Interesting article in Daily Local newspaper by Dan Kristie (see below). TESD School Board Member Kevin Mahoney says the school budget could be 15% over budget in 2 years if the pension contributions rates don’t change. According to Mahoney, the only way to deal with the increasing pensions costs is to pass a large real estate tax increase! Comments . . .
Retirement System’s Cost to Rise Dramatically Soon
By DAN KRISTIE, Staff Writer
This is a dramatic increase, considering the district’s 2010-11 budget was $203 million and 60 to 70 percent of the district’s expenses are dedicated to salaries and benefits — a percentage that, because of contractual obligations, is difficult to reduce or change.
Schools across the state are facing similar increases in their retirement system contributions, and their budgets are similarly constrained.
School officials in Chester County expect the state Legislature will — somehow — adjust the retirement system so the increases will be less dramatic. But even if reforms are implemented, the retirement system remains dramatically underfunded. Local officials doubt any state-level solution to the PSERS crisis will save their own school districts from all the retirement system-related pain.
Officials are reluctant to speculate about what will be on the chopping block once the increased retirement system contributions come into effect. The consensus, however, is that if the increases are anywhere near as large as projected, educational programs will be affected.
Kevin Mahoney, the chairman of the Tredyffrin/Easttown School Board finance committee, said that if required PSERS contribution rates do not change, his school district in two years will be 15 percent over budget.
This will be the case, Mahoney said, even if Tredyffrin/Easttown sees no other cost increases except for a small increase in the cost of benefits. Mahoney added that the district is required by law to pass a balanced budget.
“You can only do that by increasing class size or eliminating curriculum choice,” Mahoney said. The other way for districts like Tredyffrin/Easttown to deal with the increased PSERS rates would be to pass a large real estate tax increase.
Act 1 is the state law that limits how much school districts can raise property taxes. Act 1, however, allows districts to exceed the limit in order to cover mandated pension contributions. Act 1 also allows districts to hold referendums if they seek to raise taxes beyond the limit.
Local school officials said Act 1 taxpayer referendums are extremely unlikely to pass in Chester County, given the economic climate and the mood of the electorate here. And, officials said, school districts would be unlikely to try to use Act 1 exemptions to pass the PSERS increase off to taxpayers.
“[The West Chester Area School] board has made it pretty clear we’re not taking exceptions,” said Jim Davison, the chairman of that school board’s finance committee. He added that the electorate in West Chester Area would never go for a referendum.
“I have no confidence in a referendum passing in this district,” Davison said. Davison, like Mahoney, said he believes his district’s educational programs could be in jeopardy if the state doesn’t reform the retirement system. He said, however, that West Chester Area will try to make other types of cuts — to facilities budgets and energy use, for example — and hope for the best from the state-level retirement system reform effort.
“But I don’t know if we can make enough of those types of cuts so we don’t impact the classroom,” Davison said. “That’s the million-dollar question. We may end up impacting the classroom — increasing class size, getting rid of programs.”
Bill Fagan, the chairman of the Downingtown Area School District finance committee, used the metaphor of a series of concentric circles to describe how the retirement system crisis might affect his district. “When you look at the concentric circle with the children in the middle, the farther out you get from that circle, those are the types of programs … more likely to be cut,” Fagan said.
Fagan said he was unwilling to speculate about precisely what type of programs would fall on the outer circles. But, he said, he hoped Downingtown Area could deal with the PSERS crisis without negatively impacting the classroom.
The state legislature in July voted to reduce the 2010-11 retirement system employer contribution rate from 8.22 percent to 5.64 percent, meaning school districts will be required to contribute less than expected this year to the fund.
Local officials said that, in the absence of other action, this only delays the retirement system crisis. “The state has been unwilling to change the benefit program,” Mahoney said. “We keep seeing this ski slope curve in front of us, and whenever we get close to it the state has changed the discount rate, which just makes the curb steeper but farther away.”