For most Pennsylvania homeowners, the connection between their school district’s pension obligations and their annual property tax bill remains invisible. But according to a new analysis by former state Treasurer Frank Ryan, that disconnect is exactly where the state’s next major fiscal fight will erupt.
Writing in American Thinker, Ryan lays out a stark arithmetic reality: anywhere from 15 to 25 percent of a typical school district’s budget now goes to funding pensions through the Public School Employees’ Retirement System (PSERS). Those pensions, guaranteed by the state constitution, were dramatically expanded in 2001 under Act 9 and then repeatedly underfunded through two recessions and two market crashes — producing the massive unfunded liability Pennsylvania wrestles with today.
The hidden cost of ‘Cadillac’ pensions
The phrase Ryan uses is pointed: prior to the 2017 pension reform, these were “Cadillac” defined-benefit plans. And while the reform changed the structure for new employees, the legacy debt remains enormous.
For fiscal year 2025–26, PSERS employer contribution rate stands at roughly 34 percent of payroll. But Ryan emphasizes that this number is widely misunderstood. Only about 5.45 percentage points of that rate covers the normal cost of benefits being earned now. The remaining 27.5 percentage points — more than 80 percent of the total — goes to amortizing the unfunded accrued liability from decades past.
In plain terms: Pennsylvania isn’t just paying for today’s pensions. It’s still paying for yesterday’s pension debt.
School districts have multiple revenue streams, and Ryan is careful not to claim every pension dollar flows directly from property taxes. But property taxes remain the principal locally controlled revenue source for most districts. When pension costs consume billions that might otherwise fund teachers, special education, transportation, and buildings, the pressure ultimately lands on local taxpayers. Renters, he notes, feel it too—through higher rents passed along by landlords absorbing those costs.
The 2035 cliff that nobody’s talking about
Here’s where the analysis gets genuinely interesting. Earlier PSERS actuarial projections showed employer contribution rates staying extraordinarily high through the mid-2030s. Then something remarkable appeared: one projection showed the rate falling from more than 42 percent of payroll in 2035 to approximately 25 percent in 2036 — and continuing downward thereafter.
More recent PSERS stress testing, Ryan notes, still anticipates a major reduction after the large Act 120 “fresh-start” amortization base is paid off in 2035 under central assumptions. That is supposedly the payoff taxpayers were promised: extraordinary contributions finally extinguishing the legacy debt.
But that creates a critical public policy question: what happens to the resulting decline in costs?
A future governor’s slush fund
Ryan’s warning is essentially a transparency alarm. When the legacy liability declines and required employer contributions begin falling dramatically, a future governor and General Assembly will suddenly have substantial fiscal capacity available — without the appearance of raising taxes.
To Ryan, that’s a transparency crisis waiting to happen. The state’s pension system, school districts, and the Commonwealth budget are interconnected economic transactions, but they occur in different organizations and different budgets. That separation creates real opportunity for confusion.
He points to a concrete example: Pennsylvania’s new cost-of-living adjustment for certain longtime retirees. Rather than flowing through the traditional employer contribution structure, the new obligation uses a separate gaming revenue funding mechanism. The cost, Ryan notes, didn’t disappear. It moved. And that’s exactly the kind of opaque financing he argues taxpayers deserve better visibility into.
A future Commonwealth budget, he warns, could change the timing of pension reimbursements, finance obligations through another revenue source, defer payments, or create pension obligations outside the traditional employer contribution mechanism — all with minimal public scrutiny.
The recession scenario that keeps actuaries up at night
Ryan also argues the state shouldn’t wait until 2035 to figure this out. Under severe adverse scenarios, elevated contribution rates can persist for decades.
Imagine a major recession arrives before the debt is paid off. Financial markets decline, reducing pension assets, and the unfunded liability increases. Yet pension benefits must still be paid. That would place extraordinary pressure on the Commonwealth budget, school districts, and taxpayers precisely when all three are least capable of absorbing it.
That’s not a remote hypothetical. It happened in 2001 after the tech bubble and again in 2008 during the financial crisis — each time compounding the state’s pension shortfall and helping create today’s predicament.
Who bears the risk?
Ryan’s core argument is about fairness and stewardship. Many of the Pennsylvanians bearing the burden to finance PSERS — and the separate SERS system for state employees — have no defined-benefit pension of their own. They rely on Social Security, personal savings, IRAs, and 401(k) plans. When their investments decline, they generally absorb the loss themselves.
Yet through state taxes and school property taxes, they also help bear the financial consequences when the public pension system experiences investment losses, funding deficiencies, or increases in obligations.
Government, Ryan argues, has a stewardship responsibility on both sides of the pension promise. The employee deserves the benefit that was promised. The taxpayer deserves to know what that promise costs, what risks are being taken with the assets supporting it, and when the extraordinary costs imposed to repair past deficiencies will finally end.
That second promise, he says, was implicit but no less real: Pennsylvania required taxpayers to finance decades of extraordinary pension contributions even as many of those same taxpayers carry their own investment risk in personal retirement accounts. A pension promise creates two obligations, Ryan concludes — one to the employee who earned the benefit, another to the taxpayer who must finance it. Good stewardship requires protecting both.
The 2035 projection offers a rare moment of potential relief on Pennsylvania’s property tax front — if the savings are honestly delivered rather than quietly diverted. Whether the state’s political class can resist that temptation is, for now, an open question.
Source: www.americanthinker.com — https://www.americanthinker.com/blog/2026/09/the-devil-in-pennsylvania-s-property-taxes/