This bill parallels the anticipated “fix” [and I that word loosely] by “kicking the can further down the road”, rather than addressing the significant issues of the looming pension crisis. Gov. Rendell endorsed this “solution” [and only a politician would deem it this] in his proposed 2010-11 state budget. It’s funny how politicians appear to develop short-term memories around election time [see below].

We should reduce the benefit level. We should reduce when those benefits accrue. We can’t afford it. It’s going to break school districts and the state. It was a giveaway. Interestingly, everyone got upset at the [2005 legislative] pay raise. The pay raise cost the taxpayers about 1/500th of what this [2001] pension grab is costing. And no one got mad at Gov. Ridge. No one got mad at the Legislature back then. I guess it’s because the impact is phased in over so many years. But this is a tsunami compared to the pay raise.

Governor Ed Rendell (during an interview with the Morning Call)

An actuarial note attached to this bill by the PERC (PA’s Public Employee Retirement Commission) estimates the higher costs in later years will far outweigh the contribution reductions in the earlier years – to the tune of an astonishing $52 billion MORE to achieve this “cost smoothing” over the next 30 years. See pages 10-11 of the document below.

Again, this legislative “solution” is projected to cost $52 billion more than the total amount of the current PSERS and SERS pension crisis already!

The following graphs are from “HB 2497 and the Pension Rate Spike”, prepared by PSERS & SERS upon request from the House Democratic Caucus, detailing the impact HB 2497 would have on the employer contribution rate spike and plateau facing both state pension systems. Note: Click on the images to enlarge them.

HB 2497′s Projection of Employer Contribution Dollars

HB 2497′s Projection of Total Employer Contribution Rate

HB 2497′s Projection of Unfunded Liabilities

HB 2497′s Projection of Funded Ratio

More information on HB 2497

Regarding PSERS, the bill re-amortizes all of the unfunded actuarial accrued liabilities of PSERS over a 30-year period using level percentage of pay amortization payments and extends from five to ten years the asset smoothing period beginning July 1, 2011. The bill also proposes to fund any increases in accrued liability enacted by legislation after June 30, 2010 over a ten-year period using level percentage of pay amortization payments. For the fiscal year beginning July 1, 2010, HB 2497 establishes the total employer contribution rate as the final contribution rate of 5.0% of the total compensation for all active members, plus the premium assistance contribution rate.

The bill also imposes “collars” on the rate at which employer contributions may rise from year to year, establishing temporary collared contribution rates for fiscal years July 1, 2011, July 1, 2012 and on or after July 1, 2013, that if the contribution rate is more than 3%, 3.5% and 4.5%, respectively, of the total compensation of all active members greater than the prior year’s final contribution rate, then the collared contribution rate must be applied and equal to 3%, 3.5% and 4.5%, respectively, of total compensation for all active members. For all other fiscal years in which the actuarially required contribution rate is less than the collared rate, the bill establishes the final contribution rate as the actuarially required contribution rate, provided that the final contribution rate is not less than the employer normal contribution rate.

HB 2497 was amended by the committee to insert technical changes and also to allow any active member in the SERS, who was previously an active member of PSERS, to elect to become a multiple service member no later than 365 days after becoming an active member in SERS.

Source: PSBA’s Office of Governmental and Member Relations, Weekly Legislative Update, June 10, 2010

If this protracted period of economic uncertainty continues and this problem is not fixed…the PSERS Crisis alone will bring every public school district in Pennsylvania to a screeching halt by the year 2012. That’s a pretty bold statement to make, so I wasn’t surprised this recent blog posting caught my attention as well:

Perhaps one of the most effective dramatic scenes in a movie was Tom Cruise’s JAG lawyer character interrogating Jack Nicholson’s smartaleck colonel character in A Few Good Men. At one point in his testimony, Nicholson arrogantly asks Cruise if he wants the truth. When Cruise replies, “I want the truth,” Nicholson responds with one of the most memorable lines in movie history, “You can’t handle the truth!”

This scene reminds me of where we currently are in the debate about PSERS. Certain groups can’t handle the truth that it’s disingenuous to continue to condemn school boards for not having paid their fair share into the fund over the past 10 years as the primary culprit for why the fund faces the crisis previously foretold. Actuaries, experts in this number-crunching game, have stated that while employers (school boards and the state) have not paid their fair share over the past decade, that is a tiny piece to the underfunded puzzle, and most definitely not the only root cause of the dilemma.

The time to point fingers and assign blame is over. Solutions need to be worked out now or the pension tidal wave will wash over taxpayers and school districts, leaving them angry and frustrated. We need to look forward not back.

The Governor recently included his thoughts on the pension issue in his budget address; however, that solution is short-sighted in that it only pushes the problem down the road for someone else to solve. If the Governor’s solution were combined with a new funding source and addressed the benefit levels provided by the system, then we might have something.

Source: Leading PA Schools blog

The current funding issue confronting PSERS represents the greatest challenge the Agency has faced in its history. The funding issue, commonly referred to as the “rate spike” or “rate plateau,” refers to the significant increase in the employer contribution rate in fiscal year (FY) 2012/2013 and following years that is paid by school employers and the Commonwealth to PSERS to fund pension benefits.

Jeffrey Clay, PSERS Executive Director

We should reduce the benefit level. We should reduce when those benefits accrue. We can’t afford it. It’s going to break school districts and the state. It was a giveaway. Interestingly, everyone got upset at the [2005 legislative] pay raise. The pay raise cost the taxpayers about 1/500th of what this [2001] pension grab is costing. And no one got mad at Gov. Ridge. No one got mad at the Legislature back then. I guess it’s because the impact is phased in over so many years. But this is a tsunami compared to the pay raise.

Governor Ed Rendell (during an interview with the Morning Call)

Unquestionably many school districts will be struggling with the staggering 72% increase in this benefit cost for the 2010-11 school year.  As illustrated below, our collision course is very close on the horizon. This is truly a paramount legislative issue that originated in Harrisburg — and needs to be clearly addressed and “fixed” immediately. Although I’m just not convinced we can trust them on this one, as our elected politicians enjoy a similar “guaranteed” pension benefit system with ominous problems of its own. Contact your state representatives and make your voices heard today!

Source: PSERS

This post must have stuck an accord with many as this blog realized a “spike” of it’s own yesterday — a 219.44% increase in the number of visitors from the previous day.

My first recommendation is to continue to gather as much information as possible. A great place to start is the Pennsylvania Public School Employee Retirement System (PSERS) website. They have assembled a webpage entitled “Pension Funding Rate Spike Resources”, which contains a good amount of information and data projections from the PSERS actuaries.

I know its a lot of information to grasp, so I will make use of this blog to help explain some of the real issues. I will also leverage the use of data visualization tools to better summarize the information.

Additional resources from both sides of this issue:

• The Pennsylvania School Board Association (PSBA)
• The Pennsylvania State Education Association (PSEA)

My second recommendation is to get involved. After learning more about this important issue facing public education, contact your local and state representatives and share your input with them. Attend school board meetings…search the web…stay informed.

Local Legislative Offices:

• Rep. Gary Day, 187th District (includes all of Northwestern Lehigh School District)
  Northwest Centre, Suite 302
  6299 Route 309, New Tripoli, PA 18066
  Phone: (610) 760-7082
  E-mail: gday@pahousegop.com
• Sen. Pat Browne, 16th Senatorial District (includes Lowhill & Weisenberg Townships)
  8330 Schantz Road, Breinigsville, PA 18036
  Phone: (610) 366-2327
• Sen. David Argall, 29th Senatorial District (includes Heidelberg & Lynn Townships)
  One West Centre Street, Mahonoy City, PA 17948
  Phone: (570) 773-0891
  E-mail: dargall@pasen.gov

Contact the leadership of the Senate:

• Sen. Joseph Scarnati at jscarnati@pasen.gov or fax (717) 772-2755
• Sen. Dominic Pileggi at dpileggi@pasen.gov or fax (717) 783-7490
• Sen. Robert Mellow at mellow@pasenate.com or fax (717) 772-2162.

Contact the leadership of the House:

• Rep. Keith McCall at kmccall@pahouse.net or fax (717) 772-1231
• Rep. Todd Eachus at teachus@pahouse.net or fax (717) 772-9991
• Rep. Sam Smith at shsmith@pahousegop.com or fax (717) 787-6564.

Like that ill-fated voyage of 1912 — another disaster of epic proportion is on the horizon. Although this time, the “call to action” has already been sounded in advance of the collision. The real question is… “Will history be repeated?”

The year 2012 will mark the 100th anniversary of the sinking of the RMS Titanic. Ironically, it will also mark the year for one of the greatest challenges to public education in Pennsylvania — maybe even sending this grand system of “unsinkable” social ideology down into the dark depths of the unknown as well.

The PSERS/SERS crisis has received much publicity and media attention lately. I expect this will increase as more stakeholders take an interest — at least from a property tax perspective — and continue to learn more about the real issues.

Thankfully, the continued recession has heighten the need for governmental agencies to finally “wake-up” and review their long-term financial situations. Okay, I said that partly in jest. While some school districts may have chosen to simply ignore this warning, our school board and administrative team have been analyzing and discussing this issue for the past 2 years. We also passed a Board resolution urging our legislative representatives to take action on this important issue.

As our state’s political machine grinds away, opponents from both sides of the PSERS crisis will continue their intense debate and finger-pointing. And a slew of organizations and lobbyists will make their cases to under-informed politicians — many of whom are running for the lifeboats themselves. This issue is certainly not news to them! Just keep you ears tuned to how many times the word “students” is mentioned in these debates.

Through a proactive approach to fiscal planning, Northwestern Lehigh will certainly not be the first “ship” to meet this fate — although every stakeholder and school district are “passengers of the same class” on this collision course with the PSERS iceberg.

I have chosen not to ignore the warning — nor will I abandon my “navigational responsibility” to which I was elected. Like the many members of your district’s school boards, we need your help! Now is the time to get informed and get involved. You can truly help to make a difference…and preserve the future of public education for our children!

An illustration of the PSERS crisis in Lehigh County School Districts

Research and data provided by Pennsylvania School Boards Association

The Pennsylvania School Boards Association (PSBA) recently highlighted this information to school board members in a weekly update entitled “The PSERS Pension Crisis and Act 1 Exceptions”. Inevitably, this issue will be continue to be one of the top financial concerns as budget season is in full swing for most school districts. Below is an excerpt from this email:

Can the pension referendum exception be used to help deal with the pension crisis?

PSBA has had several questions over the last month regarding the referendum exception in Act 1 that deals with pension payments by school districts. More specifically, the questions ask if this referendum exception can be used during the current pension crisis.

Subsections 333(f) and 333(j) of Act 1 allow for referendum exceptions and their use. Subsection (f) says that a school district may, without seeking voter approval, increase the rate of a tax levied for the support of the public schools by more than the index if all the following apply:

• (1) The revenue raised by the allowable increase under the index is insufficient to balance the proposed budget due to one or more of the expenditures listed as exceptions
• (2) The revenue generated by increasing the tax by more than the index will be used to pay for any of the exceptions.

Subsection 333(j) goes on to describe the procedure for applying for and receiving approval for the exception.  This subsection also provides that a district seeking this or any other exception must publish in a newspaper of general circulation and on the district’s publicly accessible Internet site, notice of its intent to seek department approval at least one week prior to submitting its request for approval to the department. For 2010, the date for the required public notice is Feb. 25 (the notice itself has to be submitted to PDE by March 4).

The act goes on to describe nine separate referendum exceptions. In a separate subsection, 333(n), entitled “Treatment of certain required payments,” The act says that “the provisions of subsections (f) and (j) shall apply to a school district’s share of payments to the Public School Employees’ Retirement System as required…if the increase in the actual dollar amount of estimated payments between the current year and the upcoming year is greater than the index (emphasis added). The dollar amount to which subsection (f) applies shall equal that portion of the increase which exceeds the product of the index and the actual dollar value of payments for the current year.”

The words in bold are important because subsection (j) contains language that stipulates that PDE must determine which year’s expenses are being used to determine whether or not exception applications are accepted. Typically, there is a two-year lag in which year’s expenses are used for the sake of approving exception applications. For example, for referendum exceptions being sought from PDE for the 2010-11 school year, district expenses from 2007-08 will be compared to the district’s 2008-09 expenses. However, language in 333(j) (4) is clear that the PDE determination does not apply to the pension exception. Consequently, if your school district’s mandated 2010-11 employer contribution to PSERS is greater than the product of its new Act 1 index times the current (2009-10) PSERS payment you can apply for an exception for the amount that exceeds this calculation.

Example:  ABCD school district’s 2010-2011 Act 1 index is 3.5%. Its current PSERS payment is $500,000. The district’s PSERS payment for 2010-2011 is increasing by $300,000 to $800,000. Because the increase in the 2010-11 payment exceeds a 3.5% increase over its 2009-10 payment, the district would be eligible to apply for an exception. The amount of the exception would be determined as follows: 3.5% x $500,000 = $17,500. Thus, the district would be liable for paying $17,500 of the $300,000 increase. If the wavier application was approved, the district could increase taxes to cover the remaining balance of the increase, which would be $282,500.

Subsection 333(j) requires the application for this exception to be approved by PDE.

PDE must approve a district’s application for the exception if: 1) the school district qualifies; and 2) the sum of the dollar amount of the exception(s) for which the school district would be sufficient to balance its budget. PDE’s decision must be given to the school district by March 24, 2010. If PDE denies the request, the district has 5 days to put a question on the ballot asking the public to increase taxes to cover the additional expense.

Is the pension exception the best way to handle the additional expenses incurred due to the pension crisis?

While the Act 1 pension exception can be utilized by eligible school districts, most school board members we have talked to do not think it is the best way to handle the additional expenses created by the pension crisis.  A referendum exception only means that you can increase taxes, and almost no school board member wants to increase taxes just to pay for pension increases. Additionally, with the index as low as it is for 2010 and likely the foreseeable future, it may not provide as much relief as it would otherwise. However, without some quick action on the part of the Legislature, many districts may find that they will have to use the exception, or at least part of it, in the 2010-11 budget cycle.

Districts in this situation should heed the deadline mentioned in this alert and follow the procedures outlined in Section 333(j), which can be accessed on the Department of Education’s Web site.  Click here for information on Act 1 and here for information specific to referendum exceptions for fiscal year 2010-11.

Source: Pennsylvania School Board Association (PSBA), Office of Governmental and Member Relations, 2/19/2010

The legislative “savior” to property tax reform in Pennsylvania, aka Act 1, has done one major thing since being signed into law in 2006. It has assured an epic storm of financial discord for every school district and taxpayer by the year 2012. I realize this is a pretty bold statement to make – although sometimes it takes a good headline for people to finally take notice!

Fellow blogger, Jim Butt, outlines this concern in a recent posting too – albeit not in as dramatic fashion as my statement…LOL. Throw in some deepening concerns with a lagging recession, the ongoing pension crisis, and the largest “fixed” expense for any school district* and you have a forecast prediction for the Perfect Storm, Part II. And I doubt George Clooney or Mark Wahlberg will be returning to star in this sequel.

In my next series of posts, we will take in-depth look at each of these areas and how they directly relate to our local school budget. I will also highlight some bright spots (it’s not all gloom and doom) – and why every stakeholder should take an active role within their local community.

A commitment to education, innovation, and creativity will remain the critical keys that will help drive our economic turnaround and long-term sustainability.

* Special acknowledgment to Dr. Fred Baldwin, board member of Carlisle Area School District

This is a valuable resource to help school directors stay informed and up-to-date on a vast array of information. I clipped the following highlight from this week’s report to share with you on the Pennsylvania State Employee’s Retirement System (PSERS).

On the surface, the intent of this action is pure and deeply patriotic. I share this concern with our lawmakers of making foreign investments, including publicly funded pensions, into countries that might not always have America’s best interests at heart. Its just the fine print that intensifies my growing concern.

Over the next few weeks, I will post more information about PSERS — and why this system is such a huge financial concern for our state’s public educational system. I will also share some details as this area relates to our local school budget and its impact on our taxpayers.

The House unanimously approved HB 1821, which prohibits the investment of state retirement funds in private entities that actively do business in Sudan and Iran. Members of the Public School Employees’ Retirement System and State Employees’ Retirement System are indemnified for all good faith actions taken under this act for any expense, liability and loss, including attorney fees, judgments, fines and taxes. The bill also requires the commonwealth to reimburse each public fund for any net losses, costs and expenses incurred as a result of compliance with this act. While the reimbursement language provided in HB 1821 is helpful, PSBA is still concerned that further safeguards regarding the implementation of such reimbursement and indemnification are required to prevent any need for increased employer contribution rates for school entities.

Source: PSBA, Office of Governmental & Member Relations, Weekly Legislative Report 12/10/09

***

Jeff Clay has been criss-crossing the state this year with a message. “A big problem is looming in the state pension system that is going to hit taxpayers hard, and officials can’t keep pushing it off”, said Mr. Clay, executive director of the Pennsylvania School Employees’ Retirement System.
Read more: http://www.post-gazette.com/pg/09344/1019820-298.stm

Source: PSBA website