Local Government Agencies across California are going to be coming to the same realization that Pacific Grove and Vallejo did. The article goes on to say the following:
The city has been struggling with how to bring its pension costs to CalPERS under control in light of the economic recession. The state pension program relies on investment income to fund benefits and, when these funds fall short, cities and other public agencies enrolled in CalPERS must take up the slack.That excerpt is why I bring this topic up here. School Districts across this state are looking out to 2012 when PSERS has its contribution rate spike. PSERS is very much the same as CalPERS (and most other pension plans for that matter). It relies heavily on investment earnings and income for payouts to retirees. I have heard directors across the state say that this increase will cripple their budget for years to come. A school district cannot have a 250% increase in an already large expense and not expect it to have serious consequences on the way it either a) educate the children or b) tax the community.
It is important for people all across Pennsylvania to contact their state representatives (Senator John Pippy and Representive Matt Smith) to tell them that they need to do everything they can to help school districts avoid the same fate as Vallejo and Pacific Grove.
Our District is poised to start planning for this pension spike this year. There are some options on the table. We are looking at a possible $1 million surplus from the 2008-2009 school year. We have the opportunity to set that money aside to even out the rise in taxes to pay for the 2012 pension increase. Instead of there being a 3 mill increase in 2012, there might be a 1.5 mill increase instead. Then the following year you would see the other 1.5 mill increase (or some other "stepped" schedule depending on what this Board does). Setting aside $1 million for this will not reduce the ultimate expense, it simply delays when it fully hits the taxpayers. The math is pretty simple. $1 million equals .5 mills. So setting aside this money will save the taxpayers in one year $100 on a $200,000 house.
I recommended to the Board that we use that money to fund projects that we know are going to happen in order to reduce millage for the next 25 years instead of manufacturing a stepped increase in taxes. We know we will be spending millions of dollars on a high school project on which we will be paying maybe 5% interest. Taking $1 million today and investing the money in the down payment on that project would reduce the eventual loan amount by $1 million and therefore reduce the millage rate in this district for the next 25 years. Over the life of a 25 year loan, this investment would save taxpayers over $1.86 million. After a 15% state reimbursement, that investment would save the district approximately $75,000/yr. While this is not a whole lot of money, its important to note that if the District keeps making fiscally responsible decisions like this then over the years the numbers start to add up.
I have made my point to the Board but will most likely be outvoted. I just wish we could stop looking at the near term results as opposed to the long-term effects of our decisions. The millage will be higher in 2014 under scenario 1 than it would be under the second scenario. That is a fact and is undisputed. The issue is whether or not the Board wants to implement a stepped increase for the pension liability rather than have a huge increase in taxes to pay for the rate spike. Nothing we do can reduce our eventual expense to PSERS. Without a change from our state government, we can only delay the inevitable expense.
Thanks for reading.
James
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