Will Pensions Sink the Philadelphia School District?

by Christopher Paslay

Retirement costs in Philadelphia will increase fivefold in the next seven years, growing from $73 million in 2011 to $349 million by 2020. 

There’s a hole in the bucket, dear Liza, dear Liza,


There’s a hole in the bucket, dear Liza, 


There’s a hole.

These lyrics, from a traditional children’s folk song that I first heard as a child on Sesame Street, played through my head this week as I thought about the crisis facing the Philadelphia School District.

We have a hole.  A giant hole.  Not just in terms of cash, but also in terms of resources, staff, and services.  Earlier this year, the District laid-off nearly 3,800 workers.  As reported by the Notebook in June:

The 3,783 figure includes 676 teachers, 307 secretaries, 283 counselors, 127 assistant principals, 1,202 noontime aides, and 769 supportive services assistants, in addition to smaller numbers of workers in other categories. . . . The School Reform Commission adopted a “doomsday” budget . . . that provides a principal and a core group of classroom teachers for each school and nothing else. It has already said it will lay off all counselors, librarians, art and music teachers, secretaries, and support personnel, including noontime aides, in the schools.

Although about a third of the staff was rehired at the end of August, the fact that the District could do so little with so much money is concerning.

Consider these facts: The Philadelphia School District’s budget for the 2008-09 school year was approximately $2.7 billion.  The current budget for the 2013-14 school year is approximately $2.7 billion, although the district may still fall short $100 million plus, depending on the outcome of the negotiations between the School Reform Commission and the Philadelphia Federation of Teachers.

The question here is how was the District able to run at full strength with $2.7 billion just four short years ago, and be in such dire straights now?

The answer may very well rest with retirement costs, which continue to go up at an alarming rate.  According to the Pennsylvania Independent:

Payments to retired teachers and public employees are a growing threat to government budgets everywhere, and it is no different in Philadelphia. A new report from the Thomas Fordham Institute, a conservative education nonprofit, estimates the district’s total retirement costs will balloon from $73 million in 2011 to $349 million by 2020.

On a per-pupil basis, that works out to $900 per pupil in the district for 2011, growing to $2,300 per pupil by 2020.

Robert Costrell, a professor of economics at the University of Arkansas and an author of the report, says that trend is unsustainable.

“We’ve only just begun to see how bad it is going to be,” Costrell said Thursday.

The report examines the pension costs of the Philadelphia School District. Costrell said the financial mess unfolding in Pennsylvania’s largest city is on par with what has been seen recently in Detroit and Chicago. . . .

Because pension costs for public school employees are split between the local and state level in Pennsylvania, the situation in Philadelphia is partially a symptom of the $30 billion unfunded liability in the state’s Public School Employees Retirement System, or PSERS.

Because of that split, the state now picks up about $450 of that $900-per-pupil price tag, but as the costs rise, it will hurt both the district’s and the state’s bottom line.

And when the district spends about $15,000 per pupil — but will soon have to spend $2,000 per pupil on payments to retired district workers — that means fewer dollars are available to cover the actual costs of education.

Lawmakers in Harrisburg must solve the crisis because the state runs the pension system. Little progress has been made toward that goal.

Changes to the pension system approved in 2010 affected only future hires, which does little to affect the pension obligations in the short-term, the report notes.

Since most of the cost growth in the next decade is due to deferred payments of benefits owed to current workers or those who are already retired, changing benefit structure for new employees has little effect, Costrell said.

This news is indeed troubling.  As education advocates continue to fight for more funding for city schools—at both the state and local levels—the looming crisis involving pension funding hangs above it all.  State funds allocated by Gov. Corbett already make-up 50 percent of the Philadelphia School District’s budget—about $1.3 billion annually—and as pension obligations increase, this may very well cut into money earmarked for education.

Something has got to give, and sacrifices will need to be made.  Educators undoubtedly want the best for their students.  At the same time, after contributing 7.5  – 10.3 percent of every check to PSERS (Public School Employees Retirement System), they don’t want to see their pension funds go up in smoke.

Which leads to the following question: Will pension reform take place before the District goes bust?

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