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Short and Long Term Outlook for State Finances and Pension Contribution Rates

Short and Long Term Outlook for State Finances and Pension Contribution Rates. Jennifer Priddy , Financial Resources Office of Superintendent of Public Instruction. Summary of Information.

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Short and Long Term Outlook for State Finances and Pension Contribution Rates

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  1. Short and Long Term Outlook for State Finances and Pension Contribution Rates Jennifer Priddy, Financial Resources Office of Superintendent of Public Instruction

  2. 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

  3. 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

  4. State Revenue Outlook Current Biennium 2009-11 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 year

  5. 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

  6. Current and Projected Pension Contributions Employer Contribution Rates 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.

  7. Districts Save Local Funds Now; Expend More Later

  8. 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

  9. Historically State has not Allocated Pension Funding Associated with “Local” Salary Costs Estimated Local-Funds Cost of Increased Employer Pension Contribution per Employee

  10. 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

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