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Pension crisis Poor planning led to shortfalls

Published February 26. 2010 05:00PM

Pennsylvania's state pension fund is in crisis. Thanks to a down stock market and poor planning on the part of state legislators, taxpayers may be on the hook for billions of dollars in tax increases.

The state's retirement fund will soon face a severe shortage. To fund this gap, school districts may be asked to contribute $1.9 billion in 2012-2013. This increase will place a hardship on local homeowners, who can't afford the extra tax burden.

During this week's school board meeting, Lehighton Board President David Krause noted that the district may face a $2 million increase in pension costs during the 2012-2013 school year. This is the equivalent of a 5.5 mill increase.

The district now pays about $315,000 each year towards the pension fund. This $2 million increase equals a 613 percent increase. Other districts in Carbon and Schuylkill counties will face equally painful payment increases of between 533 and 625 percent.

How could this have happened?

The Pennsylvania Public Employees Retirement System is funded by three main sources: Employees, employers (in this case, each school district and the state government), and investment returns.

This system has relied on a strong stock market to keep employer contributions in check. In times of economic prosperity, state legislators rewarded retirees with pension payment increases, hoping that market gains would continue to sustain spending.

Of course, the U.S. stock market hasn't been strong over the past few years. The state pension fund lost more than 26 percent in 2008-2009. Suddenly, the surplus our state was facing in the early 2000's was gone. The only way for the state to make up for losses is to increase the amount that each school district pays into the pot, and taxpayers will suffer as a result.

This isn't the first time our state has faced this problem. In 2003, Governor Rendell changed how pension costs were calculated to postpone increases for 10 years. While this provided temporary relief for school districts facing hefty pension increases, it caused an even larger problem for 2013.

There are only a few solutions to this problem. The state can mandate increases of up to 600 percent for each school district, placing the burden on taxpayers. They can also change the retirement system for incoming employees but because current teachers and retirees' benefits can't be touched, it will be years before this produces a benefit.

Or we can play political math games. One of Rendell's current proposals is to again recalculate our state's pension liabilities, spreading them out over the next 30 years. If this plan didn't work 10 years ago, why should we expect it to work this time? It may provide temporary relief, but it won't erase the long-term funding crisis.

Now is not the time to point fingers. Casting blame won't solve any problems, and it won't prevent potentially devastating tax increases in upcoming years. Now is the time to learn from our mistakes and find a practical solution to this pending budget crisis.

By Stacey Solt

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