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by Cristina Rouvalis, AARP Bulletin, July 1, 2010
Here's one more after-shock from the stock market crash: A crisis in Pennsylvania's pension fund is likely to cause hefty property tax increases.
The Public School Employees' Retirement System took a big hit in the crash, its assets plunging 26 percent last year to $43.2 billion. School districts and the state have to make up a $15 billion liability so that retired teachers and other school employees will get their full pensions, as required by law.
Homeowners may wind up shouldering the burden. Property taxes vary district to district, but the average tax bill will jump at least $200 to $300 by 2013, said the Pennsylvania School Boards Association (PSBA).
Everyone dreads higher taxes, but for older people it is especially upsetting.
"When you are talking about the average senior who is on a fixed income and did not get a Social Security increase this year, how can they afford higher taxes and still be able to afford their homes?" said Ray Landis, AARP Pennsylvania advocacy manager.
Loretta Wible, 65, and her husband, Vince Ramsey, 56, don't know whether they can afford higher tax bills.
The couple thought they were all set for retirement when they paid off the mortgage on their two-bedroom ranch house in Pittsburgh eight years ago. They pay $1,400 in property taxes a year—slightly higher than the average bill of $1,247 in Pennsylvania, which has the nation's 19th highest property taxes.
But every year they find it harder to make ends meet, trying to live on her $1,300 a month Social Security, his $750 a month Supplemental Security Income and modest investments.
"Everything has gone up—food, medications, gas," said Ramsey, who has heart problems and diabetes. "I can't afford for taxes to go up."
They don't begrudge the pension to teachers. But they don't know where else to scrimp, having already cut small luxuries like going out to lunch occasionally. "What are people supposed to do to live?" Wible said.
The retirement system is funded by money from school districts and the state, investment income, and contributions from employees. It is a "defined benefit," which promises a specific regular payment for life.
Tim Allwein, assistant executive director for government and member relations of PSBA, said he believes taxpayers, many with diminished 401(k) plans or no pensions, are paying too much for this state-run pension. But Wythe Keever, assistant communications director for the Pennsylvania State Education Association, said the crisis was exacerbated because employers' contributions were kept artificially low from 2001 to 2003 after the dot-com bust. "They basically kicked the can down the road," he said.
Now it's time to pay up. The only way to prevent big property tax increases would be a new statewide source of funding to supplement property tax revenue.
"It could be a statewide sales tax or a personal income tax. Property taxes are regressive," said AARP's Landis. "We can't look at 501 school districts coming up with 501 ways to do this."
Landis said any proposals to close the pension gap should protect the state's Property Tax/Rent Rebate program, which gives some older homeowners property tax rebates of $250 to $975. Landis said many struggling seniors already exceed the $35,000 income limit for the rebate.
"These property taxes are hurting seniors' ability to stay in the houses where they raised their family," he said.
AARP Pennsylvania plans to educate its members on the tax platforms of the two gubernatorial candidates, Democrat Dan Onorato and Republican Tom Corbett, so people can cast an informed vote in November.
Cristina Rouvalis is a freelance writer based in Pittsburgh.
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