From the BCCT.
I remember former business manager Reba Dunford warning about some of these items. Does anyone remember how the President Emperor responded?
A big hit expected for taxpayers
Early this month, the state increased its projections for how much school districts will have to pay into the employee pension fund in coming years.
By GARY WECKSELBLATT
The next decade is not expected to be kind to those who pay property taxes.
After hearing the numbers released Dec. 12 by the people running the public school pension system, Bob Reinhart did some calculations.
The business administrator for the Pennridge School District looked at the 2012-13 school year, when figures show the current contribution residents will have to fork over rises from next year’s 4.78 to 16.4 percent. The 16.4 was adjusted up from 11.23 after the Pennsylvania Public School Employee Retirement System fund fell 2.8 percent.
Reinhart’s math shows Pennridge’s cost rising by $6 million. A hefty number for a district that finds itself in a $900,000 hole for the 2009-10 school year.
“It’s going to be a big concern for us,” he said.
Probably worse than Reinhart and his fellow business managers across the state realize. The projections released earlier this month by PSERS’ actuarial firm, Buck Consultants, are based on the pension fund’s performance through June 30 — well before the fall’s carnage to the stock market.
If the fund fell 12.8 percent from $62.7 billion to $54.7 billion by Sept. 30 — as PSERS reported — a period when the S&P 500 and Nasdaq dropped 9 percent and the Dow Jones dropped 4 percent — what might the fund look like now?
Since Oct. 1, those wellknown investment indicators are down significantly. The Dow has been the best performer, losing 26.5 percent; the S&P is down 31 percent, the Nasdaq 34 percent.
It’s conceivable the fund, with a membership of more than 272,000 active school employees and more than 173,000 retirees, might have fallen to $40 billion.
If a 2.8 percent setback pushes future employer contributions up more than 5 percent a year from 2012-13 to 2017-18, what would a decline 10 times greater mean to the pocketbooks of area homeowners who are watching their own retirement savings dwindle?
Central Bucks, the area’s largest school district, could feel a significant hit. Even before the PSERS’ projected rates rose, CB business manager Dave Matyas expected his district’s costs to double in three years from $10 to $20 million.
“It is unrealistic to predict the fund will be able to earn its way out of the projected rate spike given the current investment market conditions and the precarious state of the economy,” PSERS Executive Director Jeffrey B. Clay said in a statement. “Previously PSERS made significant progress dropping the projected rate spike by earning outstanding investment returns for four years. It is highly unlikely, given the current recession taking place in the U.S., that the fund will be able to re-create those outstanding returns in the short-term.”
PSERS, which assumes an annual return of 8.5 percent for its pension fund, is the 14th largest defined benefit pension fund in the country. Members contribute between 5.25 and 7.5 percent of their salary to help fund their retirement.
During this past year, school districts budgeted 4.76 percent of teacher salaries for the pension fund. That was down from 7.13 percent in 2007-08.
In a letter to school districts last December, John Godlewski, the state department of education’s former director of budget and fiscal management, recommended that districts disregard the lower number and set aside money at the 7.13 percent rate in preparation for future increases.
Clay agrees with creating a reserve in anticipation of the large projected rate increase.
“It would be very prudent for school employers to do so,” he said.
Like some other local districts, Pennridge has taken that approach and is budgeting 7.13 percent rather than next year’s 4.78 figure. Had Reinhart budgeted the lower number, the district’s current $900,000 budget hole would shrink to about $265,000.
“The board and myself want to be prudent,” he said.
Monday, December 22, 2008
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2 comments:
In my recollection, Reba warned us that the state was saying we should start putting more money away now and Mr. Hellmann wanted to take it all the way down in the budget. I get emails about this kind of stuff all the time asking if I (we, the board) get it yet. So, basically, it's another sign of the impending apocalypse instead of something we can use to pressure the state into finding out a more equitable way to fund public education. PSBA has a plan put together by an ad hoc committee in 2007 that I've been working my way through. I forwarded it to the board.
I also recall Reba talking about this.
The thing that concerns me most is the fact that PSERS is blind to the economy and expects a constant rate of return ("PSERS, which assumes an annual return of 8.5 percent for its pension fund") when the rest of us lose on our retirement savings ("Dow is down 26.5 percent; the S&P is down 31 percent, the Nasdaq 34 percent.") and then lose again because we have to triple the money that goes into PSERS.
I support teachers but our reality needs to be theirs too -- if the market is down, don't cash in your retirement. Where can I invest my money and earn a guaranteed 8.5%???
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