Posts tagged ‘Tax cap’

May 8, 2013

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.

December 28, 2012

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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