Atlanta's public school system has one of the most poorly funded retirement plans in the state and has racked up a half-billion dollars in liabilities. Now those costs — stemming from years of underfunding of the pension by past school boards — are set to drain the school budgets of tens of millions annually for years.

"It's going to blow up," said Verdaillia Turner, president of the Georgia Federation of Teachers, "and someone is going to be left holding the bag."

The pension fund once covered all school system employees, but a change nearly 30 years ago led many school employees to enroll in an alternate state-funded plan, taking their payments with them. School boards since underfunded the city pension, and now the board's liabilities have spiraled out of control. Today the plan covers only 2,400 retirees and 1,000 current system employees, mostly support staff, but the school board owes $510 million to the fund.

The school board is hoping to pay off costs of the pension by taking from existing budgets for now, according to a plan by the fund's financial advisers The Segal Company.

In a 2007 report, The Segal Company outlined a strict payment plan for the next 17 years to fully fund the pension. Company officials would not comment on the record about the report. The plan means kindergartners entering Atlanta schools this fall will be well out of high school before uncovered costs are paid.

This year, the board is spending about $850 per student on these pension costs. That's money that won't go for schoolbooks, computers, desks or anything else.

'Just no way out'

The payment plan calls for the system to make increasingly larger annual payments until the pension is fully funded by 2025. The report estimates the unfunded liability — the amount of present and future pension costs the board owes but hasn't paid for — will rise to $511 million this year before starting to drop as the school board's payments increase. By 2020, the unfunded liability should drop to $285 million.

But this goal will only be achieved if future boards earmark tens of millions annually to pay down the liability — at the expense of other needs. If the board misses payments or reduces the amount, costs would spiral further out of control.

"There is just no way out of this one but to stay committed to it," board Chairwoman LaChandra Butler Burks said.

Despite paying millions into the fund over the past six years, the board has managed to only hold the shortfall steady, hovering around a woeful 21 percent funding level, much less than healthy pension funds.

Winston Taylor, 46, a parent active in the PTA with three children in Atlanta schools, said the board doesn't address problems until they become crises.

"This problem didn't arise just today," he said. "Why do we wait so late to respond? ... The citizens of Atlanta don't have a blank checkbook."

Pensions are funds set up by companies, governments and other institutions to provide retirement benefits for their workers. The funds collect, pool and invest money from workers and the institutions. The goal is to have enough money to cover future payouts to employees. An institution with a pension plan, in this case the Board of Education, legally is required to cover any shortfall.

As a general rule, if a pension fund has 80 percent or more of the money needed to cover costs, it is considered healthy, said Beth Almeida, executive director of the Washington, D.C.-based National Institute on Retirement Security. Most state and local funds are nearly 90 percent funded, Almeida said. Tim Callahan, spokesman for the Professional Association of Georgia Educators, said the pension funding by the Board of Education has been "deplorable."

"The Atlanta board, the powers that be, have a moral, economic and legal obligation to cover the benefits it promised to the fund's members," he said.

Butler Burks, the school board chair, said the board is trying to tackle the problem. The key, she said, will be if future school boards continue to pay down the debt.

"I can't speak for what boards that come after this board may do," she said. "It is my hope that the next board will follow through."

Atlanta's nine school board members are elected every four years. The board sets all policy for the schools and sets the system's budget every year.

She said the extra payments into the pension have put a strain on an already "extremely tight" budget of $662 million this year. "We are stretched to the penny," she said.

By way of comparison, the board spent $1.5 million on 100 new school buses in this budget. It spent about $42 million on payments to the troubled pension — the cost of 2,800 new buses.

Asked how Atlanta Public Schools developed such a large financial burden, board chair Butler Burks said, "I really don't know."

The split

In the 1970s, all Atlanta Board of Education employees were in the Board of Education pension fund. In 1979, teachers were invited to join the state's Teachers Retirement System, which pools assets from various school systems. Thanks to strict budgeting rules set by state law, that system now is one of the best-funded pensions in the country at about 94 percent.

Other school workers — janitors, secretaries and others — were not allowed to join a similar state system and remained in the Board of Education fund, as did some teachers who chose not to change. When so many paying members left the pension and took their assets to the state, school boards in the past did not shore up the pension's finances.

The problem is exacerbated by poor returns on investments in recent years. Finances were so poor that by 2005, the funding rate for the pension was as low as 17 percent at one point.

It's administered by the city of Atlanta's General Employees' Pension Fund but depends on money from the school board and the 1,000 working members. The local union that represents Board of Education staff, American Federation of State, County and Municipal Employees Local 1644, could not be reached for comment.

"There is not a quick answer. You can't go from 17 percent funded and get healthy quickly," Jeffrey Ezell, executive director of the Teachers Retirement System of Georgia, said. "They have got to have a disciplined approach to what they are doing."

Reporter Laura Diamond

contributed to this article.