The Cost of Pennsylvania’s Pension Crisis

In recent Appropriation Committee hearings, Pennsylvania’s two statewide pension funds (PSERS and SERS) reported $62.2 billion in unfunded liabilities (or debt) that taxpayers must pay. This number—which assumes a higher rate of return than either fund has reached over the past decade and doesn’t reflect the current market value—is projected to rise.

As a result, our pension crisis will continue to drive up school districts’ costs.

Pennsylvania school districts spent $2.3 billion on employee pension contributions in 2014-15, according to the latest annual reports from the Department of Education. This is an incredible 252 percent increase ($1.8 billion) since 2008-09. As the chart below illustrates, based on mandatory pension contribution rates, those costs will continue to climb.

In 2015, total school district revenue reached an all-time high of $27.6 billion, a $3.9 billion increase since 2009. A whopping 47 percent of that increase went to pension payments—a $578 increase per homeowner, representing the biggest driver of property tax increases.

Put another way, the increase in pension costs for school districts equals the salary of almost 29,000 teachers (using the average statewide teacher salary of $63,000). If you wonder why schools are cutting staff, even as taxes and revenues rise, just look at the pension crisis.

To be clear, pension reform won’t reduce the existing unfunded liability taxpayers owe or offer immediate savings. But moving to a defined contribution plan—which, by definition, carries no debt—would take politics out of pensions and help prevent a repeat of the current pension crisis.