Pension costs dominate Pa. education conversation in Harrisburg, amid other competing priorities

Much of the debate in Harrisburg this summer has been centered on how Pennsylvania should overcome its $2.2 billion deficit.

But, as usual, there has also been a great deal of focus on issues related to public school funding and policy.

The summer began with fanfare in the capitol rotunda. On June 12, a compromise on a long debated effort to overhaul the retirement system for teachers and state workers was made official.

Governor Tom Wolf and the legislature agreed on a plan affecting new hires only that eliminates what workers currently get: a full, guaranteed pension payout upon retirement. Instead, those hired after July 1, 2019 will have the choice of a few options which will give them a split between a pension and the type of 401(k) that most have in the private sector.

“Simply put this bill is a win for Pennsylvania taxpayers; it’s also fair to Pennsylvania’s workforce, and I will be proud to sign it,” Wolf said, standing before a large crowd of lawmakers.

The measure goes a long way to protect taxpayers decades into the future, who will now avoid carrying the full risk of the stock-market. In a downturn, new hires will shoulder a chunk of those losses instead of leaving state government and school districts fully on the hook.

Senate majority leader Jake Corman (R- Centre County) has long advocated for scaling back guaranteed pension benefits. For years, he’d been pushing versions of the bill that would have been much less friendly to workers, including an iteration that would have affected existing employees. But he was happy with the final deal.

“We could all stand in our ideological purity, go to our corners, introduce legislation and never get anything done. Or we could come together as a general assembly and try to fix the problems of Pennsylvania,” Corman said at the June 12 press conference.

Steep road still ahead

For the past seven years, pension costs have been rapidly rising, largely due to actions by state government in the 2000s that came to a head in the wake of the Great Recession.

After amassing a large unfunded pension liability, the state passed a pension reform bill in 2010 that also scaled back the generosity of the benefits while setting a definitive schedule for catching up on the debt, with obligations rising each year.

As those payments have ramped up, local school boards have faced a rough reckoning, pushing them to hike property taxes and reallocate resources that could otherwise be used in classrooms.

This year’s new pension legislation won’t change this reality in the near term. There’s still a large debt that needs to be paid down, and annual contributions are expected to continue rising until 2034, according to a review by the Independent Fiscal Office.

This will leave plenty of tough decisions ahead for school leaders.

“So you either cut, or you raise property taxes and in some cases districts end up doing both of those things, because that’s the reality of the budget we’re in,” said Jay Himes, the executive director of the Pennsylvania Association of School Business Officials.

Looking at this year’s education budget is case in point.

In late June, lawmakers and the governor reached a deal that boosted the main pots of cash for public schools by $120 million dollars.

Public schools across the state, though, must collectively cough up $150 million new dollars this year for pensions.

“If you add up all the increase in pension costs to school districts, that doesn’t even cover that. That doesn’t even cover their pension increase from last year to this year,” Corman said at a July meeting with the Pennsylvania Manufacturers Association.

This has been true for the past many years running: the rising costs public schools have faced in meeting pension obligations has outstripped the new money the state has dedicated towards the main pots of K-12 education funding.

The graph below compares the local public school pension contribution (including traditional districts, charters, and career and technical centers) with combined increases to the state’s two main pots of K-12 education funding — basic and special education. The pension numbers for 2017-18 and 2016-17 are state estimates.

Looking into the future, the total employer contribution for pensions is expected to rise by $3.5 billion dollars by 2035. State government will cover about 55 percent of that figure, with local public school entities picking up the remainder, which in this case would be $1.6 billion.

If localities hope to cover these costs based on increased state revenue, that would mean that, on average, the state would need to boost education funding by at least $93 million each  year during that time.

So in the state budget battles that will occur over the course of the next 17 years, it will be worth remembering that the first $93 million of any increase covers rising pension costs.

New money

In part for this reason, education advocates have been calling for much larger yearly boosts from the state. The Campaign for Fair Education Funding, for instance, has been pushing for $400 million increases annually.

This year, though, with Harrisburg facing its large budget deficit, advocates were satisfied to get what they could.

“School districts desperately need that funding. It isn’t close to enough, but it’s at least something that will help stave off even deeper cuts and higher tax increases than school districts have already had to make,” said Susan Spika, executive director of Education Voters PA.

The catch is that the state still hasn’t come to consensus on how to pay for the spending side of its budget. A bipartisan coalition of senators agreed to a new revenue package that includes boosts to residents’ home energy taxes and a severance tax on natural gas drilling.

“We’re sort of at the end of our tricks as far as keeping us afloat, and that’s why we’re in the position we are, talking about revenue, which nobody wants to be in. But at some point you have to face your fiscal responsibility,” said Corman, again before the manufacturers association.

A spokesman for House GOP leadership says its majority caucus is considering that plan, but bristle at the prospect of further taxing necessities such as home heating and electricity.

In short: until agreement is reached on how to raise new state revenue, any education increases are, in reality, hypothetical.

Assuming, though, that the $100 million boost to basic education comes through, this will be the third state budget where increases in spending were distributed through the new student-weighted funding formula.

That would bring the total funding driven through the formula to $468,950,000, which is 7.8 percent of the nearly $6 billion basic education subsidy.

On a per pupil basis, students in the 25 districts listed below have been helped the most by the advent of the new formula, which distributes funding based on accurate student enrollment data and need factors. The average median household income of these districts is $32,500.

School district	County	Median Household income
York City SD	York	$29,025
Duquesne City SD	Allegheny	$19,776
Reading SD	Berks	$26,784
Harrisburg City SD	Dauphin	$33,289
Midland Borough SD	Beaver	$22,907
Chester-Upland SD	Delaware	$29,104
Aliquippa SD	Beaver	$30,851
Lancaster SD	Lancaster	$37,687
Farrell Area SD	Mercer	$29,535
Allentown City SD	Lehigh	$36,930
Lebanon SD	Lebanon	$35,062
Sto-Rox SD	Allegheny	$31,332
Shenandoah Valley SD	Schuylkill	$31,216
Sharon City SD	Mercer	$30,720
Pottstown SD	Montgomery	$43,075
Clairton City SD	Allegheny	$30,207
Philadelphia City SD	Philadelphia	$38,253
Forest Area SD	Forest	$36,973
Greater Johnstown SD	Cambria	$28,075
Wilkes-Barre Area SD	Luzerne	$37,780
Panther Valley SD	Carbon	$36,183
Scranton SD	Lackawanna	$37,218
New Castle Area SD	Lawrence	$30,778
Erie City SD	Erie	$34,253
Carbondale Area SD	Lackawanna	$34,853

In general, though, the state continues to most highly prioritize a largely different set of students.

Because about 92 percent of basic education funding is distributed without the formula, the districts listed below receive the most per-pupil funding. The average median household income of these is $39,200.

School district	County	Median household income
Duquesne City SD	Allegheny	$19,776
Chester-Upland SD	Delaware	$29,104
Purchase Line SD	Indiana	$39,327
Farrell Area SD	Mercer	$29,535
Union SD	Clarion	$42,432
Wilkinsburg Borough SD	Allegheny	$32,324
South Side Area SD	Beaver	$65,597
Cameron County SD	Cameron	$39,897
Austin Area SD	Potter	$39,205
Harmony Area SD	Clearfield	$40,507
Oswayo Valley SD	Potter	$34,915
Johnsonburg Area SD	Elk	$46,083
Shade-Central City SD	Somerset	$42,030
Susquehanna Community SD	Susquehanna	$39,969
Penns Manor Area SD	Indiana	$44,941
Allegheny-Clarion Valley SD	Clarion	$45,346
Midland Borough SD	Beaver	$22,907
Union City Area SD	Erie	$43,080
Otto-Eldred SD	McKean	$46,310
Meyersdale Area SD	Somerset	$46,441
Port Allegany SD	McKean	$39,655
Clairton City SD	Allegheny	$30,207
Northern Cambria SD	Cambria	$44,668
York City SD	York	$29,025
Southeastern Greene SD	Greene	$46,875

A previous Keystone Crossroads analysis found that — because of the state’s “hold harmless” policy — there’s a strong correlation between top recipients of basic education funding and large enrollment losses over the past 25 years.

Inaction on charter bill, again

On another front, reforms to the state’s 20 year old charter school law have remained elusive, with a leading bill stuck in ping-pong match between the state House and Senate.

When the Senate passed the most recent version, it stripped out a funding cut to cyber charters — a provision believed to be key to garnering needed support in the House.

Other highlights of the bill as it currently stands:

• It creates more robust ethics rules for charter school administrators and board members would, and boards would be required to have at least one current parent.
• There would be a standard application form for those wanting to start new charter school and local districts couldn’t impose additional terms or require more information.
• A Charter School Funding Advisory Commission would be created, consisting of 14 members, that in the current political makeup would consist of 7 democrats and 7 republicans.
• A new charter school performance matrix would be created separate from the state’s existing metric (which already evaluates charter school performance).
• Charters that meet a certain threshold on that metric could be renewed for ten years (as opposed to current five year renewal period).
• Charters wouldn’t need to wait until their contract expires to seek changes to their deal, contingent upon school board approval.
• The state’s charter appeals board (which handles disputes between districts and charters) would grow in size to include more charter-friendly members. The board would have three members from the charter community; two from the traditional public school community and four others.
• Allows for creation of Multiple Charter School Organizations, which would allow one board and one top administrator to oversee operation of 2 or more charter schools. Currently, each charter in the state must have its own distinct board.
• Creates fund balance limits for charters ranging from 12-16 percent depending on expenditure level. Anything over would go back to the home school district.
• Other state held schools (traditional district, community colleges, state-held higher-ed institutions) must give “reasonable access” to their facilities for cyber charters to administer state tests.
• Charter school entities would be given the right of first refusal to buy unused district school buildings.
• If a charter has a wait list, it would be required for them to enroll more students as space becomes available.
• Charter schools can’t advertise that their services are “free.” It must be clear they are paid for by taxpayers.
• Charters can set up dual enrollment programs with institutions of higher education.

Advocates for traditional public schools lament that the bill does not include more tools for districts to control charter school growth and the corresponding added costs.

“It’s going to make it very, very difficult for school districts to retain any kind of local control over responsible charter school expansion that local taxpayers are responsible for funding,” said Spicka, of Ed Voters PA.

Overall, charter advocates like the bill, and say it puts a premium on school choice over the effects on traditional systems.

But after years of false starts and dead ends trying to lobby the passage of different versions of this bill, charter advocates groan with palpable frustration when discussing it.

“We’re talking almost six years now we’ve been trying to get some positive reforms for charter schools, and we’re still not able to get this across the finish line,” said Tim Eller, the executive director of the Keystone Alliance for Public Charter Schools. Eller was press secretary under Gov. Tom Corbett’s department of education.

There have been other definitive actions in the capitol.

Career and technical education students will now not have to pass standardized tests in algebra, english and biology in order to graduate high school. That requirement is still on the books for the rest of the students in the commonwealth, starting with the class of 2019. But that requirement may be pushed back (again), and there’s momentum behind abandoning the idea altogether.

A new school code bill is also on the table. As currently devised, the bill would allow districts to prioritize teacher effectiveness ratings over seniority when making layoffs. It would also prohibit districts from denying lunch to students who don’t have the money on hand to pay for it.

Not included in the current school code bill — a sticking point for House Republican leadership — is an expansion in tax credits for businesses that donate money to organizations that provide students scholarships to attend private and religious schools.

Debate on those issues to come.