YORK, Pa. (AP) - As local school district officials work on budgets for next year, one expense continues to climb - even higher than once expected.
State-required pension contributions remain one of the biggest, if not the biggest, expenses increasing in school district budgets, according to some local officials. Even if they didn’t spend more on students, most districts would still see expenses grow by hundreds of thousands of dollars due to pension costs alone.
For example, Dallastown Area School District’s pension contribution was $766,000 in 2009-10, less than a percent of district expenses. This year, the cost is estimated at around $7.6 million, or 7.4 percent of expenses, according to documents on the district website.
That’s a trend seen statewide, as the required contributions escalated rapidly to make up for years when schools and the state were not paying enough to properly fund the system.
And while the rate of increase has slowed in the past year or so, it’s still taking up a big chunk of schools’ resources. Because the districts’ contributions have escalated, schools across the state have had to cut programs and personnel, raise taxes, drain fund balances or do all of those things.
The problem has just been compounding over time, said Wayne McCullough, director of leadership and development at the Pennsylvania Association of School Board Officials.
“Now with a rate of 32.5 percent, that’s 32 and a half cents on every dollar the school district pays for payroll,” he said. “It’s become a huge, huge burden.”
How’d we get here?
School districts are required to pay a certain percentage of their total payroll into the Public School Employees Retirement System. For a district like Central, for example, payroll is about $38.6 million, so its total pension contribution next year would be about $12.5 million. The state then reimburses school districts for at least half of those costs. Employees contribute an average 7.5 percent of their salary to help fund the system, too.
The required employer contribution, set out in law and certified each year by the PSERS board, has made huge leaps since 2009-10 to make up for the years of under-funding. The contribution rate grew from 4.78 percent of payroll in 2009-10 to 30.03 percent this year.
As of 2016, PSERS included about 257,000 active school employees and nearly 225,000 retirees.
In December, PSERS set the rate for next year: 32.57 percent, slightly higher than previously projected for reasons that include investment returns not hitting goals, according to PSERS.
Statewide, that means school districts will collectively pay $141 million more in pension contributions next year, and that’s accounting for state reimbursement, McCullough said.
Pension contributions have been “the biggest single item that has driven ours or .. generally any school district’s budget,” said Brent Kessler, business manager for the Central York School District.
Central’s pension costs are expected to increase by about $1.2 million next year, he said. The state will reimburse some of that, so the net impact on the district is about $600,000.
Central, years ago, set aside funding for future retirement costs, so there is about $3.4 million in reserves designated for that purpose. Come spring, the board will have to consider how state funding seems to be shaping up and whether to use some of that fund balance in combination with a tax increase.
Kessler said some might wonder why a district would not use the funding set aside. But they also have to think about scenarios like the lengthy budget impasse that kept state funding from schools for months in 2015-16.
“That’s the concern. It’s one-time money,” he said.
Brian Geller, director of operations in the Northeastern School District, said that conservative budgeting along with steps like debt refinancing have helped the district weather the cost increases. He thinks that, with money the district has in reserves, it can handle the future increases as well.
“I’m not saying we like it that high,” he said. But while many districts have been able to put some money aside for pension, not everyone has, McCullough said.
“There are many that have not been able to do that because of increased costs in other areas, too,” he said, citing health care and special education costs as examples.
York Suburban School District is looking at ways to fill a $2 million gap in next year’s budget. About $800,000 is due to increasing retirement costs. That’s before state reimbursement, but business manager Corinne Mason said the reimbursement typically lags several months behind when districts actually have to pay.
The board will consider options such as raising taxes to the limit, 2.5 percent, or could ask for an exception to raise them higher because of retirement costs, Mason said at a recent budget meeting. It could also dip into fund balance that was assigned for retirement costs or other reserves to close the deficit.
George Ioannidis, business manager for Spring Grove Area School District, said the large retirement contributions are still a concern. But districts at least knew an increase was coming, even if they didn’t know exactly how much it would be.
“The issue we can never predict despite what the pundits say … is what overall state funding is going to be,” he said.
What’s ahead
PSERS officials point out that next year will be the second year that employer contributions will meet the actuarial required rate, “which means that PSERS is finally receiving proper funding after the past 15 years of underfunding,” spokeswoman Evelyn Tatkovski Williams said in an email.
McCullough said his association still supports the idea of some kind of pension reform that would reduce the direct cost to school districts, though he hasn’t heard anything that indicates it could be on the horizon. Next year’s budget and property tax reform seem to have taken priority in state conversations lately.
Projections from December showed the employer contribution rate could climb to 36.4 percent by 2021-22.
But local school officials seem to hope that the worst is behind them.
Kessler, from Central, said he hopes to see the rate eventually start to come back down.
“We’ve hit that spike. We got here,” he said. “We did manage it. We have survived sort of getting to this point.”
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Information from: York Daily Record, https://www.ydr.com
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