School districts face retirement fund costs increase
As public school officials prepare budgets for the 2014-15 school year, one of the heftiest increases they will have to deal with will be contributions for employee retirements.
School districts have had to pony up more money in recent years to help fund the Public School Employees' Retirement System, or PSERS, which pays for pensions and health insurance for school retirees. The system is underfunded by about $33 billion, according to PSERS.
Contributions have gone from 8.65 percent of a district's payroll for 2011-12 to the 21.4 percent recently set for the 2014-15 school year.
“The state should have been replacing the money with stimulus funds a few years back,” Plum School Board member Kevin Dowdell said. “(Former Gov. Ed) Rendell used it (stimulus funds) for operating expenses. It could have been used to shore up the pensions.”
Employees contribute to their retirements, and the state returns to districts about half the payments they make, but district leaders say the requirement to help shore up an underfunded system still is difficult.
A spokesman for the Pennsylvania State Education Association, or PSEA, the state affiliate of many local teachers unions, said a new tax could help matters.
Gov. Tom Corbett exacerbated the problem in recent years by cutting state funding to schools, said Wythe Keever, PSEA spokesman.
Corbett could both eliminate corporate tax breaks and impose an extraction tax on natural gas and use the proceeds to help reduce the impact of the increased pension costs, Keever said.
“The problem didn't happen overnight, and correcting it is not going to happen overnight,” Keever said.
District leaders, meanwhile, are looking at strategies to make the upcoming payments. Some have been planning for the retirement spikes by setting aside money.
Others are dipping into their districts' reserve funds. Some leaders also are thinking about asking the state Department of Education to approve exceptions to raise taxes above the Act 1 Index to bring in more money for the PSERS payments, as well as to cover other costs.
“At this point, we have funds set aside in a designated fund balance for the impending increases in retirement contributions,” said John Wilson, director of business affairs for the Norwin School District.
The fund currently has $680,000, but Wilson anticipates it will grow to closer to $1 million by June 30, which is the end of the fiscal year.
“Our plan is to use these funds during the remaining years of the large increases to mitigate a significant portion of the pension contribution increases and allow the district to minimize the need for additional revenue,” he said.
Norwin's 2013-14 budget is $61.46 million. The district has 5,200 students.
Officials in the Penn-Trafford and Franklin Regional school districts also have planned for increased payments.
As pension costs were spiking, Penn-Trafford officials decided in 2010 to raise taxes by 2 mills to create a dedicated fund for impending increases.
Going into the next budget process, Penn-Trafford has $2.4 million in reserves, but business manager Brett Lago has estimated that the funds will be depleted over the next three years.
Franklin Regional has set aside $3.8 million since 2008-09, said John Perry, director of financial services. About $270,000 will be used to help offset the 2014-15 payments.
“The projected employer contribution rates continue to increase,” Perry said. “So it's prudent to set aside any surplus funds to mitigate the need for future tax increases.”
Leaders of the Shaler Area School District, with a $74 million annual budget, have set aside $675,000 from the reserve fund to help cover the anticipated $880,000 increase in the PSERS payment.
“If we use all that, we're still going to come up short, so it's a dilemma,” said Charles Bennett, director of business affairs. “We're really going to have to sit down and talk about the budget.”
The increase for PSERS is “drastic,” said Shauna D'Alessandro, vice president of the West Jefferson Hills School Board.
“It is killing school districts,” she said.
D'Alessandro said district officials have put aside money in anticipation of the increased costs of PSERS for the past few years. The district's 2013-14 budget is $40.3 million.
“We are looking at the long term,” D'Alessandro said.
D'Alessandro said districts also are suffering from a lack of reimbursements for building projects.
West Jefferson Hills officials are looking at building a new $70 million high school.
“It is a one-two punch from Harrisburg — the PSERS costs and taking away our (construction) reimbursement money,” D'Alessandro said. “It's a whole ball of wax, not just one issue.”
The Brentwood School District hasn't ruled out asking for exceptions, which would give the district permission to raise property taxes above a predetermined index.
Business Manager Jennifer Pesanka anticipates Brentwood's PSERS payment for the upcoming school year will be about $2.1 million, up from $1.6 million.
The annual budget is about $20.8 million.
District officials are looking to the reserve fund as a potential for making the payment. Pesanka estimates the reserve fund will contain about $4 million as of June 30.
Board members also might file with the state Department of Education for exceptions in the areas of PSERS and special education costs.
The district last year successfully was approved for both exceptions, which resulted in $138,704, Pesanka said.
“We aren't panicking yet,” Pesanka said.
Karen Zapf is a staff writer for Trib Total Media. She can be reached at 412-856-7400 ext. 8753 or email@example.com.