Photo Courtesy: Associated Press
By JOSEPH SPECTOR
Gannett Albany Bureau Chief
ALBANY -- School districts are being socked with a 29 percent increase in their pension costs this school year.
The increase means schools will pay 11.11 percent of their payroll toward retirement costs in 2012, up from 8.62 percent in the prior school year, which ended June 30, the teachers' retirement system announced this week. It's the first double-digit rate in 22 years.
Schools and governments have been grappling with soaring pension costs because more workers are retiring and because of poor returns on Wall Street. Pension funds have had stronger rates of return in recent years, but are still trying to recoup past losses during the recession.
School officials said growing pension costs were equal to the total increase in school spending this year, up about 1.3 percent. The spending increase caused homeowners' tax levy to grow on average about 3.4 percent this year.
The pension expense comes as schools next July will have to abide by a property-tax cap. The cap will limit tax increases to 2 percent a year or the rate of inflation, whichever is lower.
Schools had state aid cut by about $1.3 billion in the current fiscal year and have had higher health-insurance costs, said Robert Lowry, deputy director of the state Council of School Superintendents.
"It's pension and health insurance costs. Those two things really put schools behind the eight ball in trying in the last two years to absorb state-aid cuts," Lowry said.
Pension costs are expected to grow further. In a memo to schools this month, the New York State Teachers' Retirement System said it expects next year's costs to exceed this year's rate. It won't have those estimates until November.
John Cardillo, a spokesman for the teachers' retirement fund, said the fund is still trying to make up for a steep decline two years ago. It expects the rate of return in the fiscal year that ended June 30 to be more than 20 percent, he said.
In 2010, the pension rate was 6.2 percent of payroll and forced schools to collect about $926 million. Now at 11 percent, schools will have to pay nearly $1.7 billion, according to preliminary estimates. The payments are due in the fall 2012.
"We're still recovering from the effects of 2008-09," Cardillo said. "Although we had a strong year this year and it followed a strong year last year, because we use five-year smoothing, until that one year is dropped off, it's going to impact the rate."
The teachers' retirement system is worth about $90 billion and covers about 145,000 retirees and nearly 300,000 active members. As of last year, the average teacher pension in the system was $37,000.
James Giordano, assistant superintendent for finance at the Greece Central Schools in Monroe County, said pension costs have caused reductions in spending in other areas. The district eliminated 50 positions in its budget approved in May and raised the tax levy by about 2 percent.
"It puts a lot of stress on the district given that we already are having to deal with reductions in state aid," Giordano said.
The Empire Center For New York State Policy, a conservative think tank, estimated in a report last year that taxpayer-funded contributions to the teachers' retirement system will more than quadruple over the next five years. The group estimated pension costs for state and local government workers will more than double over the same period.
"It's something everybody has to get ready for," said E.J. McMahon, the group's senior fellow.
McMahon questioned why the teachers' retirement system doesn't provide districts with long-term outlooks on pension costs.
"You have districts that are negotiating contracts for three or four years, so why not tell them?" McMahon said.
Cardillo said they give districts about 18 months notice and can't project rates further because economic conditions could change.
Meanwhile, the state Comptroller's Office next month is expected to release what state and local governments will have to pay in 2013 for its employees' pensions. Pension costs for state and local governments are already set to increase by 37 percent in 2012.
Comptroller Thomas DiNapoli said last week that he's hopeful the increase in 2013 will be limited. The state pension fund pays benefits to about 350,000 state retirees and has 650,000 current employees.
"There will be an increase. I'm certainly hoping it'll be less than the increases we've had in past years, but the numbers aren't final yet," DiNapoli told Gannett's Albany Bureau.