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Long IslandEducation

State: Projected drop in teacher pension costs means savings for schools

This is a first-grade classroom at Branch Brook

This is a first-grade classroom at Branch Brook Elementary School in Smithtown at the end of the day Tuesday, Jan. 4, 2011. Photo Credit: Newsday / John Paraskevas

Teacher pension costs are projected to drop for the 2016-17 school year, producing millions of dollars in savings for districts on Long Island and statewide.

Administrators of the New York State Teachers' Retirement System forecast that pension-contribution rates paid by local districts will decline to about 11.75 percent of payroll for 2016-17, down from 13.26 percent for this school year and the second consecutive year showing a decrease.

The projection is based on investment returns, expectations of their future performance and other factors. The anticipated rate is markedly lower than the 17.53 percent paid for 2014-15, which was a 28-year high.

Savings of about $225 million for districts statewide, including $34 million for districts in Nassau and Suffolk counties, would result, according to state and local estimates.

The forecast would bring relief for taxpayers because it means school systems should have an easier time keeping within tightening property tax-cap limits.

"It's going to make our job next year easier," said Joseph Dragone, assistant superintendent for business in the Roslyn district and one of the region's most experienced school-finance analysts. "It's good news for taxpayers, because any time the rates go down, we pay less as employers."

The Teachers' Retirement System had $109.7 billion in total net assets as of June 30. It covers more than 420,000 active and retired school professionals statewide.

Some conservative analysts contended the optimistic projections could result in larger rate hikes in the future.

E.J. McMahon, president of the Empire Center for Public Policy, an Albany-based think tank, has concluded that the retirement system's predictions are too rosy.

He noted that the teachers' fund has predicted that the value of its investments -- largely stocks -- will rise at an annual rate of 7.5 percent. While that figure is down from the system's past projections, it is higher than the 5.2 percent return actually earned on investments during the fiscal year that ended June 30.

"Before cheering this on, taxpayers need to realize this is all a gigantic calculated risk," McMahon said Monday. "Betting on a return as high as 7.5 percent is still a long shot. The less we put in now, the more we'll have to pay to cover any pension-fund losses in the future."

Retirement system officials said their projections are sound. Such estimates are based on a combination of factors, they added, including return on fund investments that have averaged 12.4 percent annually over the past five years.

"This is a long-term assumption and NYSTRS has avoided 'knee jerk' reactions based on short-term economic trends," stated Richard Young, an actuary who works for the system.

The retirement system's charges represent the bulk of pension costs for school districts. Districts' overall expenses account for more than 60 percent of Long Island homeowners' property taxes.

Across the Island, school officials who have begun drafting budgets for next year have said they face particular problems coping with state property-tax caps, first imposed in 2012-13.

The reason is that low growth in the cost of living is likely to result in a near-freeze on 2016-17 taxes, they say. That means any savings in pension costs would give local districts a little extra financial wiggle room.

Districts, moreover, probably can expect generous infusions of state financial aid in 2016, when legislators will run for re-election.

McMahon, however, pointed to the past in cautioning that the retirement system's projections could lead to higher costs for districts. The system raised rates substantially after effects of the 2007-08 economic crash took hold and values of both stocks and pension funds plummeted.

Thus, he said, if the system's investments do not perform as well as expected, rates in the future will have to be jacked up to make up for shortfalls in revenue needed to cover pension costs.

Recent surveys by the U.S. Census Bureau and other agencies have found that New York's pensions are relatively well-funded compared with those in most other states.

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