Special Report: Impact of Pension Costs on Erie School District Budget
Over the past several years, Erie School District leaders say their biggest cost driver is employee pension costs. Erie News Now takes an in-depth look at the school employee pension system and its overall impact on the district’s budget.
As the school year comes to an end, students at East High School have mixed emotions.
“I'm kind of happy that we are mixing schools together,” said East High School student Nila Jones. “But then, I'm kind of not."
Facing a $10 million deficit, the Erie School District plans to consolidate high schools, forcing East and Strong Vincent students to attend either Central Tech or Collegiate Academy.
"I feel like it's a good idea,” said East High School student Delmar Moore. “I play football and it will be a better chance for us to get together and make it somewhere.”
As the district cuts its way to a balanced budget each year, the cost of the retirement system continues to rise
"It's a very significant amount of expense for the district,” said Erie School District Superintendent Dr. Jay Badams. “It's increased steadily over the last several years."
In Pennsylvania, all public school employees are part of the Public School Employees’ Retirement System, or PSERS.
"The PSERS fund is based on a tripartite funding system, which employees, employers, split equally with the districts and the state and then the investment returns from the PSERS funds.” said Pennsylvania State Education Association representative Marcus Schlegel.
As it stands right now, employees contribute 6.5% to 12% of their income to the pension system, while the school district contributes 32% of its payroll.
"Each year, that is our biggest cost driver,” said incoming superintendent Brian Polito. “Last year, our pension contribution increased by $1.8 million dollars."
According to Polito, out of the district's $194 million budget for 2017-18, a total of $23.4 million is set aside for retirement costs.
"It's about 12% of our budget,” said Polito. “That's in stark contrast to where it was just a couple years ago, in 2011-2012, that pension contribution totaled $5.2 million."
However, the state reimburses 70 percent of the district's retirement contribution, so the net pension obligation is roughly $7 million.
"$24 million is a fake number,” said Schlegel. “It's an absolute false number because the actual cost to the district is $7 million, so that represents about 3.6 percent of the budget."
The 70 percent of the retirement contribution that is reimbursed, is included in the district’s state subsidy, so it is still paid for by taxpayers.
In Pennsylvania, the current pension system for school employees is underfunded by nearly $50 billion.
Both Schlegel and Polito agree, that many of the funding issues stem from a decision in 2001.
At that time, Governor Tom Ridge and the legislature passed Act 9, which gave all school district employees a 25 percent boost in their pension benefits, and all legislators a 50 percent increase in their pension benefits.
“Right after that happened, there was a stock market crash,” said Polito. “Instead of addressing it at that time, the legislature decided to kick the can down the road and really postpone that for 10 years."
Combine that with 9/11 and the stock market crash of 2008, and you have a retirement system that went from a $6.9 billion surplus in the 90s, to a $50 billion financial hole.
“It's a long, slow process of recovery,” said Dr. Badams. “There will need to be some further changes I think, for it to remain solvent."
In 2010, Governor Ed Rendell signed Act 120, which is a piece of pension reform legislation that boosted employee contribution rates for new employees.
"After 2010, we are making incremental steps to correct it,” said Rep. Pat Harkins. “But it is going to take some time to see it through the process."
Legislators have also discussed moving new hires into a 401k style-system. According to Schlegel, that would do more harm than good.
"Any sort of scheme that turns everybody into a 401k or anything of that nature, does nothing to address the unfunded liability and actually costs more to switch to that system,” said Schlegel. “As you saw in our most recent contract, the teachers of Erie have been willing to help the district find solutions. In our most recent contract, we took two years of salary freezes, so for three years total, we did not have any increases."
Whether any additional reform will actually be passed, remains to be seen.