Pennsylvania state and school district taxpayers are paying $595 million this year to keep the state teacher pension fund solvent.

That will zoom to $2.3


four years from now, the Public School Employees' Retirement System estimated Friday after calculating some - not all - of its investment losses for the year.

The state would pay a little more than half the total; school districts pay the rest, said system spokeswoman

Evelyn Tatkovski


Jeffrey Clay

, executive director of the retirement system, suggests that school districts put aside extra money now. If they have any.

The Lower Merion school district paid $7 million from its $184 million budget to help fund the

pension system last year, said business manager

Scott Shafer

, not counting payroll deductions. If the pension cost goes up as scheduled, it's going to cost the typical homeowner there more than $500 extra yearly. Rich towns pay more than Philadelphia and other poor communities, Tatkovski said.

"Over the years, the retirement board has made a lot of money from investments. Well, they've lost some money now," Shafer told me. "The legislature should have been more realistic. These were strictly political decisions."

The General Assembly tinkered with the funding formula in 2002 and again in 2003, in hopes of staving off earlier threatened increases. The result was that the taxpayer contribution actually fell last year, when the state might have set aside extra.

In June, bracing for a previously projected doubling in payments to the fund,

Gov. Rendell

called for "phasing in graduated increases in employer contributions" before 2012, to reduce the shock.

Will the state really prepay? Or will the new Senate and House leaders push the burden onto future taxpayers again? Rendell spokesman

Barry Ciccocioppo

declined to guess.

Bond thaw

Rendell's office said last week that Pennsylvania raised $300 million by selling general-obligation bonds in "the largest competitive sale of municipal bonds" since Lehman Bros. Holdings Inc. failed in September and the muni market froze out states such as California and Illinois.

Rick Dreher

, director of the state revenue bureau, waited for Wall Street's offers to scroll onto his Harrisburg office computer at 11 a.m. Tuesday. "It was a little tense in there," he told me. "But the bids came rolling in" from five big firms.

Pennsylvania had hoped to sell $600 million, but cut that in half because of the weak market. It had to pay the winning bidder, J.P. Morgan Securities Inc., 5.06 percent - one percentage point more than the state paid on similar bonds in June.

That means an extra $2 million a year in interest payments, for the next 20 years, even though the state's relatively high bond ratings remain intact. Dreher will try to sell the other $300 million early next year.

Risk aversion

Why are states paying more? "Appetites for risk are way down," said

Christopher Ryan

, who retired last year after 23 years as a Vanguard Group Inc. bond manager and now works for Thornburg Investment Management Inc., of Santa Fe, N.M.

Hedge funds and government agencies that bought bonds as part of complicated investment strategies have had to dump their portfolios into the weak market, cutting demand and driving up rates. So even relatively conservative states such as Pennsylvania are suffering "collateral damage," Ryan said.

This week, Philadelphia will try to sell $100 million to $180 million in general-obligation bonds. The city will have to pay more than Pennsylvania because it owes so much money for its previous borrowing to pay for the Eagles and Phillies stadiums and its own underfunded pension plan, according to Standard & Poor's.

Compared with Pennsylvania, New Jersey has borrowed more than twice as much, per capita, to fund highways and hospitals, stadiums and pensions.

But when New Jersey goes back to the markets, it can expect to pay about the same as Pennsylvania, said S&P senior director

Robin Prunty

. "High debt is a factor, but New Jersey's economy is stronger," Prunty said.