Quick Links – Public pension problems round-up

by Grace

IN NEW YORK, PENSION COSTS ARE OVERPOWERING THE PUBLIC SCHOOLS’ ABILITY TO MAINTAIN STUDENT SERVICES.

Our local public schools must cut student services to pay soaring pension costs.

The budget numbers tell the story:

  • Total school costs will increase 3.3% over last year.
  • Cost of teacher pensions alone will increase 42%.
  • Pension costs account for at least 75% of the total budget increase.*
  • To pay for the 42% increase in teacher pension costs, the school will cut teaching staff and increase class sizes.

Public schools throughout the state are in a similar situation.   “Retirement and insurance costs continue their relentless climb”, causing a nearby district to cut 30 jobs.  Another local school administrator explains their pension costs:

Almost 80 percent of the hike comes from a $3.5 million rise in state-mandated retirement expenses, Purvis said.

* Total employee benefits costs account for 96% of the total budget increase.

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A SPECIAL EXEMPTION ALLOWS TAX INCREASES THAT EXCEED TAX CAP LIMITS AS LONG AS THOSE PAYMENTS ARE USED TO PAY FOR PUBLIC EMPLOYEE PENSIONS.

The New York property tax cap introduced two years ago includes a carve-out created to allow tax increases that pay for teacher pensions to be exempted from the cap.  As it turns out, this exemption has been the main reason for the average tax increase more than doubling above the 2% statutory base cap up to 4.6% .

The additional increase is driven entirely by a provision of the 2011 tax cap law that excludes a portion of increased employee pension costs from the limit on tax levy increases. Without the pension-related increase, the 2013-14 levy limit statewide would average 2.7 percent, including all other district-specific exclusions and allowances for voter-approved capital expenses and physical additions to the local tax base, along with factors such as growth in the tax base and net changes in the value of payment in lieu of tax (PILOT) agreements.

The pension exclusion hurts poor school districts the most because the calculation method especially affects communities with lower property values.

… the pension exclusion in the tax cap law effectively makes it easier for school districts to raise taxes on property owners who can least afford it.

… The pension provision—added at the insistence of Assembly Speaker Sheldon Silver—diminishes the protection the law was supposed to provide for some of the state’s poorest taxpayers.

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NEW YORK’S ‘STOPGAP’ SOLUTION TO PENSION CRISIS CARRIES ‘LONG-TERM RISKS’.

A “pension-smoothing” provision was recently introduced in New York, allowing school districts to postpone full funding of pension liabilities.

Moody’s does not look favorably on this plan to kick the can down the road.

Moody’s Investors Services warned Monday that the state’s new pension-smoothing plan is “a stopgap with long-term risks” that could endanger the state’s pension fund and the credit of local governments.

The plan, part of the state budget approved last month, allows for local governments and schools to essentially pay a flat rate for pension costs over 12 years, avoiding the steep cost increases that the municipalities have faced.

Opening the door to future underfunding of pension liabilities

Moody’s says that the concern is the flat-rate payments could underfund the state’s roughly $150 billion pension fund, which provides benefits to 1 million retirees and current local and state workers. That could lead to higher costs for municipalities and schools in future years, the credit agency said.

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PUBLIC PENSION HORROR STORIES FROM ILLINOIS AND FROM CALIFORNIA CONJURE UP TROUBLING IMAGES.

 20130505.COCPython1

 In Illinois, public pensions already gobbling up education funding

… Education funding is being strangled by the same python that is strangling the rest of state government’s finances: pension obligations….


20130505.COCPacman1

 “The pension costs really are the Pacman that’s eating our budget,” Shirey said.

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4 Comments to “Quick Links – Public pension problems round-up”

  1. The problem isn’t that pensions have suddenly gotten expensive. The problem is that for decades governments and schools have been neglecting to pay for the pensions that they promised their workers, assuming that they would retire before the s*** hit the fan.

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  2. Yes, although in New York’s case pensions are technically “fully funded”, but using unrealistically high rates of return assumptions. This makes the year by year actual performance too low, leading to these 43% increases. In Illinois and other states, pensions are just plain underfunded.

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  3. Underfunding is underfunding, whether it is by using unrealistic assumed rates of return, bad estimates of life expectancy, or deliberate underfunding. New York has been underfunding for decades—they’ve just been lying about being “fully funded”.

    Like

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