Apr 24, 2014 By Carla Valentine Myers 3 min read

The executive director of the state’s retirement system for school employees told the Upper St. Clair School Board April 22 that his advice is to advocate for a permanent solution to the underfunding of the pension system, even though it may be painful.

Jeffrey Clay, executive director of the Pennsylvania School Employees Retirement System, traveled from Harrisburg at the request of the school board to update them on the status of the pension system.

“I’m glad to see people are talking about this issue at your level,” he told the school board, after informing them that the plan is currently underfunded state-wide by $32.5 billion, and the situation worsens each year.

“The unfunded liability continues to grow,” Clay said. “Some school boards are still in the dark. Some school boards say the state will take care of it and they’ve just put their heads in the sand.”

Clay said it’s like “we have a debt on the credit card, we’re not making the minimum payment and we are still charging on the card.”

School Board President Louis Mafrice asked Clay what he would do to correct the problem “if he were king.”

Clay said, “Everybody hates tax increases. But (the state) either needs to dramatically cut spending or properly raise revenues.”

He said what is probably needed is “pension reform plus funding increases … unless they want to make draconian cuts.”

For more than a decade, Clay said the state has permitted school districts to pay less into the retirement system than is actually needed to fully fund it. He showed a chart indicating negative cash flow in the plan for every year since Fiscal Year 2000, when PSERS paid out $1.2 billion more than it took in. The figure had increased to $3.6 billion for Fiscal Year 2013.

Clay told the school board that the negative impact on school districts will increase with the June 30, 2015, reporting period when the state will require employers to indicate their net pension liability on their balance sheets. He said the liability will have to be reported as three times the total of the district’s payroll.

Frosina Cordisco, director of business and finance for the district, said that will mean reporting a $90 million net liability, since the school district’s payroll is $30 million.

Clay said “there could be some adverse effect on bond ratings” as a result of having to report this liability.

“This is going to create a lot of confusion,” he said.

In other business April 24, Cordisco reported that the proposed budget shortfall for 2014-15 has decreased to $223,229. She said this is partially due to a decision by the administration to not replace one of the five retiring teachers. This will save the district $50,000 in salary, in addition to a savings from benefits.

The school board adopted a preliminary budget on Feb. 10 that features a tax increase of 0.783 mills, and had a shortfall of $746,538. The shortfall was down to $242,408 by April 7 after a variety of cuts, including a decision by the administration to eliminate five support staff positions through attrition.

Cordisco said the plans to present a proposed final budget to the board for approval on May 12. She said there would be updates of the budget at the May 27 and June 9 meetings and she expects approval of a final budget to take place on June 17.