POTTSTOWN PA – The day school districts have been dreading arrived Wednesday (April 28, 2010). That’s when the Pennsylvania State Employees’ Retirement System (PSERS) approved its first in a series of pension fund increases that threatens to overwhelm property owners across the Pottsgroves, Pottstown, Limerick and elsewhere with the prospect of huge annual tax increases.

The piggy bank that is known as the Pennsylvania State Employees' Retirement System is broken, and will depend on taxpayers to fix it.

The ballooning real estate tax load is estimated at worst to average thousands of dollars per parcel each year within five years in almost any school district. Not a penny will directly help students, district business managers warn. Instead, they say, the money pays for retirement benefits handed out years ago to teachers and other school workers who participate in the pension fund.

The PSERS governing board Wednesday approved an increase to 5.64 percent, up from 4 percent currently, in taxpayer contributions to the fund for 2010-11, according to the Pennsylvania Independent online news service. The hike is intended to bring $380 million into the fund next year, which otherwise would start running out of money to pay its beneficiaries. Even bigger increases are anticipated in future years.

PSERS’ costs are assessed to each district and other participating entities, which in turn must pass them on to residents and businesses in the form of higher taxes on the properties they own. In several area districts, assessments are 70 percent or more higher in 2010-2011 than in the current school year.

“That means we’ve got some significant challenges,” because the cost of paying for PSERS must be added on top of the cost of running schools, Pottsgrove School District Business Administrator David Nester said last month.

In the Pottstown district, school board member Robert Morgan distributed calculations earlier this month that showed the assessment there could add $110 to average school tax bills in 2011-2012. By 2015, he estimated, the PSERS burden borne by Pottstown taxpayers could reach more than $1,500 per parcel annually.

Without help from the state, the looming PSERS crisis might even bankrupt every district in Pennsylvania, Owen J. Roberts schools’ Business Manager Jaclyn Krumrine direly predicted last week during a taxpayers’ town hall meeting.

PSERS’ difficulties are similar to those many area residents have discovered in their own individual retirement accounts and other savings vehicles. The collapse of banks, the fall of investment firms, the decline in real estate values, and the recession in recent years all have cut into the worth of what, if anything, folks squirreled away for the days when they hoped to stop working.

The PSERS pension fund was once valued at more than $75 billion in assets, and relied upon earnings generated by investments to pay slightly more than half of its participants’ retirement withdrawals. Today, the fund is reportedly worth $46 billion – 39 percent less – but withdrawals are rising as more baby boomer employees retire. What’s more, the payments guaranteed to each retiree also are rising, and big shortfalls are on the horizon.

Gov. Ed Rendell has proposed “to deal with the pension spike by smoothing (PSERS) rate hikes over a period of thirty years,” The Independent said. “Taxpayer contributions would increase by no more than three percent each year, but the plan would increase the amount of unfunded liabilities contained in the pension system,” it wrote. In other words, PSERS’ debt would grow and take longer to repay.

“The governor’s plan amounts to an extra decade of higher costs,” PSERS spokesman Robert Gentzel told The Independent. “When you defer debt you increase debt, whether it’s on a credit card, a mortgage, or a pension plan.”

The Pottsgrove district began preparing for the PSERS hit a few years ago, and now has a fund of thousands of dollars from which it will begin to pay a portion of its assessments to lessen the immediate blow to taxpayers. That money won’t last forever, though, Superintendent Dr. Bradley Landis noted. Within a few years, he recently predicted, the cost of paying for a new teacher’s retirement will equal his or her salary … every year.

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