LAST OF A THREE-PART SERIES

Pension contributions to stress budgets

By Ed Mahon

Education experts have compared the state's pension fund to a tsunami, a mountain and an 800-pound gorilla.

For school board members, it’s the multimillion dollar question hanging over them as they prepare budgets for next year. And how they answer it has implications on the rest of the budget, from how high the tax rate will be to how much technology will be in the classrooms.

The math problem works like this:

This year, Bellefonte Area School District pays $437,920 into the Pennsylvania Public School Employees’ Retirement System, known as PSERS. In 2012-13, Bellefonte anticipates that it will have to contribute $2.6 million to the fund.

For some perspective, that $2.16 million difference between this year’s payment and the anticipated 2012-13 payment is roughly equal to what Bellefonte would pay in salaries and benefits to 35 first-year teachers.

Every school district in the state is facing a similar problem, and the spike in the pension fund payment is only expected to get higher in the subsequent years.

“It’s a huge concern. ... I know they’re working on it in Harrisburg to try to come up with some kind of plan,” said Robert Lumley-Sapanski, president of Bellefonte’s school board. “In the meantime, we are trying to put some money into an account, so we won’t have a huge hit.”

That spike varies depending on the size the district. Penns Valley, which is the smallest district in the county and has a current budget of $22.9 million, would see its district contribution increase from $244,856 this year to $1.6 million in 2012-13.

The downturn in the investments markets is largely driving the pension funding problem. But the origin dates to 2001, when state legislators approved a 50 percent boost in their own pension benefits and increased pension benefits for other state employees, including teachers, by 25 percent.

Employees who contributed to the system but retired prior to 2001 do not receive increased pension payments.

Dave Davare, director of research services at the Pennsylvania School Boards Association, said the change meant that the employee contribution rose from 6.5 percent to 7.5 percent.

At the same time, the General Assembly also reduced the amount that the state and school districts had to pay into the pension fund system.

“They were able to do that because of the stock market at the time,” said William Hartman, an education professor at Penn State and budgeting expert. He views lowering the contribution rate as a mistake.

Contribution percentages are based on what districts pay in salaries, and from 2000 to 2003 those percentages ranged from 1 to 2 percent.

“The pendulum just swung too far,” Hartman said.

Now it’s swinging in the other direction.

Districts will contribute 4.78 percent this year and expect to contribute 26.04 percent in the 2012-13 fiscal year and 30.02 percent by the 2016-17 fiscal year.

Bellefonte is setting aside $200,000 this year and plans to accrue an additional $400,000 in 2009-10 in anticipation of that increase. State College and Philipsburg- Osceola are planning similar measures. Penns Valley and Bald Eagle don’t now have plans to accrue additional funds for a PSERS reserve. But that could change as they move toward passing final budgets by the end of the month.

School board members are hoping, and in some cases expecting, that state officials will reach a solution — because the pension problem affects all state employees, not just teachers.

“That’s probably the toughest one for me,” said Philipsburg-Osceola school board President Robert Selfridge, “because I really do believe either they’re going to have to fix that or we’re going to have a crisis statewide.”

Here's what local school districts are doing about the looming rise in pension payments:

Bald Eagle Area is not currently planning to set aside additional funds for a PSERS reserve.

Bellefonte plans to accrue at the rate of 7.13 percent instead of the required rate of 4.78 percent. That’s expected to yield an additional $400,000. The district accrued an additional $200,000 this year.

Penns Valley has not yet set aside funding for PSERS. But the district could end up receiving up to $491,000 in funding from the state, which it hasn’t yet budgeted. Superintendent Brian Griffith has recommended that they place about $100,000 of that into a PSERS reserve fund.

Philipsburg-Osceola plans to accrue at the rate of 7.13 percent instead of the required 4.78. That’s expected to yield an additional $282,000.

State College plans to accrue at the rate of 7 percent instead of the required 4.78. That’s expected to yield an additional $1 million.