Pension Nightmare

School taxes in Pennsylvania may soar to pay for pension promises

By Debra Erdley

TRIBUNE-REVIEW

Sunday, November 1, 2009

Think your school taxes were high this year? Start saving for 2012-13.
That's when Pennsylvania property owners will pay a lot more money to cover the generous pension bump state lawmakers awarded themselves, school employees and state workers in 2001.
The money, an estimated $558 per property owner, won't build classrooms, pay teachers or buy textbooks.
And it's only part of the bill. Lawmakers will have to come up with an estimated $4 billion to cover the state's tab -- the entire employer pension contribution for state employees and half of the employer contribution for school workers.
Actuary Rick Dreyfuss, a senior fellow with the Commonwealth Foundation, calculated costs for taxpayers at every school district in Pennsylvania based on numbers supplied by the school pension system and the Department of Education.
Although the local obligations in individual districts might be slightly higher or lower because of state subsidies, taxpayers will pay for the local obligation one way or another.
Spokesmen for the pension systems don't dispute Dreyfuss' numbers.
Jeff Clay, executive director of the school pension system, has been traveling the state for 18 months warning school superintendents about the looming payment.
Jay Himes, executive director of the Pennsylvania Association of School Business Officials, estimates as many as 25 percent of the state's 501 school districts have saved money to help blunt the blow. But many haven't.
"There's no silver bullet," Clay tells school officials.
Unlike private employers who shed pension obligations with bankruptcies, state taxpayers are locked into paying pension obligations. The state constitution prohibits reductions to pension benefits for public employees.
Future hires could be placed under a different plan, such as a 401(k)-type plan. But Clay and Dreyfuss say that won't reduce the payments due for pensions for current payrollers.
"It's a matter of 'pay me now, or pay me later,' " Dreyfuss said.
The only option to avoid the spike is to string out payments into the future, a move akin to taking out a second mortgage for 30 years to refinance the obligations on your 10-year mortgage.
It's a frightening prospect to homeowners, economists and school officials alike.
Kathy King, 60, of McCandless was stunned to learn about it. King and her husband, Jim, 62, a telephone company lineman, are living frugally to prepare for retirement.
"I would so love to clean out Harrisburg and put in housewives and people who have to run homes and live on a budget. This spending is so out of whack, it's unreal. ... It's very hurtful. You just can't take those kind of taxes," King said.
School officials likewise are worried.
"I was in the Erie area the other day, and one school district there calculated they would have to raise taxes 14 mills on top of their 48-mill taxes to cover it. That's a 25 percent property tax hike just to cover retirement costs. I don't think the property owners will stand for it. Something absolutely has to happen," Himes said.
"It's not a pretty picture," added Brian Jensen, senior vice president of the Allegheny Conference on Community Development and the Economy League of Southwestern Pennsylvania.
The looming pension cost increase wasn't unanticipated.
It was built into the law by the same lawmakers who awarded themselves a 50 percent pension boost and then extended a 25 percent raise to 340,000 state and school workers in 2001.
At the time, the State Employees Retirement System and the Public School Employees Retirement System had multibillion-dollar surpluses. Instead of saving that money, lawmakers decided to spend it on raises. At the same time, they decided to vest employees at five years' rather than 10 years' service.
It wouldn't cost taxpayers a penny, legislative leaders boasted, because of the surplus money. Gov. Tom Ridge's administration reiterated the claim, saying the pension boost would have no financial impact.
Four months later, with the 9/11 terrorist attacks, financial markets plummeted dramatically, erasing the surpluses that were supposed to finance those pension increases. In a matter of weeks, it became clear taxpayers would have to pick up the tab.
Jolted back into action by schools scrambling to meet higher pension obligations in 2003, lawmakers acted. This time, in a move described by experts as out of the ordinary, they recalculated payment obligations, spreading the payments out over time and creating a spike in payments 10 years down the road.
Kil Huh, project director of research for Pew Charitable Trusts, said the last time his group looked at Pennsylvania it noticed the state began ratcheting back pension contributions after 2004. Until that time, it had met the full contribution recommended in a formula established by the General Accounting Standards Board.
In recent years, state contributions averaged only 30 percent to 40 percent of the recommended level. The contributions met requirements set by state law. But Huh said the accounting standards board number exists for a reason.
"The assumption for each of the plans is, over a 30-year period, if you pay (the full recommended level) every year, you will be able to meet your pension obligations," he said.
Despite the lower contributions, it looked as though Pennsylvania's gamble with lower payments might work. Robust investment returns in the middle of the decade began to chip away at the size of that 2012-13 balloon payment.
But last year markets tumbled again.
The spike ballooned with a vengeance. Now, both pension systems project they'll need to boost employer contributions to about 30 percent of payroll in 2012-13 in order to meet obligations.
Shortly before the market decline, Gov. Ed Rendell's administration issued a call to action on the pension issue. Former Budget Secretary Michael Masch warned that even minor market declines could trigger dire consequences and soaring pension fund payments. He issued recommendations that gained little traction with lawmakers.
Rendell spokesman Gary Tuma said his boss had hoped the Legislature would address the issue.
"The governor is very concerned about it, and any time the budget staff does extended projections for several years out, he insists that they include the cost of the spike. He believes we have to address it," Tuma said.
A few lawmakers have studied the issue for the past several years, but it's not one that's easily explained or legislated away.
"People tend to glaze over when I speak of these things. But given the situation now, more members who are working on this issue and members of the public are paying attention," said Sen. Pat Browne, chairman of the Senate Finance Committee.
Rep. Sam Rohrer, minority chairman of the House Finance Committee, said levying new taxes to pay for the obligation is not an option.
"I don't think the people of the state will sit for it, not when in some cases they've lost their pensions entirely or seen them diminished greatly," he said.
Rohrer and Browne said it's likely lawmakers once again will consider reamortizing the state's pension debt. But they insisted additional changes will be considered.
It's likely lawmakers will consider increasing the number of years employees must work to be fully vested in the plan and reducing the multiplier the state uses to determine pension benefits. There's the possibility of looking at a defined contribution program.
"It's an enormous challenge. We don't want to begin reclassifying our payments to the schools from education subsidies to pension payments," Browne said.

District Spends $28,439.01 On Meetings.

Every year, the Oley Valley School District approves sending administrators and teachers on a bevy of meetings.

In 2008, the school board approved sending a combination of administrators or teachers on forty-two conferences/workshops at a cost of $20,439.01. This figure does not include money spent on student field trips.

King of Prussia, Hershey, Harrisburg, Allentown, Bethlehem, Easton, Lancaster, Summerdale, State College, Manheim, Camp Hill, Grantville, and Philadelphia are the popular spots in Pennsylvania.

Atlantic City and Cherry Hill, New Jersey saw some business. Even Florence, Italy was a host.

The justification for these trips was “professional development”. The district does not have any objective standards to measure professional development. They cannot calculate the educational benefits to the students or the fiscal gains to the community.

However, the public continues to see static student test scores and yearly increases in real estate taxes.

The board says they are earnestly working on the 2009-2010 budget. They are doing everything in their power during these hard economic times to reduce unnecessary expenditures.

Yet at one of the many spending requests of the Superintendent, the board majority approved another trip, this time to New Orleans, Louisiana costing $1,235.11. Based on the 2008 tabulations, these junkets will add up to a hefty sum.

There are two board meetings in March.

The Regular School Board Meeting on March 18,2009 at the Berks Career & Technology Center, East Campus Board Room at 7:00 PM.

The Budget and Finance Meeting on March 25, 2009 at the Administration Building Board Room at 7:00 PM.

Both are public meetings where citizens can address the board about district issues.

Taxpayer Bailout

Our country is going through an unprecedented financial crisis. The government is infusing trillions into the economy in the hopes of preventing a depression. Companies are laying off thousands of employees. The unemployment rate is predicted to reach double digits.
The Oley School District revealed at the budget meeting, that it is experiencing flat or decreasing revenue. Interim, transfer, and earned income taxes are flat or decreasing.
However, the administration is unfazed. They want to increase real estate taxes for the twelfth consecutive year. Not only that, but they plan to petition the state to allow them to increase taxes above the inflation index of 4.47%. They will not say how much over the state allowed budget increase.
The district would not be in this fiscal problem had they spent money wisely. $2,000,000 for a sports complex, $400,000 on legal fees, and recently $11,000 on a junket are just a few examples of fiscal mismanagement that haunts us today. The board and the administration often complain that state mandates cause tax increases. Yet, none of the figures presented are mandated.
The remedy for this debacle discussed at the meeting is local taxpayer bailout, but also, ominous cuts in educational programs. Class size is being reviewed by the administration!
For some reason, the budget committee is not considering freezing non-educational, non-contractual, non-mandated expenses first before they eliminate teachers or crush homeowners.
Concerned citizens should contact their school board member or attend board meetings and offer suggestions on how to manage a budget.

OVSD Loses $2,000,000 Arbitration Ruling

The Oley Valley School District owes Amthor Steel Inc over $2,000,000. This is the ruling by the American Arbitration Association. The arbitrator awarded 100% damages to Amthor and none to the school district.
This case has been arbitrated and adjudicated since 2004. The legal bills for this action are substantial. The district owed $1,850,200.00 to Amthor but refused to pay. The contractor took them to arbitration as specified in the contract with the district.
The district tried to have the case litigated in the Court of Common pleas, but lost in a hearing. They appealed the verdict and lost again.
The district went back to arbitration and lost once more. These rulings are rarely overturned.
The problem is how the district plans to pay this bill. They did not set enough aside in a special fund. They cannot ask for a waiver from the state to raise taxes about the 4.5% inflation index to pay for judgments. They probably do not have enough money in Capital Reserve to pay the judgment and pay for educational needs, as well.
Every day the $2,000,000 is not paid, interest and penalties are added.
There is a board meeting at the Oley Valley School District Administration Board Room ,Wednesday, December 10th at 7:00 PM.
The administration and the school board owes the citizens of the community an explanation.

Taxpayers' Voter Guide

There are races for the Pennsylvania House and Senate that are extremely important to property owners. We need school property tax elimination. The only fair measure that accomplishes this objective is House Bill 1275.

The Pennsylvania Cyber Coalition compiled a list of candidates that support the taxpayer.

Disclaimer: Determination of a Candidates position is based on a number of factors including: voting history; bills sponsored; public statements; corrospondence; articles published in the media; surveys by various organizations; endorsements and sources of campaign finances. It is based on comparison with the values and goals of the PCTA to Eliminate and Replace School property taxes as the means to fund the Commonwealths public schools. Any reliance you place on supplied information should be verified using a variety of sources before use.

The entire list can be found at their website:

Guide

Berks County:

Supporters of House Bill 1275:

House:

126th - Incumbent & Uncontested Dante Santoni
127th - Incumbent & Uncontested Thomas Caltagirone
128th - Incumbent Sam Rohrer
129th - Incumbent & Uncontested Jim Cox
130th - Incumbent David Kessler
Challenger Richard Gokey

Opposes House Bill 1275:

128th - Challenger John Woodward

Senate:

Supports House Bill 1275:

11th - Challenger Steve Fuhs

Opposes House Bill 1275:

11th - Incumbent Senator Michael O'Pake

Taxpayers Shortchanged $200,000

The administration announced at the September 10, 2008 board meeting that there was over $200,000 of funds available for the 2008-2009 budget, they did not know existed.
This is not the first time a budget was presented to the board, which did not accurately reflect revenue.
One year there was a discovery of a real estate transaction amounting to over $900,000, which was not tabulated. Last year, additional revenue of $880,000 was miscalculated.
The administration has no credible explanation for their inability to present accurate budget numbers.
The effect of the “unknown” funds is that millage is raised unnecessarily or too much.
The taxpayer gets hit twice. Once for being overcharged for millage, then when the board transfers the surplus to Capital Reserve instead of using it for property tax relief.
There needs to be an overhaul of the budget process and the reasonable disposition of additional funds to insure community confidence in the administration and the board.

"Absolute Power Corrupts, Absolutely"

The homeowner is under assault from school boards. Each year property taxes rise higher than the rate of inflation or household incomes. Boards go on spending binges then send the bill to the taxpayer. The authority to raise taxes does not quench their thirst for revenue. They devise ways to gouge even more from the citizen.

They can take your property using eminent domain. Eminent domain is the power given to governments to take private property and use it for a public purpose with compensation given to the owner. School boards can make the claim they want a land for expansion. They can take the property and virtually force the owner to accept payment terms.

More recently, the school boards found a way to raise individual property taxes by challenging the assessment. It is illegal to conduct what amounts to “spot assessments” but this does not seem to bother board members.

Now, a board wants to go even further and usurp municipal authority to designate land for use. The board wants to make that decision where to build not the supervisors. This violates Pennsylvania municipal law.

Power happy politicians bullying a community into submission is a disgrace. The taxpayer does not have the resources to counter the abuse.

This debacle can be stopped if people get involved and get informed.

Support your local taxpayer group, attend meetings, and elect fiscally responsible individuals to office.