The way Matt Przywara sees it, there's a freight train speeding down the tracks.

And the School District of Lancaster is tied to the rails.

So at Tuesday's budget meeting Przywara, the district's chief financial officer, recommended that the school board hike taxes this year beyond what might otherwise be required to begin building up a surplus — a cushion — for when that freight train hits.

Doing so, admit SDoL officials, might be a tough sell. But the alternative wouldn't merely be painful.

It could be catastrophic.

In 2012, the School District of Lancaster and every other school district in Pennsylvania will need to start contributing more money to the Pennsylvania School Employee Retirement System — a lot more money. Exactly how much, no one knows; but due to the stock market fall, estimates on how much districts will need to remit have soared.

The money goes to teachers and administrators upon retirement. And even before the stock market crash, districts were looking at a major spike in 2012. During the 2009-2010 school year, districts will be required to pay 4.78 percent of employee earnings into the fund. Last summer, PSERS told districts to expect that to increase to 16.4 percent for the 2012-2013 school year.

Now some fear they might be required to contribute twice that.

In raw numbers, it means individual school districts could need to put millions more each year into the fund just three years from now. In anticipation of this day of reckoning, some local districts have been quietly socking away money for years. Others, facing acute budgetary pressures — like the School District of Lancaster — have not.

Even under optimistic scenarios, where the economy recovers and the value of the pension fund's assets rise, the prudent districts have to raise taxes to meet the increased obligation. But in other districts, like Lancaster, the pension crisis could send tax rates soaring.

And with everyone agreeing that there's no quick fix, that leaves school districts with a choice, summed up by Patrick Snyder, president of the Lancaster School Board:

"Do you take your poison now, or really roll the dice, see what happens — and deal with it all down the road?"

Surplus shrinking
Blame it on the recession — now and then.

In 2001 PSERS, along with the State Employees Retirement System, or SERS, actually had a surplus. As a result, school districts and the state itself contributed less to the fund even as employee contributions remained steady.

In 2001 and 2002, the legislature passed legislation improving pension benefits. But after the stock market crash in the wake of the 9/11 attacks, the value of the retirement plans' assets plummeted. The state, too, was struggling. Faced with a $2.5 billion deficit, the General Assembly passed Act 40 in 2004, which delayed state contributions to the retirement plan until Pennsylvania was back on firmer financial footing.

Act 40, in effect, kicked the can down the road, deferring liability until 2012, when both the state and school districts would have to dramatically increase their contributions to the system.

Initial projections showed school districts might have to contribute as much as 27.73 percent of payroll costs that year. But the stock market rebound brought that projection back to earth; by 2007, PSERS had lowered its estimate for the 2012 spike to 11.3 percent.

Then came the meltdown. In January, the retirement system's board of directors voted to reduce that estimate; revised it back up, to 20.16 percent. The estimate has since risen to 26.04 percent; the figure could rise above 30 percent by 2016.

PSERS had a long-standing assumption that its investments would see a rate of return of 8.5 percent; and indeed, that was often a conservative estimate. For the five-year period ending Dec. 31, 2007, PSERS posted a return of 16.57 percent.

But in January 2009, PSERS reduced its estimate for returns this year. When actuaries examine the value of investments on June 30, PSERS expects to see a rate of return of 8 percent.

Evelyn Tatkovsk, a PSERS spokeswoman, said that the 2008-2009 fiscal year return through the end of March was minus 25.5 percent.

The lower the value of PSERS investments, the more the state, school districts and employees themselves will have to contribute to fund the plan.

"This is happening in every state," said Tatkovsk.

The ubiquity will not make the pain any less acute for taxpayers.

Solanco School District Business Manager Tim Shrom says that based on the current estimates, Solanco will go from paying just under $1 million into the fund this year (the 2008-2009 school year) to $6.2 million in 2013 and $7.9 million in 2016.

Przywara, from the School District of Lancaster, last month sent a letter to every state legislator in Lancaster County asserting that, "If the present actuarial projections hold true, the average taxpayer in our district would see his millage increase over 15 percent from present rates and would absorb roughly $400 of additional tax burden in one year. Through 2015 that burden would increase an additional 5 percent, which would translate into an additional $125 in taxes each year."

Said Jay Himes, executive director of the Pennsylvania Association of School Business Officials: "I hate to say this, but the reality is that if the stock market falls further, this could get even worse."

In addition, there is a "bubble" in the number of teachers expected to retire over the next decade.

Fixes are few and far between, mostly long-term. "If you said that starting tomorrow, no school employee would get any retirement benefits, you wouldn't start saving any money until the people already in the system get out," said Himes.

End pensions
The Commonwealth Foundation, a Harrisburg-based conservative think tank, has called for the end of defined-benefit plans for state employees, to be replaced by defined contribution plans. The Pennsylvania State Education Association — the teachers' union — says this would result in schools having a harder time attracting and retaining qualified employees.

State Rep. Gordon Denlinger of Lancaster County's 99th District is one of several House Republicans who introduced a proposal May 4 to allocate $435 million in federal stimulus funds to pay down the looming pension spike. The money is currently set aside for "unspecified uses" in the education budget.

It would be nowhere near enough.  The fund, which collects from about 273,000 active members and pays pensions to about 174,000 retirees, saw the value of its assets drop by nearly $22 billion between 2007 and the end of 2008. The Pittsburgh Tribune-Review reported earlier this month that Pittsburgh Public Schools expects its contributions alone to soar by more than $23 million (from $10.08 million this year to $33.18 million)

Said PASBO's Himes, "There's no way to eliminate the problem. The train is coming, and it's going to hit. It's just a question of how hard."

Rainy-day funds
Several local school districts have been setting aside money to help cushion the blow.

From 2007-2008 to 2008-2009, the amount districts were required to contribute to the fund fell from 7.13 percent to 4.67 percent (the rate is set by the legislature, which decided upon the lower figure before the stock market crashed). But officials in the Pequea Valley School District, realizing what was coming in 2012, intentionally kept its contribution rate high — at 7.42 percent.

The money "is invested and will be gaining interest" until needed in 2012, said John Bowden, PV's business administrator. "We will be utilizing those dollars to gradually increase the rate in order to not have a substantial spike in any given year."

The Hempfield and Manheim Central school districts have done the same. In Lampeter-Strasburg, "We have only put away $400,000 so far and have not budgeted in the 2009-10 to put any funds away," said district business manager Terry Sweigart.

But even this prudence doesn't mean that tax hikes can be avoided. "Even in the best-case scenario, where the spike is in the teens, I can't say we're completely covered," said Mary Lynne Kniley, director of finance for the Hempfield School District. "Do we have some reserves? Yes we do. Do we have enough? I just don't know."

Himes, of the Pennsylvania Association of School Business officials, said an online poll at PASBO's Web site showed that "almost half" of respondents said their district had kept rates at 7.13 percent or above. "Most haven't done it," he said. As PV's Bowden noted, "If you're faced with either eliminating a valuable program or setting funds aside for a retirement rate hike, it makes the decision much more difficult."

Big hike in city?
School District of Lancaster officials know the feeling.

Tuesday night, Przywara recommended that the district prepare for the 2012 spike by setting aside money in the district's 2009-2010 budget, to be passed by the end of June. That would mean a bigger tax hike than otherwise necessary; initial projections show a 3.52 percent hike. If Przywara gets his way, that tax hike will be 5.8 percent — the highest increase permitted under Act 1.

He might not get his way.

School board president Snyder, for one, is nervous. "We've already got one of the highest tax rates in the county, and if we can't keep taxes down it could completely reverse the city's progress," he said in a phone interview last week.

At the meeting, he called the projected 2012 spike's impact on the School District of Lancaster "catastrophic."

"When I came on the school board we had a $3 million deficit, and we now have a $4 million surplus," he said in the interview. "But that's not remotely enough to fund this issue.

"There is just nothing we can look at and say, This is a good option."