Pension costs burden region’s school districts
Debra Krelow knows things are tough in South Butler schools.
The Penn Township mother of two watched her youngest child graduate from the South Butler School District this spring, but she worries about friends with children in schools under program cutbacks and additional fees brought on by escalating pension costs pounding schools across Pennsylvania.
The issue is a focal point in heated budget negotiations in Harrisburg as lawmakers and Gov. Tom Wolf count down the hours to the June 30 deadline to pass the 2015-16 state budget.
Plagued with pension fund contributions that ballooned from $2.35 million in 2013-14 to $3.74 million in the coming year, South Butler has moved to phase out French, eliminate world languages at the middle school and charge a $250 fee for drivers education.
Last year, the district pared six teaching positions through attrition. It outsourced hiring substitutes to Kelly Services, a move more local schools are making, in part to dodge potential health insurance and pension costs.
Officials even considered a plan to charge a $50 student fee for sports and $25 for club participation.
“That would have been very difficult for some families,” Krelow said. “We had a $50-a-year donation to buy hoodies for softball because we start practicing so early, and some families couldn’t afford that.”
She wonders where it will end.
“They’ve already dropped the French program and the agriculture program, and agriculture is the No. 1 industry in this state.”
Similar scenarios are happening at schools across Pennsylvania as school boards and administrators attempt to meet pension obligations that soared by nearly 60 percent since 2013-14, going from $1.8 billion to $2.9 billion for the coming school year.
That’s money that must be set aside before turning on a single light, ordering a book or funding a program. And although state money pays for part of that burden, about 50 percent of it comes through local taxes.
Though increasing charter school tuition and health insurance costs have contributed to the growing bill, most agree pension obligations are the major cost driver.
That’s why the issue became a point of contention in this year’s budget negotiations.
Wolf says Pennsylvania could control costs by fine-tuning the way it pays fund managers who walk away with millions in fees every year and reduce the unfunded obligation by refinancing a portion of the debt, essentially borrowing from Wall Street.
Republican lawmakers who control the House and Senate are adamant that a complete overhaul is the only way to stop the spiral. Their plan, outlined in Senate Bill 1 last month, includes shifting new state and school employees and incoming lawmakers into a 401(k)-type program, preserving benefits that existing employees have earned, then giving them the option of accepting a lower benefit or paying more to maintain their benefit.
The plan calls for reviewing fees paid to fund managers.
Experts said neither the Wolf plan nor the Republican proposal adequately addresses the $35.1 billion in unfunded liabilities taxpayers owe for benefits that school employees have earned.
The problem dates to 2001 when lawmakers cut a deal with then-Gov. Tom Ridge to bump up their pension benefits by 50 percent in return for agreeing to increase pension benefits for teachers and state employees by 25 percent. They neglected to add cash for bumping up benefits that employees had earned at the lower level. And shortly thereafter, lawmakers agreed to give retirees a cost-of-living raise without adding cash to the pension pot.
In return for his agreeing to the pension adjustments, lawmakers gave Ridge tax credits for contributions to private schools and education foundations.
The deal soon came back to haunt the state in a way no one anticipated.
Pension bumps, coupled with market downturns in 2001 and 2008 and the state’s failure to pay its full pension obligation year after year — even as employees ponied up their portions — led to a dramatic spike in pension payments that is not projected to level off until 2020. Despite a 2010 measure designed to adjust benefits for new employees, officials believe required annual contributions will peak at nearly a third of payroll.
“The pension increase is going to level off in a few years, but it’s a high plateau. It simply means 31 to 32 percent of every dollar will go to pensions year after year. It’s a very high level,” said William Hartman, a Penn State University professor who focuses on education finances.
A recent study by Hartman and a colleague, released through the Temple University Center for Regional Politics, predicted that 60 percent of the state’s public schools will not take in enough revenue to cover projected costs by 2017-18.
‘We can’t cut anymore’
Many schools insist they cut much of the fat in their budgets as they worked to prepare for pension spikes.
The Plum School District, where pension obligations increased from $4.6 million to $7.3 million over the past two years, began outsourcing substitute services to Kelly Services five years ago. More recently, it eliminated family and consumer science and drivers education.
Hempfield Area began paring services nearly a decade ago. First, officials cut extras in the budget, then they cut programs.
Hempfield added $75 per-student fees for sports about six years ago and eliminated French and Spanish in elementary schools seven years ago. Officials closed two elementary schools and leased them to tenants, eliminated assistant principals at middle schools, renegotiated transportation contracts and joined purchasing consortiums for diesel fuel and natural gas.
“We eliminated a couple of teaching positions when people went out on retirement. But now we’re at the point where we can’t cut anymore. Education is what we’re all about, and we don’t want to eat into that,” Superintendent Barbara Marin said.
Projections calculated by the Tribune-Review show Hempfield’s pension contribution that was $6.3 million in 2013-14 will be about $10 million in the coming year.
Hempfield’s preliminary budget calls for a 1.79-mill tax increase and the expenditure of $2.7 million from a reserve fund maintained for emergencies. Each mill brings in about $600,000, so the tax increase barely covers the jump in the district’s 50 percent portion of the pension bill, which was $8.1 million in 2014-15.
Although some districts set aside money to address pension obligations, most had to raise taxes. A recent study by the Association of School Administration and the Pennsylvania Association of School Business Officers found 90 percent of the schools increased taxes over the past five years.
Jim Buckheit, executive director of the Pennsylvania Association of School Administrators and former head of the state Board of Education, said the toll is frightening.
“(Schools) were once viewed as institutions that people held in great esteem. But now that is withering because of financial issues. It’s affecting jobs, lives, kids’ educations and opportunities,” he said. “We’ve eliminated over 23,000 school employees over the last five years.”
Debra Erdley is a staff writer for Trib Total Media. She can be reached at [email protected].