ALBANY — The other shoe has started to drop.

While taxpayers this year are absorbing a huge jump in payments to the state Employees' Retirement System, the state Teacher Retirement System, which depends on local school districts for some of its funding, is increasing its bite as well.

Late in July, the system's 10-member board, meeting in a posh office park in Albany, unanimously adopted a motion that effectively will raise school taxes for New Yorkers by $400 million next year. Last year, a similar vote raised taxes by $260 million.

And that could be just the beginning.

The system oversees the fund that pays close to $4 billion annually in benefits to the 121,000 retired teachers outside New York City and builds up assets to eventually pay for pensions for the 255,000 members still working.

Most teachers now working will be eligible to get 60 percent of their average salary for their three highest-earning years after 30 years of service when they turn 55. The pensions are exempt from payroll and state income taxes, but not federal income taxes. The average annual payout for teachers retiring last year was $47,365.

Because the teacher system's timing of payments from school districts is different from the state Employees' Retirement System, the full effect of the stock-market collapse that started in 2000 hasn't been felt yet. But it will.

While the employee fund next year will require local governments to contribute 12 cents for every dollar they pay most of their employees (an average of 17 cents for police and firefighters), the school pension system will get only 5.63 cents.

Still, that totals $700 million, compared with the $300 million paid this year. That's 15 times what the districts paid last year. And it's going higher.

"We expect the contribution rate to stay at about 12 percent," said the system's actuary, Lawrence Johansen. A 12 percent rate for next year would mean an additional $750 million from taxpayers.

The pension increases this year plus higher health-care costs accounted on average for about half of the school-tax increases this year, said David Ernst, a state School Boards Association spokesman.

The association estimated the average school-property-tax increase this year was going to be about 8 percent before the Legislature in August added $740 million in aid to local schools to the budget plan presented by Gov. George Pataki. Ernst said the average increase will probably be slightly reduced.

Still, he said the pension expenses could increase tax-rate increases over the next few years.

"We're concerned that the contribution rate is going to go up dramatically in the future," he said.

But they have a long way to go before approaching the levels reached in the late 1970s and early 1980s. The bills peaked at 23.49 percent of payroll in the 1980-81 school year and stayed there the following year before starting a decline that bottomed out at 0.36 percent in 2001-02.

Factors in the drop included a change in state law to allow the fund to invest in more stocks, the booming stock market and a 1976 state law that mandated new teachers start paying 3 percent of their salaries toward their retirements.

Before 1983, "we had a very limited ability to invest in the market," said George Philip, the system's $278,000-a-year executive director. Lawmakers worried about stock-market volatility limited the stocks to just 60 that were deemed prudent risks.

But now those factors that led to lower costs for taxpayers have turned around. Not only is the stock market (where the fund has about 60 percent of its assets) down, but four years ago the Legislature passed and Pataki signed a bill that eliminates the contributions from teachers after 10 years of service.

"Had the benefits not been enhanced to the extent they were, the hit on employers today would not be as dramatic," Ernst said. He added that school boards favored automatic cost-of-living increases for retirees that were approved four years ago, but opposed eliminating the worker payments.

The sweeteners adopted in 2000 add about $1 billion to the system's annual expenses, said spokesman Robert DeLuca. But he added that market performance is the main factor in determining contribution rates.

More than enhanced benefits and stock-market fluctuations are at work here. Demographics are, too. While in 1940 there were 10 active teachers for every retiree, the figure is now two to one. And 10,000 members are turning 55 every year, with the average retirement age about 58 1/2.

"There's going to be continued upward pressure on contributions," Johansen said. "Liabilities continue to grow."

© 2004, Gannett News Service