Pension crisis is crippling PA schools

The Allentown School District had been struggling for a long time. In fact, the Center for American Progress estimated it the third most underprivileged school district in the country. But after several years of budget cuts, the situation dramatically worsened.

By my freshman year in 2010 at William Allen High School, exploding costs were taking a severe toll. By my sophomore year, schools had cut hundreds of teachers, eliminated dozens of classes and grew class sizes. In an effort to cut costs, schools brought in several professors from local colleges to teach a class twice a week.

By my senior year, there were so few classes left available to me and my peers that we would spend as much as half of the day in lunchroom study halls with hundreds of other students. With little else to do, we found ourselves spending much of our school days playing cards to pass the time.

The cause of this strife? Pensions.

While this may not be a particularly attractive issue, it’s an extremely dangerous one for our state.

Thanks to years of financial mismanagement in Harrisburg, Pennsylvania, state schools face a pension crisis that is crippling their ability to function. Forced to slash spending, these schools — and the students attending them — are left with too few teachers, overcrowded classrooms and a decreased quality of education.

To understand the cause of this problem, we have to look back to 2001 and Gov. Tom Ridge’s administration. At this time, the state Public School Employees’ Retirement System was in great shape thanks to a booming stock market. As a result, politicians did what they often do — assume that the prosperity will last forever and increase public employee benefits. Additionally, the legislature allowed the PSERS to go underfunded for years in order to use the money for other state projects.

Needless to say, this plan was ill-advised. Within a few months, the 9/11 attacks had stunned the country, creating severe apprehension in the stock market. In fact, according to a report on the pension crisis from the Pennsylvania Office of the Budget, the value of the Pennsylvania State Employee Retirement System decreased in value by 10 percent while the PSERS investments grew a disappointing 3 percent in value. The state was therefore forced to begin slowly raising the required pensions contribution rates for school districts in order to compensate for weak return on investments.

Unfortunately, the 2008 recession dramatically exacerbated the problem. With the stock market tumbling, the state increased required district pension contributions at a much faster rate. This wasn’t enough, though, and as the stock market bottomed out school districts were left responsible for the badly underfunded PSERS. The state had kicked the can down the road too many times, and it was forced to come to terms with the problem at the worst possible time.

It has gotten so severe that the contribution rate of school districts has risen from only 4 percent in the 2008-2009 fiscal year to 27.82 percent today, according to analysis of PSERS and Pennsylvania School Board Association data. Just as troubling, the PSBA is projecting that this rate will continue to rise, albeit at a slower rate, until 2035. In simpler terms, school districts are now responsible for providing about 28 percent of the required annual contributions to the pension system.

This increase has had severe financial consequences for school districts. From 2008 to 2015, the cost of contributions from school districts has increased by $1.9 billion according to the Commonwealth Foundation for Public Policy Alternatives.

The cost of this skyrocketing contribution rate is crippling the ability of school districts, the poorest especially, to function properly. Philadelphia, for example, is in an utterly catastrophic situation.

After the School District of Philadelphia’s required contribution rate more than doubled between 2011 and 2013 to 12.4 percent, they were forced to cut nearly 4,000 staff members in a single year — 2013. Since then, the rate has skyrocketed, and is projected to reach nearly 30 percent in 2017. In 2016 alone, the district is projecting a $33.8 million increase in pension costs. This has helped to contribute to the district’s projected $84.7 budget deficit for 2016.

Unsurprisingly, the results of such a dismal fiscal situation and the resulting staff cuts are extremely severe. According to a 2014 report from the Pennsylvania Budget and Policy Center, the Philadelphia school district has experienced a 45 percent cut to central administration and support staff, a 20 percent cut to early childhood teachers, 31 percent fewer nurses, 54 percent fewer counselors and 28 school closures.

Additionally, the Philadelphia Daily News has reported that, as a consequence of these continuing cuts, only 11 librarians exist for the 218 district schools, about 60 percent of schools rely on mobile teams of visiting counselors and, of course, extracurricular activities are virtually nonexistent. Finally, the explosion in costs has resulted in a corresponding explosion in taxes, with the city struggling to raise the tens of millions of dollars necessary to keep the district functioning.

While Philadelphia’s position is especially dismal, similar cases are arising throughout the state.  According to the Budget and Policy Center, between 2010 and 2012, Pennsylvania school districts were forced to lay off 20,000 school staff.

Despite many districts spiraling into bankruptcy, Pittsburgh Public Schools have been doing relatively well. In fact, a recent state audit showed that the district had the largest budget surplus of any in the state. Nevertheless, the Pittsburgh school district has reason to worry. Between 2012 and 2016, the costs of the district’s pension contributions have risen steadily from $20.4 million to a stunning $52.8 million.

For the past few years, the district has survived by taking money out of its general fund. For 2016, the district will be taking over $42 million from the fund balance, leaving just $85 million. Despite this, the district is running a projected deficit of $23.6 million for 2016.

As pension costs continue to rise, the Pittsburgh school district will soon be staring down the barrel of significant tax increases and staff cuts if things don’t change soon.

The question, of course, is how can we resolve this crisis?

Currently, Gov. Tom Wolf is advocating a large general increase in school funding along with a corresponding tax increase. The problem, though, is that increasing school funding at the expense of our state’s economic health does nothing to solve the root of the problem.

The bottom line is that the Pennsylvania government needs to reform pensions dramatically. The defined payment pension system used for state employees, which essentially requires the state to continue to pay the large majority of an employee’s salary after they retire, is completely unsustainable.

Harrisburg needs to move teachers and other public employees into a private retirement system where they will contribute a larger portion of their salary to their pensions. We can do this gradually — but make no mistake, it must be done.

Today, according to Truth in Accounting — a Chicago-based think tank that studies government finances — Pennsylvania has $66 billion in unfunded liabilities. In other words, the state of Pennsylvania owes $66 billion worth of unfunded future health care and pension benefits — as well as other liabilities — that it has no way to pay for. In fact, TIA estimates the cost per taxpayer of the unfunded liabilities to be $15,600 — that’s almost double the $8,200 per taxpayer in 2009.

Most of this staggering number is a result of public employee pensions. Therefore, as the pension crisis worsens, so too will the prospects of remaining solvent.

There is an obstacle to reform, however. Pennsylvania’s teachers are very comfortable with their generous pension plans, and their unions are in no hurry to let them slip away. According to the Associated Press, Wolf’s second largest campaign contribution of $1.6 million — behind his $10 million donation to himself — came from the state’s public sector unions. Is it therefore any surprise that Wolf vetoed a pension reform plan several months ago?

If our students are to receive a quality education, and if our state’s fiscal health is to be preserved, we need bold leadership in Harrisburg.

As students waste their days in study halls and high school seniors struggle to apply for colleges without guidance counselors, our representatives must be willing to put the welfare of students ahead of the comfort of the adults we pay to teach them.

Until then, cramped classrooms and a rudimentary education are a grim reality.