PSERS

Sometimes Do Overs are possible …T/E School District Union Votes to Save Aides from Outsourcing!

What is the saying about no do-overs in life?  For approximately 25 non-instructional aides in the TE School District, they learned yesterday that do-overs are possible!

To the surprise of many, you may recall on April 30, members of the Tredyffrin Easttown Non-Instructional Group (TENIG) voted against including the small group of “non-instructional” TESD aides into their union.  The bid to create a subset group within the TENIG union for the District’s non-instructional aides failed with a vote of 23-21. Although there are approximately 170+ TENIG employees, only 44 members attended the meeting to vote.

In the aftermath of the April 30 vote, some members of TENIG rallied behind their fellow District employees and mounted a campaign for another vote; a vote that would include absentee votes. The collective bargaining rules require a simple majority — a vote of fifty percent plus one of the votes cast.  The election results are in and the TENIG vote count to include the 20+ District aides is 53 Yes – 13 No.  The results indicate an overwhelming majority of the TENIG union members want their fellow District employees!

With the District’s deadline of May 15 (tomorrow) to outsource the full-time aides and paraeducators to CCRES, this news for the non-instructional aides could not come at a better time.  The saga of the District’s full-time aides and paraeducators and the threat of outsourcing have gone on for the last two years.

Faced with offering health care benefits to all District employees under Affordable Care Act or paying penalties for non-compliance, the School Board had made the decision earlier this year to outsource. The 73 full-time aides and paraeducators were given the option of either working for the outsourcing company to keep their full-time hours or reducing their hours to part-time (27.5 hr. and below) and remain a District employee.  The District employees had until May 15 to make their decision.

Although the outsourcing of the District’s full-time aides and paraeducators would have avoided the cost of providing health care and PSERS, the Board’s plan has a new wrinkle.  The current 3-year TENIG contract (July 1, 2014 to June 30, 2017) provides for health care benefits for all employees working 25 hours or more per week and as District employees, they receive PSERS.  Approximately 25 of the District’s non-instructional aides destined for outsourcing now will have a new home in the TENIG and enjoy the benefits of a collective bargaining group, which includes health care!

Although some steps remain in the process to formally add the non-instructional aides in to TENIG, the hard work has been done.  Congratulations to John Brooks, TENIG president and to the many TENIG members, who supported their fellow District employees, appreciated their value and fought to save their District jobs!

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TE School District Avoids ACA Compliance Issue – Reduces Hours and Outsources Aides and Paras

We learned at last night’s school board meeting, that the TE School Board’s way around the Affordable Care Act compliance issue is to reduce employee hours. The ACA does not require the District to provide health insurance to those employees working less than 30 hours a week – so the District’s answer to the Federal law is simple … cut hours of the lowest paid employees.

The District’s quick and dirty solution to avoid ACA compliance issues for 73 full-time District aides and paraeducators is to give them two options – either the full-time employee agrees to work part-time (27 ½ hrs. or less) or they will see their District job outsourced, effective July 1.

Under the leadership of School Board President Kris Graham, the School Board approved the following resolution:

Aides and paras resolution

The Board vote to approve the resolution was 7 – 1.  Republicans Kris Graham, Jim Bruce, Virginia Lastner, Doug Carlson, Peter Motel and Democrats Karen Cruickshank and Kevin Buraks voted in favor of the resolution. Democrat Scott Dorsey opposed the resolution and Republican Liz Mercogliano was recused from voting because her daughter is a part-time aide in the District.  In addition to not voting, Mercogliano was not permitted to comment or ask any questions regarding the Affordable Care Act. Voting is one thing but it is unclear why District solicitor Ken Roos would not permit Mercogliano to ask questions regarding the Affordable Care Act.

The full-time District aides and paras did not receive notice that last night’s school board meeting would include a decision regarding their employment future. Nor was there any attempt to seek public comment or discussion on the ACA compliance issue.  Buried on page 4 of the meeting agenda was the seemingly innocuous ‘ACA Update’.  Other than school board directors and some administrators who would know that ‘ACA Update’ was actually code for outsource the District’s aides and paraeducators.  To be clear, the resolution did not appear in the online agenda materials or on the District website (it was only available to those attending the meeting).

The 73 full-time District aides and paraeducators learned their fate following the Board meeting, through a 10:30 PM email from Personnel Director Jeanne Pocalyko. The aides and the paras must make a decision by May 1 – they can opt to stay a District employee as a part-timer (with reduced hours) or their job is outsourced to an unnamed vendor.  No details about the selection process of a vendor – will the District solicit vendors through an RFP or has the unnamed vendor actually already been decided?

A key component in the computation of PSERS (retirement benefits) is the final average salary of the employee, which is calculated based on an average of earnings during their last three years of employment.  So … say one of these full-time District aides was 57 yrs. old and had planned to retire at age 60. Under the conditions of continued District employment, he or she has a substantial reduction in salary from full-time to part-time status. Because the PSERS calculation of retirement benefits is based on these final three years of employment – with earnings reduced by the District, the employee will see their retirement benefits reduced at time of retirement as a result.

Are there legalities with this resolution – the Board’s decision will affect the future retirement benefits of 73 District employees. Many of the District aides and paras have served the District’s children and their families for years; is this the way the Board rewards their loyalty?

Let’s review – the District can afford administrator bonuses, raises and a Cadillac health plan to the highest paid District employees but rather than provide insurance to the lowest paid employees, the School Board elects to cut the hours of 73 aides and paras, thus reducing their future retirement benefits.**

Ms. Graham’s term on the school board ends in 2015 but she plans to seek reelection.  Will her leadership in the outsourcing of aides and paras influence her endorsement by the Tredyffrin Township Republican Committee?  More importantly, will Graham’s decision to outsource influence voters in November.  The terms of Jim Bruce, Liz Mercogliano and Pete Motel also end in 2015. I know that Bruce will not seek re-election but not certain of the plans of Motel and Mercogliano.

____________________________

** According to the PA state retirement system website, the formula for establishing retirement benefits states, “Your final average salary is the highest amount you earned during any “three non-overlapping periods of four consecutive calendar quarters. For most employees, it is the average of your last three years’ salary.”  

The key is that typically the highest paid three years would occur at the end of one’s career.  In the case of the TESD aides and the paraeducators who will go from full-time to part-time hours should they choose to stay employed in the District, their pension will be based on a prior 3-year period.

For further information regarding Pennsylvania state pension, visit the website: http://sers.pa.gov/members-pension-formula.aspx

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PA Pension Crisis: A Vote to Change the Pension Laws is a Vote to Protect the Taxpayers

Unfunded pension liabilities are the dark cloud hanging over the state budget. Years of underfunded retirement promises to public employees has plunged the state into a financial black hole that is approaching $50 billion. The cost of doing nothing increases on a daily basis, and translates into higher property taxes, an inability to fund public education in the manner in which it deserves and painful cuts to critical government programs. The time is now for meaningful pension reform.

Facing huge shortfalls in the two public pension systems in Pennsylvania – PSERS (Public School Employees’ Retirement Systems) and SERS (State Employee Retirement System), State Rep. Warren Kampf (R-157) turned to a strategy that a lot of private companies adopted years ago – moving workers away from the guaranteed pension plans and toward 401(k)-type retirement savings plans.  In 2013, he introduced two pension reform bills to move the public pension systems toward a defined benefit plan with defined contribution systems for all new hires while protecting the benefits of employees currently in the system.

Working with Mike Tobash (R-125) from Berks County, Kampf’s House Bill 1353 was amended to a hybrid pension reform plan that would not change benefits for current employees but would place new employees in a “stacked” pension system, including both a defined benefit and a defined contribution component. An overview of the proposed hybrid plan, including details on the defined benefit and defined contribution aspects, from Tobash website indicates:

  • Benefits of current employees would not change
  • All new state and public school employees would be subject to the same plan
  • The plan is a combined traditional, defined benefit plan and 401-K-type defined contribution investment plan
  • Bill would include provisions to allow absences for leaves of absence, furloughs, military service, disability, maternity leave, Family Medical Leave Act while remaining in the system
  • Employee contribution would be 6 percent
  • Defined benefit for first $50,000 of salary, indexed 1 percent annually
  • Defined benefit is fully earned after 25 years of service
  • Participants are vested after 10 years
  • Defined benefit cannot be collected prior to age 65 without penalty
  • No different classes of service
  • Employee contribution of 1 percent and employer contribution of .05 percent on all compensation up to $50,000
  •  Employee contribution of 7 percent and employer contribution of 4 percent on all compensation more than $50,000
  • Employee contributions vest immediately and three-year vesting of employer contributions

Private employers decided years ago to terminate traditional pension plans in lieu of 401(k) plans and likewise, it is time for government to shift the pension plan’s risk to the worker.  Some employees prefer the 401(K)-type retirement system because it gives more control over the retirement assets, including the ability to take the money with them when they change jobs.

Pennsylvania’s pension reform bill was on a roller coaster ride this last week.  Gov. Corbett has been urging the legislature to pass pension reform, indicating that he would not pass the 2014-15 budget without its inclusion.  But rather than approving HB 1353, the General Assembly voted 107-96 to send it to the House Human Services Committee.  Sending it back ‘to committee’ could have meant the death knell for the bill.  Fortunately, that was not the case and the House Human Service Committee voted to send HB 1353 to the full House for final consideration when the legislators reconvene in the fall after summer recess.

According to Tobash website, the plan is “estimated to save between $11 billion and $15 billion over a 30-year project period” but it is not without its naysayers.  Some who oppose the proposed pension reform plan suggest that it will not solve the current underfunding problem and that it will reduce pension benefits of new employees. Although it is correct that under this plan, new employees will not have the same retirement benefits as those currently in the system, I would ask what is the alternative … do nothing and continue to feed the ballooning unfunded retirement black hole?

Doing nothing to affect the pension obligations is not acceptable, because it only allows a very bad situation to deteriorate even further.  Taxpayers in Pennsylvania are on the hook for almost $50 billion in unfunded pension liability.  The staggering pension debt should concern all of us — it threatens our state’s economy, our citizens and future generations.  Now is the time for meaningful pension reform and lawmakers need to take action.  A vote to change the pension laws is a vote to protect taxpayers – support House Bill 1353.

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Long-Term Pension Reform … Only Solution For Pennsylvania Taxpayers

As school boards across the state are scrambling to balance their own budgets, it’s also crunch time in Harrisburg. At this point, it is unclear how much help the Governor and his administration is willing to provide in the budget for education.  Even if Corbett restores some of the education funding in the state budget, it seems impossible that the economic crisis in school districts will be solved.

School boards have been put in the difficult position of making tough decisions on educational programming cuts, staff reductions, increased class sizes, etc. in an attempt to balance budgets.  But looking ahead, how does the state and local school districts handle the inevitable … the pension tsunami. Whether it is the pensions of the state government workers or the public school teachers, how is it possible to solve this seemingly impossible situation?

The State Employee Retirement System (SERS) and Public School Employment Retirement Association (PSERS) enjoyed huge investment gains in the 1990’s and the pension funds climbed to 123 percent. In their wisdom at the time, legislators decided to reduce the state’s contribution in May 2001 (known as Act 9).  However, without the benefit of crystal ball forecasting, four months later the world plunged into a recession and the pension funds balances began to fall.  Unfortunately the state’s pension problems were increased with the passage of Act 40 in 2002, which allowed the state to continue to lower their contributions to the pension, increased the employee contribution rate to 7.5 percent and provided for a cost of living adjustment (COLA).

The next round to pound the state pension plans was the recession of 2008.  As a result, the once overfunded pension system plummeted and is currently funded at around 80 percent.  Couple the underfunded pensions with the fact that a wave of baby boomers are set to retire this year thru 2016.  How are the school districts (taxpayers) going to make up the unfunded liabilities?  Pennsylvania school boards are left to manage the 800-lb gorilla in the room – Harrisburg’s public pension crisis.

We know that the only solution to the problem is a long-term pension reform plan.  I have written several articles on the absolute need to overhaul the pension system of Pennsylvania’s state workers. (If interested, enter ‘pension reform’ in the search box on the home page of Community Matters).  It is no longer possible for the state to fund a traditional defined-benefit plan; a change to some type of 401(K) pension plan is needed (required) for all future state employees and public school teachers.

The move away from traditional defined benefit pension plans, where the investment risk is borne by the taxpayer, is long overdue. There really is no other way.  Many legislators have addressed the need for pension reform, including our state representative, Warren Kampf (R-157) who held a town hall meeting on the subject this past March. (Click here).

The school districts do not control teacher pensions – Harrisburg does. The precarious, ‘at the edge of the cliff’ situation of school districts will continue as long as there is no pension reform. There is no ‘new’ news on the pension disaster; it has been staring lawmakers in the face for some time.  But now that the pension crisis is upon us, the real question is … how do we get Harrisburg to act … and to act quickly!

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Should School Districts (TESD) Use Fund Balances Instead of Educational Cuts and Teacher Demotions?

Should school districts, such as TESD use fund balances instead of educational cuts and teacher demotions?  The answer according to Governor Corbett and some other Pennsylvania lawmakers, is yes.

Tredyffrin Easttown School District has amassed an enviable fund balance – $32 million; one of the largest in the state.  There are those in the community that support the school board holding on to the “rainy day” reserve funds; primarily because of the dramatically increasing PSERS contributions over the next few years.  We understand that the traditional package of retirement benefits for state employees and teachers has become unaffordable and pension reform is sorely needed (and sooner rather than later).  I support the state switching to a defined-contribution model (401(k) type model) for new hires but that only prevents the underfunded-pension liability problem from worsening … the state has a current multi-billion dollar hole.  But unlike T/E, the state has no “rainy day” fund.  Trying to manage their budgets, the state’s pension crisis has pushed school districts across the state to the edge of the cliff.  There are those that praise T/E for the good job they have done in holding onto their fund balance in spite of the pension crisis.

But not everyone in our school district supports T/E holding onto the $30+ million fund balance; suggesting that this money represents past overtaxing and belongs to the taxpayers and should be returned. Then there is the teacher union’s position that the fund balance should be used before utilizing budget strategies such as demotion or increasing class size.  Some residents fear that as school district’s budget woes push them over the cliff, the state will look to Districts (such as T/E) to bail out their fellow school districts.

Governor Corbett has sent a message to Pennsylvania’s school districts; he believes that they should tap into their reserves instead of cutting programs or laying off teachers and staff. During a recent radio interview with Dom Giordana on CBS channel WPHT, Corbett said if school boards want to cut programs instead of spending more of their financial reserves, than the public should blame them – not his budget.  According to Corbett, “Well, I look at the reserves as – it’s a rainy day fund. And this is a rainy day – we are in a rainy day.” If you are a supporter of our governor, then the message to T/E school board would be no educational cuts, spend the fund balance.

Taking Gov. Corbett’s message for school district’s to use their fund balances, a step further are State Rep. Mike Vereb (R-Montgomery County) and Mario Scavello (R-Monroe County).  These two Republican lawmakers are developing legislation that would force school districts to use their reserve funds to balance their budget before they would be allowed to raise taxes.  Vereb and Scavello want to either limit the amount of money that districts can hold in their “rainy day” reserves or ban the school districts from raising taxes if the money needed to balance the budget is available (in the fund balance).

In an article on Watchdog.org , “Pennsylvania School Districts have Tripled Savings in 15 Years”, it was stated that Pennsylvania school districts have more than $3.2 billion in reserve funds. Data from the PA Department of Education indicates that the reserve accounts have nearly tripled from $1.1 billion in 1996-97 to more than $3.2 billion last year.

The article included an interesting table listing the largest reserve fund increases in Pennsylvania since 1996-97; Tredyffrin Easttown School District has the distinction of coming in 7th in the state.  In 1996-97, T/E had $4,333,661 and in fifteen years increased by more than $26 million to a current total of approximately $32 million.  Amazing.

  Largest Reserve Fund Increases Since 1996-97
  Rank District 1996-97 2010-11 Increase
  1 Pittsburgh $47,013,209 $148,871,185 $101,857,976
  2 Downingtown $183,005 $50,803,447 $50,620,442
  3 Abington $1,509,021 $45,937,675 $44,428,654
  4 Lower Merion $6,584,556 $43,405,136 $36,820,580
  5 Altoona $1,509,021 $45,937,675 $44,428,654
  6 Bensalem $1,674,721 $28,564,360 $26,889,639
  7 Tredyffrin-Easttown $4,333,551 $31,026,455 $26,692,904

 

 

 

 

 

 

Vereb is “furious to find that many of the state’s school districts that are crying poor and blaming the state for their fiscal problems are sitting on surpluses, including one that totals $148 million.”  Although Vereb supports school districts having an emergency reserve, he feels that the taxpayer is deserved an explanation as to why school districts with large fund balances are cutting programs and teachers and raising property taxes but refusing to use fund balances.  That’s the reasoning behind the legislation that he and Scavello are working on — forcing the hand of school boards to use their fund balances before raising taxes.

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T/E Fund Balance … Panacea to District’s Budget Shortfall?

The Tredyffrin Easttown School District School Board is contending with decreased local revenue, higher health insurance costs, increased contributions to the state pension fund, and diminished state and federal revenue. These problems do not make TESD unique; school boards across Pennsylvania are facing the same issues.

To suggest that Pennsylvania school districts are challenged by the financial crisis would be an understatement. As School Boards struggle to balance their budgets amidst these challenges, there is unprecedented concern as they look for solutions.

In TESD, the teacher contract talks continue as a backdrop to the ongoing budget discussions of the school board. With the current teachers’ contract set to expire on June 30, 2012; we are starting to see the battleground lines drawn in the sand. I am beginning to fear a “us versus them” mentality is developing. Many of the comments on the last Community Matters post were focused on the health insurance benefit plans of the teachers. I have to believe that the T/E teacher’s union TEEA accepts that the district can no longer afford to sustain their members’ health care plan at its current level – simply not possible.

Teacher unions fight for their members’ financial self-interests. To be clear, I do not have a problem with that motive – after all, isn’t that the primary reason ‘why’ a teacher would join TEEA and pay dues. Some may suggest that it appears that both TEEA and the school board are more focused on the money than the education. Let’s hope for the benefit of the District’s children, that conclusion reached by some is incorrect. Many of T/E teachers are also residents and parents. TEEA may be hoping to keep their benefit package intact but I have believe that the quality of the district’s educational program is every bit as important to most of its members.

Monday’s School Board meeting should be an indicator to the community on whether the teachers and the School Board are working toward the same goals or not. A couple of important topics for discussion at the meeting will be demotion and increased class size. I have previously written that increasing class size by one or two students may not be a problem, but could this be seen as the beginnings of change to the quality of TESD education? Increased class size may mean that teachers cannot focus as easily on individual students’ needs.

Just the talk of ‘possible’ demotion in TESD for economic reasons, is sending a negative tidal wave to TEEA. It is worrisome that the professional staff may be feeling devalued based solely on this budget strategy discussion. According to a recent TEEA press release, “T/E Teachers Willing to Help Create a Financial Bridge to the Future” the teachers union fully understands the District’s financial crisis and has prepared an ‘extremely reasonable solution’ to the School Board. However, according to TEEA, there has been unwillingness on the part of the School Board representatives to discuss their offer. The article further states that if demotion in the District moves forward, it is likely that some of the teachers will be forced to seek employment elsewhere. In reading the press release, I bought into this part of their argument.

However, the following paragraph from TEEA caused me pause,

At the same time, the Board has made assumptions about our future financial condition based upon many worst-case scenarios. They assume no future revenue growth, continued real estate decline, and continued lack of state and federal funding. These assumptions ignore significant increases the district made to its reserve fund in the past year. A more reasonable projection would account for an improving employment rate in Chester County, a real estate market that is beginning to rebound, and other indications of improving economic conditions.

To be fair to the School Board, they would not be doing their job if they were not realistic in their budget projections. Governor Corbett has focused his blame for the current budget crisis in Pennsylvania schools solely on the shoulders of local school boards. With Harrisburg’s major public education funding cuts, it is precisely the school board members who are now mired with this mess as the state pushes school funding responsibility on local school districts. I believe it is a bit quixotic for TEEA to suggest that the School Board should take a more positive (unrealistic?) approach to improving economic conditions. I am all for taking the ‘half glass full’ approach to situations but its needs to be tempered with realism. Rather than ‘worst-case scenario’ as suggested by TEEA, I hope that our School Board is attempting to be realistic in their projections.

In the latest TEEA press release, ‘Teachers Hope for Open Dialogue, Ask Community to Share Voice’, they offer a list of questions for community members to ask at Monday’s School Board meeting. Much of their focus is on the District’s fund balance, and the suggestion that the reserves be used to fund the budget shortfall. According to the TEEA, our school district currently has a reserve fund that is 26% of revenue, whereas other local school districts have fund balances of 8% to 10%. TEEA states that the PA School Boards Association recommends a balance no greater than 5%.

I believe that TESD has the largest fund balance in the state – someone please correct me if this wrong. And since the fund is taxpayer’s money, do you agree with TEEA and that a buy down from the reserve is in order to help fund the 2012-13 budget?

However, what are the repercussions, if any, with this approach for future budgets or future emergencies?  Moving forward, you don’t know when a roof is going to need major roof repairs or a school boiler is going to need replacement. Few school districts have amassed anywhere close to the significant fund balance as TESD. Maybe we should view 2012 as an ‘emergency’ and with that approach, use the fund balance as TEEA suggests.

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Public Pension Reform Needed in Pennsylvania

I attended Rep. Warren Kampf’s town hall meeting, which focused on the state pension system and its impact on the budgets at the state and local level, with specific attention on the additional burden for our school district. Kampf provided an in-depth overview of the state pension system for state workers and teachers and the need for reform.  By the use of a slide presentation, Kampf offered background and history of the state retirement system and a timeline as to how we arrived at the current underfunded pension crisis and proposals for reform.

(To review Kampf’s town hall meeting pension reform slides, click here. There are 19 slides, so it takes a couple of minutes to load.)

What are the reasons that Pennsylvania is now facing a multi-billion dollar public pension crisis?  Kampf offered three – benefits, stock market/rate of return and underfunding. The stock market declined in 2001 and then we saw the substantial losses of the market in 2008.  The declining rate of return from the stock market had a direct impact onPennsylvania’s public pension plan.

As Kampf explained, the state has no ‘raining day’ fund to help with the pension crisis whereas T/E School District has one of the largest fund balances of all school districts in the state — $30 million.  Trying to manage their budgets, the state’s pension crisis has pushed school districts across the state to the edge of the cliff.  There was praise to our school district for the good job they have done in spite of the pension crisis.

Many in the audience wanted Harrisburg to ‘fix’ the current pension plan and change it not only for future hires but for those workers currently in the system. Kampf explained that due to the state constitution, that although not legally impossible, it would take years to change the constitution to enact any change affecting state workers vested in the current retirement plan.  Realistically speaking, any proposed pension reform legislation should focus on future employees in the system.

Various options for changing the current pension retirement plan were offered and discussed – (1) a defined contribution 401(k) type of plan, (2) a hybrid plan with a defined benefit as a component.  This plan sounds like social security and is viewed as a ‘half’ measure; it gets you somewhere but not far enough, and (3) a cash balance plan with mandatory employer contribution shared between shared between the state and school district but was not viewed as solving liability.

According to Kampf, the proposed pension reform legislation that he plans to introduce will suggest a 401(k) type of retirement plan. He was clear that the current retirement plan needs to change – the state needs to stop adding additional workers to the current system.  As he says, the bottom line is that there is no easy way out and any pension reform will require discipline.

Kampf understands the pension crisis and appears to have a vision for how the state needs to move forward to correct the problem.  The traditional package of retirement benefits for state employees and teachers has become unaffordable and I support pension reform – and sooner rather than later. For future pension benefits, I think that the state should switch solely to a defined-contribution model, akin to a 401(k) model, for new hires.  This will help prevent the underfunded-pension liability problem from worsening while the state climbs out of its present multi-billion dollar hole. For the record, I do not support any change for those public workers vested in the current retirement plan; only for new hires.

If Kampf’s proposed legislation for pension reform includes a 401(K) type of retirement plan, his plan will have my support.  State and local governments around the country are taking similar steps to reduce retirement costs, often prompting battles with labor unions. Structural and long-term reforms to the pension system could go a long way toward improving the fiscal outlook of state and local government.  However, the issue of pension reform could be a political minefield for state legislator. Kampf’s pension reform is probably not going to be him in a favorable position with the teacher’s union (PSERS) or the state employees union (SERS).

Pennsylvania is not alone in its need for pension reform.  According to the National Conference of State Legislatures, from 2009 to 2011, 43 states enacted major changes to retirement plans for public employees and teachers.  I hope that through pension reform legislation, the burden pension systems place on state budgets and taxpayers can lessen, while still ensuring a stable financial future for government workers.

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T-E School District has Projected $16 million Budget Shortfall but Underfunded Pension not the Only Factor

Over the next few years, Tredyffrin Easttown School District will be faced with a $16 million budget shortfall; but the pension crisis is not the only contributing factor.

For many years, a growing economy propelled increases in stock prices, enhancing the coverage of many pension plans, public and private. In the old days, the nature of traditional pension coverage in the private and public sector was quite similar; the majority of all employees were covered by a defined benefit plan where the liability of the pension lies with the employer. However, there is a reason why in the last decade that the vast majority of private sector employees have turned away from defined benefit plans to some form of a 401(K) type plan – the challenge of keeping a defined-benefit plan, particularly in our unstable economic climate, has proven too great for most companies to bear.

Defined-benefit plans may provide the best financial safety net for employees, but most private sectors can no longer afford to maintain them – the strain on the company balance sheets has proved too large for firms to withstand.  And even in the case where a company struggled to keep a traditional defined-benefit plan in place, the economic downturn has prompted plan changes whether they were preferred or not.

Pennsylvania, like many states in the country, is facing a multi-billion dollar public pension crisis and now is the time for pension reform in Harrisburg.  The Public School Employees Retirement System (PSERS) and the State Employees Retirement Systems (SERS), the two systems administering retirement accounts for state and public school employees, are severely underfunded and will become insolvent without an increase in taxpayer contributions.

Pension reform will be to the topic of Rep Warren Kampf’s town hall meeting on Sunday, March 18, 4 PM at the township building.  The school district’s public budget workshop on Monday, March 19, 7:30 PM in the Conestoga High School auditorium, will include discussion of the pension crisis and its impact on the school district.

Kampf plans to introduce legislation that would move state workers and school employees to a 401(K) style retirement program.  All lawmakers should embrace fundamental pension reform but this type of reform legislation is likely to be met with significant political barriers in Harrisburg.  A key driver of ever-rising retirement benefit costs is their hidden nature; it is easier today to promise retirement benefits that will not have to be paid out for years.

The true extent of the unfunded liability of the state pension plan needs to be fully understood. Most of the funding for pension payments – 69% over the last 25 years – comes from investment earnings. The state and school districts combined for 17% over those years, with employees contributing 14%.  The causes of the pension-rate jump, PSERS officials say, were pension-payment increases made over the last decade or so that the legislature did not fund adequately, and investment-market declines in 2001-03 and 2008-09. A Pew Center study shows that the Commonwealth has contributed only 40% of what is actuarially required — the lowest percentage of any state government.Pennsylvania’s two major pension funds were 116% and 114% funded in 2001, but dropped to 83% and 79% by 2009.

We can accept that the pension crisis contributes to the projected school district’s $16 million budget shortfall over the next few years but is not the only factor that led to the current economic situation.  Because school districts are so reliant on property taxes to fund their respective budgets, the last few years and the next several years will show an ever-decreasing revenue stream as property values and real estate transactions have tumbled. The unfunded and underfunded mandates serves only to exacerbate the already difficult fiscal situation faced in the school district.

Looking back at the last teacher contract, the economic picture in the Tredyffrin Easttown School District was very different in 2007 than it is in 2012 — the school board signed a contract that guaranteed 5%+ salary increases each year. Add to that the rising healthcare costs plus the required PSERS contributions, and the total yearly compensation increase package is much higher.  Therefore, it is impossible to balance that increased expenditure when the Act 1 index plus exceptions is below 4%.

Rising healthcare costs and PSERS contributions coupled with decreasing real estate revenues and state and federal support … equals the unprecedented new fiscal reality of our school district.

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Underfunded Pennsylvania Pension Funds Need Real Reform

Pennsylvania is facing a multi-billion dollar public pension crisis – now is the time for pension reform in Harrisburg.  The Public School Employees Retirement System (PSERS) and the State Employees Retirement System (SERS), the two systems administering retirement accounts for state and public school employees, are severely underfunded and will become insolvent without an increase in taxpayer contributions.

In discussing the need for pension reform, in December 2010, I wrote . . .

“did you know that more than half the state’s municipal pension plans are less than 90 percent funded?  Calculated as the ratio of assets to liabilities, 644 municipal pension plans are labeled as “distressed” by the state’s Public Employee Retirement Commission (PERC).  Of those, 26 are less than 50 percent funded and branded as “severely distressed.”

I cannot speak for the accuracy of those numbers thirteen months later, but I have to believe that they have not improved.

One of the last bills signed into law as Gov. Rendell was leaving office was HB 2497, which became Act 120.  But instead of reforming the defined-benefit pension system, this legislation ‘kicked the pension can’ further down the road, by deferring pension payments and increasing the unfunded liability by billions of dollars in lost investments and interest – in essence, leaving the problem on the shoulders of our children and grandchildren.

In the old days, the nature of traditional pension coverage in the private and public sector was quite similar; the majority of all employees were covered by a defined benefit plan where the liability of the pension lies with the employer. However, there is a reason why in the last decade that the vast majority of private sector employees have turned away from defined benefit plans to some form of a 401(k) type plan – the challenge of keeping a defined-benefit plan, particularly in our unstable economic climate, has proven too great for most companies to bear.

Defined-benefit plans may provide the best financial safety net for employees, but most private sectors can no longer afford to maintain them – the strain on the company balance sheets has proved too large for firms to withstand.  And even in the case where a company struggled to keep a traditional defined-benefit plan in place, the economic downturn has prompted plan changes whether they were preferred or not.

Teachers and state workers should not be targeted as public enemies because of their benefit packages. However, I just do not see how their defined-benefit plan (in its present form) is sustainable for the future.  Clearly, pension reform should not affect any vested state employees or pensioners already in the system – changes should only affect future employees.

From the taxpayer side, we are angry because we have to make up the state’s pension fund losses as we watch our own 401(k) accounts depleting. The teachers argue they never took a vacation from paying into the system and that a pension is necessary to attract and keep good teachers.  Pennsylvania State Education Association (PSEA) the state’s largest teachers union is on record that will oppose any proposed changes to Act 120, such as a 401(k) type of defined contribution plan. This is a catch-22 situation; we want to maintain a high quality of teachers and state workers in Pennsylvania, but we cannot afford the current pension price tag.

During the last election cycle, there was much discussion from school board candidates about the District’s financial situation and possible solutions, including imposing an earned income tax.  Some candidates believed that because the financial problems were caused by Harrisburg, that it should be up to the state to find the solution, not the school districts (taxpayers).  Candidate and now re-elected school board president Karen Cruickshank called on the state to “fix your mess” and suggested that residents contact their legislators and the governor to push for pension reform.

State Rep Warren Kampf (R-157) has an editorial, “Change the pension system to help taxpayers” in today’s Phoenixville Patch. In the article, Kampf states that his pension reform legislation,

“will require all new state employees and those hired by school districts to participate in a defined contribution plan (like the 401k-style plan that is prevalent in the private sector) where the taxpayer would  be required only to match the employee’s contribution. This would be in lieu of the traditional defined benefit pension plan”. 

Under Kampf’s plan, state employees would have a system similar to the private sector where an employee owns their 401(k) plan and takes it with them if they leave the job.  In a Community Matters article from December 2010 (cited earlier) I wrote,

“. . . As another form of fiscal responsibility, Kampf announced that he would not be taking the state’s defined-benefit pension plan and will work on the creation of a defined 401K-type plan for legislators and state employees.” 

I have not agreed with all of Kampf’s votes since he took office, but to give credit where due . . .  Kampf’s promise to work on pension reform were made prior to his taking office in 2011, and today we learn that he plans to introduce his proposed reform legislation this spring.  (Click here to read the Phoenixville Patch editorial).

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Chester Upland School District is Out of Money – Can Other School Districts be Far Behind?

 There is some chilling news for public education out of Delaware County. . .  is this a ‘sign of the times’. 

With no help from the state and no fund balance, the Chester Upland School District (CUSD) has announced they have no money to pay their teachers. CUSD has a cash crisis and this past week the district ran out of money. Unless emergency funding arrives immediately, the CUSD will not meet its payroll on January 18 – which means no paychecks for teachers.  Also, means no money for electricity or heating in the schools.  To satisfy the January 18 payroll crisis, CUSD needs $7 million immediately and approximately $20 million to finish the school year.

When Gov. Corbett cut the education budget last year, we know that the cuts hit the poorer school districts the hardest – such as CUSD.  Because CUSD relies on the state for nearly 70% of their funding, the district now finds themselves in the hole by $19 million and unable to disburse paychecks.

In an impressive show of support for the students, the CUSD teachers resolved through their union, to stay on the job as long as they can.  As altruistic as their intentions, how long can the teachers realistically work without a paycheck.  Still it shows a remarkable level of compassion from the teachers and indicates ‘who’ really cares about the students.

In mid-December, the CUSD school board and teachers union begged Corbett and PA Department of Education (PDE) for an advance 2012 emergency funding of $18.7 million — $17.5 million for basic education subsidy plus $1.2 million for special education funding. (click here  to read CUSD letter).

However, on December 24, CUSD received word from Harrisburg that their advance request was denied.  It was suggested in the response from PDE that the CUSD’s economic crisis was a result of their own making — suggesting that the school board had mismanaged the school district’s operations and finances.  As a result, regardless of their cash crisis, the letter states that no help will be coming to CUSD from the state.  (click here to read PDE’s response to CUSD).

Before the start of the 2011-12 school year, CUSD already laid off 40% of their professional staff and 50% of their unionized support staff.  Because of those actions, the teachers now have class sizes exceeding 40 students. If emergency funding does not arrive by January 18, CUSD may be forced to close schools.

As minority chair of the Senate Education Committee, Sen. Andy Dinniman had harsh words on Friday for the Corbett administration’s handling of the CUSD financial crisis, claiming that PDE is set on a path to destroy public education in the Commonwealth and an orchestrated attempt to fund charter schools versus public schools.

In his press release, Dinniman indicates that Corbett’s unwillingness to help CUSD is politically motivated, suggesting, “Is it just a coincidence that the operator of the for-profit charter school serving the students of this district [CUSD] is also one of the biggest Republican contributors in the Commonwealth?’”

Dinniman goes on to say, “The callous action to not advance the basic funds to allow the education of students in Chester Upland is not school reform; it is a purposeful and harmful attempt to destroy public education. No matter what side of the education you are on, all of us need to stand up to make sure that the basic funding continues to be available for the students in this district. We must stand as one to assure that the politics of education in Pennsylvania is not done on the backs of these students and these teachers.”

Sharing the sentiments of some of the T/E school board members, Dinniman looks to PDE for the answers. However, I don’t know how realistic this is – if PDE is willing to allow the Chester Upland School District to implode why should we think that the state will help the healthier, more financially secure school districts.  The school districts, like T/E  that are sitting on hefty fund balances are not certainly not going to find themselves at the front of the line, if and when, the state decides to offer financial assistance.

Several school board members have suggested that the financial problems facing our school district, and every other district across the state, is a problem that needs fixing in Harrisburg.  I probably would not disagree that the state needs to help.  However, based on CUSD’s dire financial situation, I think that the ‘hoping for Harrisburg help’ position may prove futile and unrealistic.

It appears that Corbett and the PA Department of Education is willing to throw the financial crisis back at the feet of the local school districts and their taxpayers.

Please, before anyone jumps in and suggests that I am somehow comparing T/E School District to Chester Upland School District– I am not.  These two school districts represent opposite ends of the spectrum in probably every way . . .  from property values to student test scores.  And whereas, CUSD has no fund balance, our school district has one of the largest fund balances in the state.

BUT . . . realistically, how many school districts ‘away’ from a Chester Upland School District cash crisis is T/E? 

Due to PDE funding cuts and looming PSERS costs, all the school districts across the Commonwealth are sitting on the edge of a cliff.  Sure, T/E and other local school districts with their significant fund balances, may be at the end of the line to fall off the cliff but, . .  .  how far off is that fall?

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