Pension costs pose challenge for school districts
By Brian C. Rittmeyer
Published: Sunday, Feb. 10, 2013, 12:01 a.m.
While students probably aren't even thinking about this year's final exams, school district business managers are busy crunching numbers for the next school year.
And the numbers are adding up to substantially higher pension costs for all Alle-Kiski Valley districts.
Fourteen area districts will combine to spend about $19.5 million for their share of employee pensions in the 2013-14 school year, according to preliminary figures provided by the districts.
The Plum School District did not respond to repeated requests for information.
Next school year's local cost is looking to be about 44 percent more than the $13.6 million the 14 districts are expecting to spend this school year.
And it's 138 percent more than the $8.2 million they spent in 2010-11.
The districts' costs come after state reimbursement is factored. The state reimburses school districts at least half of their total costs; poorer districts get more, up to 70 percent.
“The increases are very unusual but not unanticipated,” said Douglas McCausland, business manager at Fox Chapel Area and a Deer Lakes school board member. “Everyone's been struggling with how you're able to fund those large increases along with the other increases we face in public education.”
The increase comes from an increase in the employer contribution rate for the Public School Employees' Retirement System, or PSERS.
For 2013-14, the PSERS board of trustees set the rate at 16.93 percent of payroll. That's a 37 percent increase from this year's 12.36 percent rate.
Area districts are predicting after-reimbursement increases of between 32 percent at Kiski Area and Deer Lakes and 68 percent at Armstrong.
Leechburg Area is predicting a 45 percent increase, which board member Jean Stull called “a little scary.
“I think we have planned very well to be able to face those rising costs head-on,” she said. “It looks like the state is going to be allocating more money to education this year. I think that's going to help out a lot.”
Gov. Tom Corbett in his budget address on Tuesday proposed changes to reduce the pension burden. For now, retirement costs are forecast to continue to rise for the next decade and beyond.
‘Payments are due'
School employee pensions are a serious fiscal problem, but the employees didn't cause it, said Wythe Keever, a spokesman with the Pennsylvania State Education Association, a union representing teachers and other school employees.
“The problem was created by a 12-year period of politicians treating the pension system like a credit card where they didn't have to make minimum payments,” Keever said. “It was underfunded for more than a decade while all the while teachers and other school employees, paycheck after paycheck, they were making their contribution.
“The payments are due,” he said. “It's a debt that has to be paid.”
Districts are facing sharply rising pension costs at the same time their ability to raise taxes is limited by a state-imposed inflation index.
About 70 percent of school districts can't raise their taxes enough to cover just their rising pension costs, said Jay Himes, executive director of the Pennsylvania Association of School Business Officials.
Few financial options
“If you can't pay for the cost increase in pension expenses from additional property tax revenue, the only two things you have is cuts in programs and personnel or use fund balance,” Himes said. “My guess is most districts are doing some combination of both.
“The districts not using fund balance are ones that don't have any more fund balance. The equation simply doesn't balance with these kind of expenditure increases without any new revenue.”
Districts can exceed the tax increase limit if they put their budgets before voters for approval at a referendum. That can be avoided by seeking the Education Department's permission for specific reasons.
Pension costs are one.
Officials with the New Kensington-Arnold and Freeport Area school districts are citing rising retirement costs in seeking exceptions to raise property taxes beyond their inflation-based limits for 2013-14.
Most school boards are loath to exceed their district's limit or raise taxes at all, Himes said. Some districts apply for exceptions and never use them, or don't use them to the full value.
“A lot of districts have taken the position that they will only exceed the index if they can't find any other cost reductions,” Himes said. “I believe to a degree the index has become the barometer. Unless there is no other option whatsoever, the district is going to stay within that index, period.”
Freeport Area has filed for exceptions the past two years, but didn't use them, board President Dan Lucovich said.
“We never know what's going to come out of the governor's budget for one thing,” Lucovich said. “It's easier to ask for the exceptions and hope that you don't have to use them than need them and not have them.”
Burrell Superintendent Shannon Wagner said her school board declared it will not exceed the district's 1.8 percent tax increase cap.
“We believe that's part of being fiscally responsible,” she said. “We've been reducing our expenditures as much as we possibly can, streamlining everything that we do.”
Knowing retirement costs would be sharply rising, school districts have been saving money for that purpose for several years.
Kiski Area started a reserve fund a few years ago that now totals $1.4 million, Business Manager Peggy Gillespie said. The district has not yet used it, covering pensions and other rising costs from other reserves and small tax increases.
Gillespie doesn't expect the district to use its pension reserves in 2013-14 despite a 32 percent increase in cost.
“For the year after, I believe we will,” she said. “It's definitely on the table.”
Districts have also been furloughing employees, eliminating positions and not replacing retirees. Thousands of positions have been eliminated or have gone unfilled statewide, Himes said.
Kiski Area has eliminated administrative positions, not replaced custodians and secretaries and cut supplemental positions, Gillespie said.
“We have been reducing staffing since the 2010-11 school year, so the costs have escalated while staffing decreased,” she said.
McCausland said Deer Lakes furloughed teachers to trim costs. That hasn't happened at Fox Chapel Area, but most retiring teachers are not being replaced.
“It's what's making contract negotiations more difficult for districts,” he said. “They can't afford to offer the same level of benefits.”
The cuts come at the same time schools and teachers are being held to higher academic standards, and expected to produce more academically successful students, Keever said.
“The bottom line is we're supposed to be here to educate children,” said Bob Pallone, president of the New Kensington-Arnold School Board. “If we start cutting things like the arts and the band and everything out of schools, what are we doing?”
Brian C. Rittmeyer is a staff writer for Trib Total Media. He can be reached at 724-226-4701 or firstname.lastname@example.org.
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