As salaries, benefits and other expenses climb, so do budgets - and, typically, school taxes - for most school districts each year.

But over the next few years, one line on the budget is expected to not just rise, but escalate, and it has school officials worried.

The two pension systems that school districts must pay each year will cost more in the future. That part is certain. School leaders do not know how much more the bill will rise, but have been told to expect hikes to be large over time.

School districts pay a contribution rate for each pension, and both will increase to make up for billions in assets lost when the stock market crashed last year.

The Teachers' Retirement System - the bigger of the two pension programs - has said that significant increases are on the way, although it will happen over a couple of years to help school districts budget accordingly.

The Employees' Retirement System will up the rate from 7.4 to 11.9 percent in one year, for 2011, and it is likely to continue its ascent.

Factor in increases to salaries and health benefits - and the uncertainty over what districts will receive in state aid going forward - and school leaders will be facing a problem.

"There is a perfect storm brewing for school districts," said David Albert, spokesman for the New York State School Boards Association.

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The recession has caused the state deficit to balloon. It has forced cuts to the state budget, and more are under review.

Districts received no increase in state funds for 2009-10 from the 2008-09 funding level.

The flat funding required many school officials to lower expenses, often by eliminating positions to avoid raising taxes.

Now, a few months later, school officials are threatened with receiving less state funding than promised for 2009-10. If it happens, school districts will have to trim more from the budget.

If midyear cuts are avoided, many school officials believe the state will keep education funds flat again - or decrease them - for 2010-11. That would present more challenges when school budgets are developed next winter.

Unless the state rebounds and pumps more money into education, the budget process will remain a dilemma in 2012, when schools will no longer receive help from the federal stimulus package. The federal bill is providing money for two years to schools, softening the effect from a lack of state funds.

"Having flat state aid creates a squeeze on school districts," Albert said. "They have to go back to either local property taxpayers, or they need to start looking at ways to cut costs, or they need to dip into their reserve funds. They have three options available."

Reserves, though, can deplete. Payroll can reach a point where no more can be reduced without an impact on education. Taxpayers, many already feeling the squeeze, can shoot down budgets if spending goes too high.

School officials say they don't know how they will pay for rising costs, especially pensions, if they climb as predicted.

"I don't know what is going to happen at this point, but I do know we will manage our budget as best as we can," said Douglas Huntley, the superintendent at Queensbury.

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The Teachers' Retirement System is funded three ways. The bulk comes from investments on the stock market. Employers contribute 11 percent, while pension members chip in 3 percent.

The three sources form $72.5 billion in net assets for 2009. The fund was worth $95.8 billion as of June 30, 2008, before the stock market crashed.

State law has created a fixed contribution for members of the pension program. So when investments are lost, employers must contribute more.

School districts contribute a percentage of an employee's salary. Actuaries for the pension program determine the contribution rate each year based on assets and liabilities.

This year, school districts have to pay 6.19 percent. The rate was in the 20 percent range in the 1980s, but had dipped below 1 percent by 2000 following stock market gains through the '90s.

Now, it is expected to reach percentages into the mid-teens in coming years.

John Cardillo, a spokesman with the teachers' retirement system, said the new contribution rate is projected to be in the range of 8.5 to 9 percent. An announcement on the new rate is expected this month, he said.

State Comptroller Thomas DiNapoli announced in September that the Employees' Retirement System was raising the contribution rate to 11.9 percent, up from 7.4 percent.

The pension system for employees (who consist of support staff such as bus drivers and secretaries) lost about $30 billion in investments, bringing the fund to $86.5 billion this year.

The employees' pension plan also relies more on employer contributions when there is a market collapse.

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Robert Lowry, the deputy director of the New York State Council on School Superintendents, said the contribution rates for pensions is applied against the payroll of a school district.

Payroll, he said, is about half of a school budget. So, for instance, if a contribution rate goes up 4 percent, total spending rises 2 percent. That's before factoring in other expenses, he said.

"That's very alarming, and the (state) Comptroller has said we could see by 2015 ERS rates triple," Lowry said, regarding the employees' retirement system.

In Queensbury, where enrollment is 3,800, the district has approximately 550 employees, including 300 teachers.

The budget is $52.8 million, with salaries for employees costing $24.8 million. Of that, teachers' salaries make up $20.6 million.

Based on the 6.19 percent contribution rate, the district has $1.6 million in the budget for teachers' pensions. That's about 3 percent of the budget.

For employees' pensions, Queensbury is paying $530,000, about 1 percent of the budget.

If the rate doubled for teachers' pensions, Queensbury's contribution could be approximately $3.2 million, although the figure will depend on the number of members from Queensbury in the pension program and the salaries they earn.

Meanwhile, Queensbury could be responsible for nearly $1 million if rates for employees' pensions if the rate reaches percentages in the mid-teens.

As the cost of pensions rise, so will other large expenses. For teachers, it is unknown at the moment how much their salaries will increase because they are in the middle of negotiating a contract with the district.

What is certain is they will receive an automatic 2 percent increase in pay (known as a step increase, which they must get by law). For Queensbury, 2 percent would add about $400,000 to the budget each year.

Each year, Queensbury sees an 8 percent increase in health benefits, an extra cost of about $631,000. There is no sign that the upward trend will reverse.

In Cambridge, a district with 960 students, there is $491,000 to pay for teachers' pensions in this year's $17.6 million budget.

Employees' pensions is costing Cambridge $108,000.

Vincent Canini, the superintendent of Cambridge, said seeing rates for both pension programs rise into double-digit percentages is a huge concern for him.

"If it doubles, we are in a position right now where everything is going to take a tail spin. I don't know what is going to happen in the future," he said.

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Members of the teachers' pension program are separated into four tiers, which is based on longevity.

The bulk of the plan's members stop contributing toward their pension after 10 years.

Albert, the state school boards association spokesman, said Gov. David Paterson has proposed creating a fifth tier for new employees, who would have to contribute to their pension for a longer time.

"This could theoretically reduce the burden on school districts," he said.

"But, that is a long-term solution. It is going to take years before you start building a critical mass of employees in the system in order to realize savings."

The idea, though, has generated mixed opinions.

Canini said a new tier can easily be viewed as a great idea, but nobody knows what the effects will be in the future.

Huntley, the superintendent at Queensbury, said it makes sense for employees to contribute more toward their pension.

While the future has school officials worried, one could only speculate on the effects of costlier pensions as there are too many unknowns at the moment, officials said.

Huntley points to last year's situation, when schools were in danger of midyear cuts. The cuts never came, and then the federal stimulus package was made to include money for education.

"That could not be anticipated at this time last year," Huntley said.

But even if the state economy and stock market return to normal, some school officials say the two pension programs need to be improved so school districts could save money.

"I feel that it's unfortunate that (the teachers' pension) lost billions of dollars as a result of investing without collateralization," said James McCarthy, the superintendent at South Glens Falls.

"I think it's presumptuous to assume that taxpayers are going to again underwrite this cost, when they were not the root cause of the problem," he said.

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