Pension Fund Rate Spike
Deborah A Reefer
Kittanning, Pa 16201
ASD Board Meeting February 22, 2010
Many Pennsylvania school districts have been anticipating the increase and have already been proactive in preparing their district budgets accordingly. Unfortunately, other districts have not been.
There are many Pennsylvania taxpayers who aren’t informed on this issue, so I hope by speaking about it tonight, I bring some much needed attention to the matter and help our district taxpayers understand what our district faces starting the 2012-2013 fiscal year.
The funding changes of Act 40, which was passed on December 10, 2003, had the effect of pushing off pension obligations to the future to provide fiscal relief to both the commonwealth and school employees during recessionary times. The contribution rates for school districts are 15%, employee contributions are 26%, and 59% of the revenue is generated through investments.
But with costs rising in the past several years due to a number of factors, such as lower investment returns during the recent market slide, the 10-year amortization period, and the enhanced benefits created in 2001, the result is a 26.54% loss on investment returns.
The bottom line of how this is going to affect our district is summarized in the ASD Right To Know document containing the Salary, Health Insurance, and Retirement Increase. A 30 year projection and other relevant information can also be viewed at http://www.psers.state.pa.us/.
The five year projection shows the current fiscal year at the contribution rate of 4.78% and the net cost to our district at $967,329.
The upcoming fiscal year of 2010-2011 shows the rate nearly doubling at 8.22% and the net cost of $1,713,386, which is an increase of $746,057.
But the real “spike” is during the 2012-2013 fiscal year, in which the contribution rate jumps to 29.22% and the net cost to our district being $6,461,569….which is a $4,187,9556 increase!
This is not a one time increase. The rate continues to climb every year into the 30%’s through the next decade, before finally dropping back to below 20% in the year 2033.
Some of the questions that I’m asking the board directors to answer are, how are you preparing our district for the $4 million dollar increase we face in two years? Our district will need more than $6 million for the retirement fund that year and over $7 million in 2013, then nearly $8 million in 2014.
What specifically are each of you doing to ensure the district continues to have a balanced budget, to prevent taxpayers from being slapped with higher taxes, with some taxpayers’ estimated increase being $500 to $900 more per year due to the pension fund increase?
In the upcoming years, our district faces possible declines in both taxpayer revenue and state subsidy, but increasing expenditures, which will also include higher utility bills, especially due to the expiration of the electric generation rate caps. Our district also has two other high schools as well as some of our elementary schools that are also in need of renovations. Will we be able to afford any of these additional costs, especially with the higher payments to the pension fund? In just the next five years, our net cost of the pension fund payments will be $25,640,319.
At the January 18th Open Caucus meeting, Mr. David Sallack’s presentation on “Long Term Financial Planning” strongly recommends school districts to have a 10 year plan. It’s quite apparent that due to the constant power struggle by some of our board directors, Armstrong School District never seems to have a one year plan, let alone a long term plan. There are some current board members who take every available opportunity to criticize and publicly insult those they don’t agree with, yet fail to make any effort to provide any important ideas for improving and strengthening our district.
Director Solak, at the January 18th meeting, you pressed for an answer to your question “What’s next?” Since you’re one of the directors who voted yes on reopening Elderton High School at the December 14th board meeting, at which meeting you spoke in a very carefree manner of spending the money to reopen it without knowing the costs, you’re the director who needs to answer that question. What will happen if or when we are faced with an enormous deficit in the next couple years?
