PENNSYLVANIA SCHOOLS Bill to soften pension change

The governor said the process is akin to refinancing a home mortgage.
HARRISBURG (AP) -- Pennsylvania school districts will face reduced sticker shock when they pay their share of employee pension costs next year under a bill signed by Gov. Ed Rendell to spread pension payments over an extra 20 years.
The measure increases the amortization period of Pennsylvania's two largest pension funds -- the State Employees Retirement System and the Public School Employees Retirement System -- from 10 years to 30 years to soften the impact of projected increases to the employer contribution rate.
Like refinancing
Rendell likened the process to homeowners lowering their monthly mortgage payments by refinancing their mortgages. He signed the bill late last week.
The change means that for the fiscal year that begins July 1, the current 3.77 percent employer contribution rate for PSERS -- which is split between the districts and the state -- would increase to a little more than 4 percent instead of to a 10 percent rate that had been projected.
The administration estimates that the measure would save the state and school districts a combined $918 million in school pension contributions next year. Over the next three fiscal years, it is expected to save districts $1.7 billion and the state $2.3 billion.
"There is no question that this adjustment to the pension contribution schedule will enable our school districts to focus on the critical issues of student performance," Rendell said during a news conference where he signed the bill.
The bill was passed unanimously by the Legislature on Tuesday. Its signing came one day before the PSERS board was to approve next year's employer contribution rates.
Contribution rates have been relatively low in the past several years because the strong securities markets of the late 1990s produced healthy investment returns to the fund. But a more recent period of investment losses -- plus a pension benefit increase state lawmakers approved in 2001 for teachers, state employees and themselves -- have contributed to higher costs.
Higher contributions
Legislative staffers have said the total contribution to meet the pension funds' obligations over 30 years will be higher over time because the funds would have less money on which to earn interest or investment gains in the short term.
But school officials said expanding the amortization period would lessen the short-term possibility of dramatic rate spikes, which are passed on in homeowners' property tax bills.
"In some cases, districts were looking at their costs doubling and even tripling, which was cause for great concern," said Tim Allwein, spokesman for the Pennsylvania School Boards Association. "I think it will be a big help to districts that don't want to raise taxes ... to that extent."