School officials on Long Island are cheering surprise word from the state that teacher pension costs will drop significantly next year, with lower rates expected to save more than $100 million in Nassau and Suffolk counties alone.
Managers of the New York State Teachers' Retirement System forecast that districts will be required to contribute 13 percent to 13.5 percent of employee salaries to the pension fund for the 2015-16 academic year, down from the 17.53 percent rate they are paying this school year. The state plans to announce a more precise contribution figure in February.
Over the past seven years, districts' pension costs have doubled as the Teachers' Retirement System raised contribution rates to rebuild investment funds whose value was battered by the 2008 stock market crash. The retirement system covers school administrators, teachers, librarians and other professional workers -- with about 60,000 active employees in Nassau and Suffolk, among 270,000 statewide.
Local school administrators, who have found the rising costs difficult to explain to voters, said the state's prediction of lower rates is a welcome relief.
"It's a very significant savings," said Joseph Dragone, assistant superintendent for business in the Roslyn district and one of the region's leading experts on school finance. "We always complain when fixed costs go up. So I'll be happy to tell my community this year that they're going down."
Islandwide, school officials estimate savings next year of between $100 million and $150 million. Total budgeted spending by Long Island public schools this year is about $11.7 billion.
In recent years, mandatory contribution rates set by the pension system have represented one of the fastest-growing costs for the Island's 124 school districts. More than 60 percent of local property tax bills goes to school taxes.
The Teachers' Retirement System is the largest retirement system for school employees in the state and one of the 10 largest public funds in the nation, based on total membership and portfolio size.
Another state pension plan, the Employees Retirement System, whose members include nonprofessional school workers, announced earlier this year that its average contribution rate would drop to 18.2 percent of payroll in 2015-16. The current average rate is 20.1 percent.
The number of school workers retiring and drawing pensions has risen in recent years as student enrollments declined and districts made layoffs. Many educators statewide had expected this trend to result next year in continued high pension contribution rates or, at best, a slight decrease.
The drop in Teachers' Retirement System contribution rates of up to 4.5 percentage points came as a pleasant surprise.
"This is a greater decrease than most people were expecting," said Robert Lowry, deputy director of the New York State Council of School Superintendents, which represents more than 800 education chiefs statewide.
Pension fund officials attributed results to favorable investment returns from a recovering stock market. The net rate of return on fund investments for the fiscal year ending June 30 was 18.2 percent, they said.
R. Michael Kraus, president of the Teachers' Retirement System's board of directors, said in a statement that such returns underscored the effectiveness of well-managed "defined-benefit" pension plans -- so named because they guarantee specific levels of benefits.
Groups such as the Empire Center for New York State Policy, a conservative Albany-based think tank, have argued that defined-benefit plans put too great a burden on taxpayers, because they raise contribution rates whenever investments do not provide enough money to cover projected payments to retirees.
The Teachers' Retirement System "had enormous losses in 2008 and 2009, and they backfilled with taxes," said E.J. McMahon, president of Empire Center.