Plan comes with costly catch
Increased retirees' benefits could bring school tax hike, officials say

Monday, May 05, 2008
BY CHARLES THOMPSON
Of The Patriot-News

A looming battle over whether to increase pension benefits to retired state workers and public school teachers represents a classic clash of political favorites for legislators.

Some lawmakers say they want to help 80-year-old retirees making a state pension of about $1,000 per month cope with rising costs.

However, raising pensions would also likely contribute to future school property tax increases for everyone else.

The 280,000 beneficiaries last received pension increases in 2002. Inflation, generally, has been 17 percent since then. By long-standing practice, the beneficiaries have received cost-of-living increases every four to five years, so in a sense, this debate is overdue.

The problem is that pensions are expensive.

'A huge hit':

A bill in the state House would provide increases ranging from 2.7 percent for the most recently retired to 25 percent for those who retired before July 1990.

According to legislative estimates, the bill proposed by Rep. Steve Nickol, R-Hanover, would cost about $520 million a year, starting in the 2009-10 budget year.

Roughly one-third of that, or $174 million, would be paid by local school districts.

"That's a huge hit," said Tim Allwein, a state government liaison for the Pennsylvania School Boards Association, "particularly in light of the property tax debate of the last couple of years where we keep being told: 'You're spending too much. You're wasting too much.' Things like this certainly don't help us."

Tom Longenecker, the finance director for the Carlisle Area School District, said the cost to his district would be about $379,000.

"That would be the equivalent of five new positions ... at a time when we've made decisions not to expand our programs just because it is hard out there" for taxpayers, he said.

Midstate pension expert Rick Dreyfuss said raising pensions would fly in the face of fiscal responsibility.

He said the pension funds are recovering from the General Assembly's decision in 2001 to increase pension benefits for all current employees -- lawmakers included.

That decision is expected to cause the state's and school districts' current $1.2 billion annual pension tab to more than double by 2012, he said.

If the pension funds' returns on investments going forward don't average 8.5 percent annually, that cliff will only get steeper.

In the current fiscal year, returns for the Pennsylvania Public School Employees' Retirement System are up by less than 1 percent. Numbers from the Pennsylvania State Employees' Retirement System, covering state employees, were not available for this story.

"It just doesn't add up to me at all," Dreyfuss said.

Most private corporations gave up cost-of-living increases for their retirees decades ago because they deemed them unaffordable, he said.

Some retirees hurting:

Representatives of the retirees insist their need is real, especially for those who retired 20 or more years ago.

The average pension for all retired school teachers is $21,836. The 29,995 retirees between the ages of 60 and 64 make an average annual pension of $33,041.

But for the nearly 30,000 retirees who are 80 or older, the figure drops to $11,929, in part because their salaries were so much lower.

The drop-off is similar for retired state workers, whose overall average pension is $21,327.

"These are not the [Cabinet] secretaries or the high-paid political appointees," said Nelson McCormick, the president of the Pennsylvania Association of Retired State Employees. "They don't take vacations. They don't splurge. They don't eat out. If you retired 20 years ago, you are really starting to hurt."

The discrepancy is based in part on the change in salaries over time but is also due to a 25 percent increase in the benefits formula for state workers and school employees that was passed by the Legislature in 2001 and enacted by then-Gov. Tom Ridge.

Election-year dilemma:

It's a big, election-year dilemma for legislators.

"It's hard for legislators to say no because everybody's got retired school teachers or retired state employees in their district," said Allwein, of the school boards association.

The pension raises' prospects appear particularly strong in the House, where the bill was approved by the State Government Committee on Tuesday and awaits floor action. The bill has 154 co-sponsors, including most senior Democratic leaders.

But even if the House does pass the bill, its future appears murkier in the Senate.

Senate Majority Leader Dominic Pileggi, R-Chester, refused to commit on the bill Wednesday, saying only that given the cost, "I think we have to proceed very cautiously in this economic climate."

Rendell administration officials were noncommittal.

"The governor is certainly sympathetic with the intent of the legislation, but, as always ... he will want to see details of how they propose to pay for it," said Chuck Ardo, Gov. Ed Rendell's spokesman.

Nickol said he hopes the issue gets full consideration during 2008-09 budget talks.

"The retirees have a legitimate issue," Nickol said. "It all depends on your priorities. ... We seem to come up with money for film tax credits and things of that nature."

CHARLES THOMPSON: 705-5724 or cthompson@patriot-news.com


PENSION PROPOSAL

The bill would provide increases ranging from about 2.7 percent for those who just retired to 25 percent for those who retired before July 1990.
The estimated cost is $520 million a year.
To be eligible, workers must have retired before July 2, 2007, and be receiving benefits by July 1, 2008.

Source: The Patriot-News