Short and Long Term Outlook for State Finances and Pension

Contribution RatesJennifer Priddy, Financial ResourcesOffice of Superintendent of Public

Instruction

16/2/2009

Summary of Information• State economy is on track to rebound, but not before

potential reduction in our revenue forecast for the current biennium potential additional budget reductions in 2010-11 school year

• State long-term financial outlook has hurdles:– Replace 1-time federal stimulus and other 1-time funding

used this biennium, not available next biennium (about $3 billion out of $33.4 billion state budget)

– Restore cuts to I-728 and I-732 over 4 years, beginning in the 2011-12 SY ($560 million per year once fully restored)

– Increase employer pension contributions (roughly $350 million per year increase over current biennium contributions)

• District local funds will be impacted by all above state hurdles

26/2/2009

National and State Economic Downturn• National economy has been in recession since 12/2007• Washington lagged the downturn; weak job growth

expected to begin in early 2010• But state revenues collections will be impacted more

severely because this is a consumer lead recession– Consumer sentiment is lower than in previous recessions– Taxable automotive and construction activity has dropped off

sharply– Other layoff’s since October are significant: WaMu, Boeing,

Microsoft

• May Economic Forecast for Washington:– Unemployment will increase further from current 9.1% to 10.6%– Economy still worsening, but recovery is still on schedule

36/2/2009

State Revenue Outlook Current Biennium2009-11 State Fiscal Biennium (2009-10 and 2010-11 School Years):• Legislature solved a budget shortfall estimated at $9 billion when they enacted the

biennial budget for 2009-11– The state (non-partisan) forecaster could reduce the revenue forecast for the

current biennium in mid-June, mid-September, or mid-November– A reduction in revenue projection is important b/c the state cannot have an

enacted budget that is not supported by projected revenue plus reserves—small drops can be accommodated; large cannot

• Other actual and potential budget “holes”– $60 million in Levy Equalization reductions assumed in budget but not enacted– Caseload growth in excess of budget assumptions (e.g., K-12 enrollment)– Other miscellaneous due to legislation not enacted

Depending on updates to revenue and caseload projections, potential further budget reductions for the biennium imposed by:– Governor in across-the-board cuts before Legislature

reconvenes (won’t impact K-12 districts except in some competitive grants)

– Legislature in special or 2010 session for 2010-11 school year46/2/2009

2009-11 Decisions That Drive State Budget in 2011-13 Biennium

• Extraordinary use of 1-time resources, roughly $3 billion that must be replaced (ARRA and other 1-time funds/transfers)

• Pension contribution rate drop in 2009-11 and other factors drive rates up in the future

• Catch-up provisions in HB 2356 (I-728 Student Achievement Fund) and HB 2363 (I-732 COLA) restore I-728 funding in 2011-12 and catch-up the COLA within four years

56/2/2009

Current and Projected Pension Contributions

Employer Contribution Rates

Plan2009-10 SY

&2010-11 SY

2011-12 SY* 2012-13 SY* 2013-14 SY* 2014-15 SY*

PERS 5.29% 8.44% 9.19% 11.33% 11.48%

SERS 5.43% 8.87% 9.62% 11.18% 11.33%

TRS 6.14% 12.12% 13.12% 15.25% 16.10%

Change for TRS over 2010-11 5.98% 6.98% 9.11% 9.96%

Rates displayed above are the pension contribution only. Other mandatory benefit components are in addition to pensions (such as social security and Medicare), but are anticipated to be stable.

*Projected rates based on Office of the State Actuary’s April 28,2009 projections.

66/2/2009

Districts Save Local Funds Now; Expend More Later

6/2/2009 7

What does a 5.98% Increase for TRS Mean for a School District?

• A 12.12% TRS contribution (so an increase of 5.98%-points) is applied to the entire salary and resulting amount is remitted to the Department of Retirement Systems

• The state will give districts the dollars associated with the 12.12% TRS rate for:– State funded certificated units for the state-recognized salary

• The state will give districts the dollars associated with SERS/PERS rates for :– State funded classified units for the state-recognized salary

86/2/2009

Historically State has not Allocated Pension Funding Associated with “Local” Salary Costs

2011-12 School Year Increase Over 2010-11 SY (based on 2008-09 Preliminary Average Salary)

Certificated Instructional (5.98% Incr)

Classified (3.44% Incr)

Certificated Administrative

(5.98% Incr)

Any staff paid on local funds (levy, equalization, federal, I-728)

$3,170 each for all non-state staff

$1,320 each for all non-state staff ----

Any salary above base salary (based on projected 2008-09)

$561 each for all staff ---- ----

Difference between a district’s allocation and the maximum state allocation (unequalized portion)

----$170 each for all

state staff units in 225 districts

$1,600 each for all state staff units in

89 districts

Difference between maximum state allocation and actual salary ----

$56 each for all state staff units,

all districts

$900 each for all state staff units,

all districts

9

Estimated Local-Funds Cost of Increased Employer Pension Contribution per Employee

6/2/2009

Other Impacts to District Local Funds

• IDEA and Title I resources associated with ARRA may or may not be appropriated by Congress in the future – neither are continued at ARRA levels in President

Obama’s proposed budget

• COLA catch-up: Districts will pay about $80 million per year from local funds once the I-732 COLA (about 4.1% from 2009-10) is fully caught up

106/2/2009