Under New York 2% tax cap, protected pensions will cause even more cuts to student services

by Grace

In New York, public schools are struggling with rising pension costs and a 2% tax cap as they plan for next year’s budgets. As the situation becomes desperate, one official warns that school security may suffer. 

School districts face a daunting challenge as they begin drafting budgets for 2013-14: Rising pension costs alone could eat up most or all of their allowable tax-levy increase under the state’s tax-levy cap.

“It’s debilitating for us, terrible,” said Thomas DePrisco, a member of the Pearl River Board of Education.

Pension costs will increase nearly 40%, forcing cuts in student services.

District contributions to the pension system for teachers and administrators are expected to rise close to 40 percent next year. This increase could translate into hundreds of thousands of dollars for small districts and several million for larger districts, which will require raising the tax levy by 2 percent or 3 percent in most districts.

Since the state cap starts at 2 percent before adjustments, most districts will not be able to increase spending in other areas, from health insurance to curriculum materials, without making equivalent cuts to programs and staff.

Students are being punished.

“The numbers are punitive, a shocker,” said Kendall Egan, a member of the Rye school board and president of the Westchester-Putnam School Boards Association. “You’ve already filled up your cap. It’s hard to make your community understand that there is so much out of the control of a school board. We’ll be back to going line-by-line through our budgets, looking for all possible savings.”

Pension contributions will increase to about 16% of payroll costs.

Under state law, all school districts outside of New York City must contribute a percentage of their payroll each year to two pension systems, one for teachers and administrators, and one for support staff. The percentages are determined by the two systems’ past investment performances. Next year’s contributions are tied to the period between 2007-08 and 2011-12, when investment returns were down.

The New York State Teacher Retirement System recently notified districts that it expects to raise their 2013-14 contribution to between 15.5 percent and 16.5 percent of payroll, up from 11.8 percent of payroll this year. The employer contribution has varied between 6 and 9 percent of payroll in recent years.

The TRS fund, which pays pensions to retired teachers and administrators, has $88 billion in assets. It is paying benefits to almost 150,000 people, up from 100,000 in the year 2000. Its active membership — those who will receive future benefits — has increased from 225,000 people in 2000 to 277,273 this year.

Schools will start with a deficit.

The Valhalla school district expects to increase its Teacher Retirement System contribution by about $930,000 to more than $3 million, while its Employees Retirement System contribution will rise by about $91,000. These increases alone will require raising the district’s tax levy by about 2.5 percent.

“We start the budget planning process in a deficit and wonder how we’ll stay under the cap,” Superintendent Brenda Myers said.

Teachers’ pensions were protected under the property tax cap legislation but student services were not.

The property-tax cap, going into its second year, starts by limiting tax-levy increases to 2 percent, but the number can go up or down depending on several factors. Pension cost increases over 2 percent are exempt from the cap, which is little consolation for districts that are up against the cap anyway.

Politician wants to give teachers even more protection.

Assemblywoman Ellen Jaffee, D-Suffern, said she is considering proposing legislation that would exempt additional pension costs and perhaps tax certiorari payments from the cap.

“It could help stabilize the situation,” she said. “There are very real concerns about districts facing insolvency.”

‘rising pension and health care costs’ leading to ‘dangerous territory’

Ken Slentz, deputy state commissioner of education, said that rising pension and health care costs will result in people losing their jobs so districts can stay under the cap.

“Where are we headed?” he said. “Dangerous territory.”

Recent pension reform had little effect.

A key factor is that 86 percent of all teachers and administrators statewide are in Tier 4 of the pension system, meaning that they contribute 3 percent of their salary to the system for only 10 years and nothing thereafter. Tiers 5 and 6, created since 2009, require ongoing employee contributions but currently include only 8 percent of all members.

In a low blow that may have been meant to evoke fears related to the recent tragedy in Newtown, one official intimates that school security may suffer.

“The impact on our budgets is devastating,” Burrell said. “If we can’t raise tax levies, and taxes are already too high for many people, districts will have to make uncomfortable choices. Will districts have to choose between AP classes and security?”

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10 Comments to “Under New York 2% tax cap, protected pensions will cause even more cuts to student services”

  1. It’s curious that, as far as I know, there has not been a strong opposition movement against the tax cap, even after its initial effects have been felt across the state. Maybe after the effects of next year’s budget cuts more people will become vocal about this.

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  2. The real story is that they were making pension promises for decades without setting aside the money to cover their promises. The problem is with politicians putting off problems to the future—when the future comes, they are suddenly shocked that they have to make up 20 years of accumulated (and hidden) debt. It is not just schools on the East Coast running into this problem, nor is it a problem with lavish pension plans (as many Republican Scrooges claim)—it is a general problem with short-term planning without thought to long-term consequences. Even the University of California, which put no money into their pension plan for over 20 years and raided it for “early retirement” bonuses, is now suddenly discovering that their plan is underfunded.

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  3. “… a general problem with short-term planning without thought to long-term consequences.”

    Has it always been this way with politicians, or is this a new problem?

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  4. The real story is that they were making pension promises for decades without setting aside the money to cover their promises.
    Hah!
    The real story is that it is actually illegal in NY to set aside money to fund pensions.

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  5. Now we have to pay for it, but it isn’t right to change pension plans midstream for people who are counting on them and who have done their retirement planning based on those pensions.

    What I have learned, immersing myself in macro, is that money, like everything else, is a scarce resource.

    The economy has suffered profound loss of wealth, income, and jobs, but pensions have been protected by law from the losses everyone else sustained.

    Those of us without pensions make up the loss.

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  6. Will districts have to choose between AP classes and security?”

    nice

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  7. Hey Grace – off-topic: where is the post telling us how many people have based their choice of college on cost?

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  8. “where is the post telling us how many people have based their choice of college on cost?”

    Hmm, I can’t remember that specifically, but here’s one about Westchester County anecdotes.

    “The high cost of college is playing an increasingly important role in the way Lower Hudson Valley families go about choosing schools. Students representing a wide range of economic demographics – from New Rochelle HS (41% students qualify for free lunch) to Fox Lane HS (only 5% qualify) – are choosing community college as a way to save money.”

    http://costofcollege.wordpress.com/2012/06/28/families-in-lower-hudson-valley-adjust-to-rising-college-costs/

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  9. Bonnie – I hope cijohn comes back to respond, but I think she might be referring to what happens at the local level, where schools are subject to some restritictions about how much they can set aside in reserves for future pension liabilities.

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  10. The reasons for not letting school districts keep money in reserves are related to trying to avoid letting politicians sit on top of large piles of taxpayer money that is not designated for immediate use. I can definitely see the rationale in that!

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