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June 6, 2013 | By | Posted in WatchBlog

WATCHBLOG: Pennsylvania’s school pension system gets a failing grade

By Gary Joseph Wilson| PA Independent

HARRISBURG – If problems aren’t addressed, the real cost of teacher pensions may not fall on taxpayers or educators, but squarely onto the shoulders of young students.

FISCAL FAIL: Schools across Pennsylvania could soon be forced to enact huge cuts to pay for the retirement obligations due to teachers, according to recent studies.

FISCAL FAIL: Schools across Pennsylvania could soon be forced to enact huge cuts to pay for the retirement obligations due to teachers, according to recent studies.

The Thomas B. Fordham Institute, an education policy think tank, released two reports on Thursday that highlight Pennsylvania’s “looming crisis”—unfunded teacher pensions. Schools could soon be forced to enact huge cuts to pay for the retirement obligations due to teachers.

And nowhere is this looming pension problem more staggering than in Philadelphia, the sole focus of one report.

The School District of Philadelphia provides teachers and employees with retirement benefits from the Public School Employees’ Retirement System, a statewide retirement plan for schools. The benefits include a pension plan and a retiree health benefit.

The Institute estimates that the cost of the School District paying these benefits could rise, in a worst-case scenario, from a reported $73 million in 2011, to more than $349 million by 2020. This would result in the District paying $2,361 per student in retirement costs for teachers and employees.

And the money has to come from somewhere.

According to the reports, the School District would have to cut other parts of its budget—by as much as 13%—to continue paying the current retirement costs. If the district chooses to reduce the size of its teacher force to meet these costs, they would have to eliminate more than 3,000 teaching positions, which would increase the student to teacher ratio from 16:1 to 24:1.

The other alternative is massive tax increases.  On Wednesday, state Rep. Dwight Evans, D-Philadelphia, and Philadelphia Controller Alan Butkovitz held an event at the state capitol to call for $500 million in new taxes to fund education, mostly due to costs in their home city.

The Fordham Institute report argues the potential problem was created by states’ embrace of a “giant Ponzi scheme” in which lawmakers promised retirement benefits the system cannot afford to pay to secure short-term political benefits.

The report suggests the best outcome is to share the coming pension pain “among retirees, current teachers, new teachers, school districts, and state taxpayers.”

Pennsylvania passed some pension reform in 2010, by limiting benefit accruals for new hires; however the Fordham Institute found these reforms have not “made a dent in Pennsylvania’s rising retirement costs.”

Gov. Tom Corbett is currently fighting for a more expanded pension reform. Corbett’s reform would see state employees, such as teachers, enrolled in defined-contribution plans and current state employees would receive a cut in benefits.

Unions, as they nearly always do, are resisting these changes.  In addition, state lawmakers don’t seem overly thrilled to act on Corbett’s proposals.

Even if Corbett can claw his way into achieving his pension reforms, it may not be enough. The Fordham Institute pointed to Corbett’s proposal as a positive start, but one that fails to deal with current unfunded pension liability—the biggest part of the problem.

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Melissa Daniels is a reporter for PA Independent. She can be reached at 717-350-0962 or Melissa@PAIndependent.com

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