Pension costs for teachers and other professional school staffers are expected to rise about 10 percent in the 2018-19 school year for districts on Long Island and statewide after three years of reductions, according to estimates by the New York State Teachers’ Retirement System.
The projected rate hike, which reflects expectations of slightly lower pension-fund investment earnings in the future, would translate into tens of millions of dollars in extra expenses for districts in Nassau and Suffolk counties alone.
That is unwelcome news for local school administrators, because it means less money potentially available for improved student services.
“Eyebrows will go up when people see this,” said Joseph Dragone, assistant superintendent for business and administration in the Roslyn school system. “People may think that the district is somehow increasing benefits for teachers when, in fact, we’re just paying more for the same benefit.”
School districts cover costs of the retirement benefits through mandatory annual contributions to the Teachers’ Retirement System. When contribution rates go up, as they will during the next school year, the effect is to put a squeeze on district budgets.
Districts are restricted in the amount of local revenue they can raise to fund school programs by state property tax caps, which took effect in 2012. The caps limit annual growth in local taxation to 2 percent or the inflation rate, whichever is lower, subject to certain exemptions at the local level.
Because of those restrictions, higher pension costs should not drive up property taxes. What those higher expenses will do, however, is make it more difficult for districts to restore programs such as art and music — which often suffered cuts in the past — or to add programs where school administrators see a growing need.
A recent survey by the New York State Council of School Superintendents found that school officials in Nassau and Suffolk counties were particularly anxious to expand student mental health counseling, prekindergarten classes and remedial academic tutoring for struggling students.
Robert Lowry, the council’s deputy director, said that growth in pension contributions “could pressure district leaders to put those plans on hold.”
The state fund provides retirement benefits to teachers and other professional school staffers, including principals, guidance counselors, librarians and social workers. The system has more than 260,000 active members statewide, including more than 40,000 on the Island.
A bulletin posted by the retirement agency estimated that districts’ required contributions to the pension fund would rise from 9.8 percent of payroll during the current school year to between 10.5 percent and 11 percent in 2018-19.
That would mean growth of between 7.1 percent and 12.2 percent in districts’ costs. Pension officials are expected to announce a more precise figure in February.
The higher pension rate projections reflect assumptions that the retirement fund’s future returns from investments in the stock market will be less than they are now.
A pension fund spokesman, John Cardillo, said that more than 80 percent of retirement payments come from investment income.
“That’s huge,” Cardillo added.
Recently, the retirement agency lowered its assumed annual rate of return on investments from 7.5 percent to 7.25 percent, based on actuarial calculations. The system’s assets total more than $100 billion.
Other pension funds have made similar adjustments recently, based in part on assumptions that the stock market may be peaking.
“Although returns have generally been favorable over the last several years, the expectation is that they will be more difficult to achieve going forward,” the agency stated in the November bulletin.
Superintendents are lobbying state lawmakers for permission to establish local reserve funds that would cover future increases in pension costs.
“It could be the shock absorber,” Lars Clemensen, the Hampton Bays schools chief and president of the Suffolk County School Superintendents Association, said of the ability to create such a reserve fund.
New York State’s retirement funds are well-funded compared with funds in some states, such as Illinois, that experience chronic underfunding. The result is that public employees here can count on retirements that are relatively secure, but also that taxpayers’ groups complain of high rates.
In 2010 and 2012, legislators raised the amounts that newly hired teachers must pay into the pension system. Nonetheless, some analysts contend that the entire system should be transformed into something akin to the 401(k) retirement plans increasingly used by workers in private industry.
The 401(k) plans, unlike traditional pensions, do not guarantee a specific amount of benefit payments.
Tim Hoefer, executive director of the Empire Center for Public Policy, a conservative Albany-area think tank, said teacher pension costs as now structured “are unsustainable in the long term, in addition to being paid for on the taxpayers’ dime.”