will be other changes to the budget, he said.
The problem also affects contributions to Bucks County Technical High School, charter schools and the Bucks County Intermediate Unit No. 22, which provides special education services to Bucks County schools, said Jack Myers, director of Bensalem's business operations.
Factoring in the PSERS rate would cost that district double what it pays for 430 charter school students, which is currently $162,200, Myers said.
In Neshaminy, the pension issue will mean looking at every program, said Joseph Paradise, that district's business administrator.
"We will need to ensure that we consider increased efficiencies by consolidating buildings, and doing whatever we can to lower our payroll costs in order to survive the sudden and extended increase of PSERS payments," Paradise said.
Middletown resident Larry Pastor, who's also chairman of Taxpayers for a Fair Neshaminy School District Budget, has been campaigning for a zero percent budget increase. Pastor said he supports a two-step solution: extending liability and redirecting revenue sources. He also believes the retirement age needs to be raised, employee contributions need to be increased and the pension system needs to be reformed to a 401(k) for new employees.
Any way you look at it, there will be no relief without legislative action, said Jill Ruch, Palisades' business administrator.
That's why PSBA is trying to raise awareness, Allwein said.
"Taxpayers and school boards really need to put the pressure on," he said. "Get educated and contact legislators."
