Here’s the commentary on this topic as it applies locally– as Mr. Nunn has clearly articulated the problem at the state level.
TESD has nothing to do with setting pension rates. The Pennsylvania State Employees Retirement System (PSERS) is a bit like a state-sponsored social security for designated groups of state workers (who also are eligible for and pay social security). The Board of School Directors only negotiates terms of employment — not retirement eligibility. PSERS requires a percentage of compensation to be paid by the employee and the employer — exactly like FICA, but without an annual cap. So each raise for any employee requires additional contributions for FICA, Medicare and PSERS. (the state – yes, your other tax pocket [YOTP], refunds a portion of the contribution for FICA/Medicare).
Here’s the taxpayer’s problem: TE may well have enough “stashed” in fund balance to avoid any staggering tax increase to pay for the increased costs of the state retirement plan Mr. Nunn warns of, but the state doesn’t — so schools are not the only source of this shortfall. YOTP again. What generosity local boards offer to their employees becomes an obligation to the state forever.
Recently, TESD approved an across-the-board compensation increase of 4% for all administrators. Given the teacher’s contract, this was not an extraordinary salary increase. My concern, however, is that it was voted on and approved by the School Board through a consent agenda item in October. October 2008– to go into effect July 2009. (The vote took place several months before the Administration started to warn about the need for cuts due to revenue shortfalls). There has been no mention of merit increases, but the Administrative Compensation plan references them, so they may be yet to come. There are moves being made by administrators — retirements and new job descriptions. I ask that the Board of School Directors deal with these changes in a public motion, and not bury it in consent where we cannot be party to the deliberations. The burden of having your compensation voted on in public is certainly mitigated by tenure and pensions. Transparency should not be something the board fears.
Cut PA Pension Fund Increase Jan 23 2009
I received this in today’s email from a local taxpayer — thought it was worth sharing. All the emphasis (colors) are my own.
Wallace Nunn is a former chairman of the Delaware County Council
A good return was seen in ’01 for worker benefits — now a tax increase is needed
Former State Sen. Vincent J. Fumo will soon start getting a six-figure annual pension, according to a recent report. If this sounds like a bit much, that’s because it is. But it’s only a small part of the problem.
In 2001, the leadership of the General Assembly, with the encouragement of public-employee unions, approached the governor with a plan to increase pensions for teachers, state workers and legislators. It seemed, said those advocating the increase, that the state pension funds had enjoyed excellent returns for several years. Therefore, the state could increase the pension benefits of its workers and teachers from 2 percent of their salary per year of service to 2.5 percent – a 25 percent increase.
With this level of benefits, an employee who put in 30 years could get a pension equal to 75 percent of the average of their highest three years’ salary, instead of 60 percent. Most taxpayers would consider 60 percent more than fair, since most taxpayers receive nothing close to that.
Coming up short
Of course, the argument went that this would cost the taxpayers nothing, as the state would always earn 10 percent or better returns on its pension funds. There was little discussion of the possibility that returns could come up short and taxpayers would have to make up for it.
Well, a funny thing happened. It turns out the pension funds not only did not continue to gain at very high rates, but have in fact lost billions of dollars.
This is not to say that the pension fund managers have done a bad job; they are subject to the ups and downs of the economy much as we all are. But here’s the rub: We taxpayers have now guaranteed high pension benefits.
The promised returns were an illusion, but the taxes won’t be. Over the next few years, you will likely see massive increases in taxes, especially property taxes for local school districts. Estimates of the revenue needed are in the billions, and they will no doubt grow.
Day after day, we see articles about cuts in services and possible tax hikes because Pennsylvania is, like the rest of the country, suffering a huge drop in revenue. Our leaders are wringing their collective hands, trying to figure out the least painful way to surmount the financial problems they face.
Go back to 2 pct.
Let me offer a partial solution: Go back to the 2 percent pension formula. The state’s original assumption – that the pension funds would earn enough to pay for a substantial increase in benefits – was wrong. Given that, Gov. Rendell and the legislature should rescind the increase.
This would reduce our pension liabilities by billions of dollars and shrink future budgets. And if the funds are ever in surplus territory again, let’s consider giving the break to the taxpayers. After all, they put up the money in the first place.
The leadership in Harrisburg today is not the leadership that enacted this shortsighted scheme. That should make it easier for them to stand up and say it must be changed. With 2 percent of the courage shown by our troops in Afghanistan and Iraq, our state officials could show some support for the people.
E-mail Wallace Nunn at email@example.com.
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Posted in Commentary, What Others are Saying
Tagged Pennsylvania, pensions, spending