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Schools Show Little Interest in Pension Smoothing

12:21 PM, Jul 27, 2013   |    comments
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By Jessica Bakeman Albany Bureau

ALBANY Very few schools have shown early interest in the state's pension-smoothing program, which is unsurprising to education experts who expected only the most financially strapped districts to participate.

Schools were able to begin reporting July 1 whether they would sign up for the controversial plan, which is meant to help districts facing soaring pension costs. Participating school districts will be able to pay a flat rate employer pension contribution for seven years and then will have five years to pay off the difference, with interest.

Some opted to include the savings from the smoothing plan into their 2013-14 school budgets, which were approved by local voters in June. But schools have until June 30, 2014, to decide whether to lock into the fixed rates for the 2014-15 school year.

"In the absence of any real effort by state policymakers to provide significant mandate relief to school districts, this pension smoothing option was concocted to offer temporary and immediate fiscal relief to those school districts who faced educational or fiscal insolvency in the near term," said Michael Borges, executive director of the state Association of School Business Officials.

A survey by Borges' group of 226 school districts shows that fewer than 4 percent of school districts planned to participate.

The state Teachers' Retirement System said 260 districts have reported their plans, and only one has said it will opt in: Yonkers schools, in Westchester County.

Yonkers will save $8.8 million in 2013-14 through the plan, Superintendent Bernard Pierorazio said in a statement.

"The plan allows the district to shift the impact of current extraordinary increases in pension costs into the future, and then, make the increases payable in increments over time," he said.

Another "Big Five" District, Rochester plans to participate, as well. Signing up will defer $11.4 million in pension costs in 2013-14 alone, Bill Ansbrow, the district's chief financial officer said.

"You can count on it. You can plan on it. You can budget for it," Ansbrow said of the flat contribution rate. "Instability by nature is not good for a financial institution, so the smoothing option provides more clarity and a sense of stability."

Buffalo schools though, won't opt in, a spokeswoman said. District leaders did not consider the program to be cost effective.

The state School Boards Association did an informal poll of schools earlier this year and also found few willing to sign on, spokesman David Albert said.

His group supports pension smoothing, he said.

"It does provide an option for districts that really do want to reduce their pension costs immediately," Albert said. "At the end of the day, most districts didn't want to defer the cost. They want to meet the expenses head on."

Emily Shipe, business manager at Dryden schools in Tompkins County, said the district is opting out because leaders believe it will cost more.

"We have budgeted carefully and planned for the spike in the retirement, so we are prepared, and we don't want to push out what we can just pay as we go along," Shipe said.

Karry Mullins, assistant superintendent for administration at Binghamton schools, said the district's fiscal advisers don't expect the contribution rate to continue rising, limiting the potential benefit.

"They didn't see what the advantage would be," she said. "There were too many unknowns."

Many local leaders and policy analysts have been critical of the plan, and the final version looks much different from Gov. Andrew Cuomo's January budget proposal. The original plan allowed municipalities and school districts to opt in for 25 years without paying interest, instead relying on expected lower future rates from a less-generous pension tier to balance out the costs.

Syracuse Mayor Stephanie Miner, who is also co-chair of the state's Democratic party, has called it a financial "gimmick," another opportunity to borrow against the future. State Comptroller Thomas DiNapoli was slow to warm to the plan but eventually approved the scaled-down version.

E.J. McMahon, senior fellow for the fiscally conservative Empire Center for New York State Policy, said pension smoothing amounts to an irresponsible shift of costs from now to later.

"Any school district that does this ought to have its head examined, and the taxpayers ought to sit up and start yelling at its school board, because it's foolhardy," McMahon said. "It's a really bad idea for anybody to do this, unless you're on the verge of just outright bankruptcy."

Robert Lowry, deputy director of the state Council of School Superintendents, said a boost in state aid this year might have factored into districts' decisions to avoid the smoothing plan. The state budget included a $1 billion increase for the fiscal year that began April 1.

While his group supports the option, he said he understands why some districts are hesitant to embrace it.

"There is no free lunch," he said. "You reduce your cost over the near term; you pay more over the longer term. That is something that most school district leaders are reluctant to take on, if at all possible."

New York State United Teachers, the state's largest teachers union, also supports the plan. Spokesman Carl Korn said schools might have already finalized their budget proposals before the late-March enactment of the state budget, which included Cuomo's pension smoothing option.

"We believe more school districts will look at the smoothing option more seriously next year when they have more time to consider the implications," Korn said.

 

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