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State pension crisis: How did we get here?

This article was originally published in The Notebook. In August 2020, The Notebook became Chalkbeat Philadelphia.

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Pick your favorite issue or cause in Pennsylvania: public education, services for the poor, tax breaks for businesses.

Chances are, there’s going to be less money for any of these moving forward because the state’s public employee pension bill is growing exponentially, with a current unfunded liability of $53 billion.

To keep up with rising costs, school districts across the state have been making tough choices — either cutting programs or increasing property taxes.

School budget wonks are reeling from the massive pension payment spikes that have been hitting lately.

In Philadelphia, for instance, the District has been cut to the bone, and because leaders lack taxing authority, there’s only thing to do each year: Beg and plead for more from the city and the state.

"When you have these fixed mandated costs, it handcuffs you in your ability to meet the needs of students because so much of your money is going towards a certain fixed-cost item," said Matt Stanski, chief financial officer of the Philadelphia School District.

Just a few years ago, schools paid about 5.5 percent of employee salary to the pension fund. This year, they must pay 21 percent. Next year, they’ll pay 26 percent. The rate will peak at 32 percent in 2019.

"If they continue to grow without the requisite revenue to help support it," said Stanski, "the District will continue to be in a situation where we’re asking for money, year-in and year-out, to provide basic services for students."

The state splits the employer pension contribution with school districts, picking up a little less than two-thirds of the cost.

By 2019, the state will need to spend $3.3 billion to meet its total pension obligation — double what it paid last year.

Tracing the history

So how did Pennsylvania get into this mess?

You have to go back to the late 1990s. The economy was booming. The state was running a surplus, and the public employee pension funds were flush with cash.

The state runs two pension plans that share a parallel narrative: one plan (called PSERS) is for teachers and school employees. The other — SERS — is for other state workers, which, in addition to rank-and-file state employees, includes state troopers, lawmakers, judges, top executive branch officials and state university staff members.

By the summer of 2001, basking in the sunny glow of a bullish stock market, state lawmakers voted to boost pension benefits — bumping up the payout rate and cutting in half the amount of time it took to become eligible for a pension.

But then the bottom fell out.

Read the rest of this story at NewsWorks