PROVIDENCE — Pensions for teachers and state employees will cost Rhode Island taxpayers $397 million next year.

That’s an increase of roughly $50 million, or 14 percent, over this fiscal year. And it represents a significant and unexpected new burden for every city and town at a time when any additional state aid to local communities has all but dried up.

The cost of the state pension system, which covers more than 45,000 working and retired state employees and public school teachers, for the next fiscal year was set by the State Retirement Board this week. The numbers will be used as the state and municipalities craft budgets that will take effect July 1, 2008 — a process that has already begun.

Pensions for municipal employees such as firefighters and police officers are funded separately by local communities. Communities must also contribute $147.8 million to the state fund for teacher pensions next year, an increase of more than $20 million.

“I was shocked,” said Dan Beardsley, executive director of the Rhode Island League of Cities and Towns, who also sits on the retirement board. “There were several notable, audible gasps when the actuary first presented this data.”

Money for public employee pensions comes from two primary sources: the contributions of the employees — teachers contribute 9.5 percent of their salaries and state employees contribute 8.75 percent — and Rhode Island taxpayers. Data presented this week by the retirement board’s actuary, Gabriel Roeder Smith & Co., showed that the taxpayers’ portion has increased every year since 1999: from 9.95 percent to 25.03 percent for the teachers’ pensions alone.

The rising costs are largely because there isn’t enough money in the system to pay for the state’s pension obligations, something known as unfunded liability. The state is in the 7th year of a 30-year plan to pay off its unfunded liability, which has risen from $4.3 billion to $4.9 billion, according to the actuary’s report.

Officials say that the state’s unfunded liability is growing for two main reasons: most retirees are simply living longer; and the fund continues to suffer from the lingering effects of the poor stock market performance several years ago. This wasn’t supposed to happen.

State officials believed that last year’s 13-percent increase in pension costs was “the low-water mark” for the public pension system, which had trudged through a difficult stock market early in the decade. The fund lost money or failed to yield the expected return in 2001, 2002 and 2003, but has exceeded expectations since.

Officials learned this week that it may take at least one more year of a high-performing stock market to reverse the negative trend.

This year’s bad news comes two years after state legislators enacted a series of changes — such as instituting a minimum retirement age — that were supposed to reduce the cost to taxpayers.

State officials said this week that it would take years for the reforms to have a noticeable effect.

“It didn’t get rid of the problem. It just kind of stopped the bleeding,” said Frank J. Karpinski, executive director of the Employees Retirement System of Rhode Island.

Every city and town in the state will feel the pinch next year.

The numbers adopted by the retirement board increase the municipalities’ share of teacher pension costs by $21.7 million, which is shared by the state’s 39 cities and towns based on their number of retired teachers. The report from Gabriel Roeder Smith & Co. notes that the average retired teacher receives an annual pension of $40,151. Meanwhile, the average retired state employee earns $22,493.

“People are living longer,” said Gary Sasse, who heads the business-backed Rhode Island Public Expenditure Council. “You get a teacher that retires at 58, and, God bless him, he dies at 88 — that’s 30 years of a pension. The costs to the taxpayer are going to continue to escalate.”

The mounting pressure on local taxpayers will force the governor and General Assembly to revisit the issue of pension reform in the coming years, despite strong opposition from labor unions, Sasse said.

“If local governments have to spend $20 million more to fund the teacher retirement system, that’s $20 million they don’t have to buy textbooks, $20 million they don’t have to improve public safety systems. That’s $20 million more that property taxpayers have to come up with,” he said.

In 2005, the General Assembly adopted pension changes pushed by Governor Carcieri and former General Treasurer Paul J. Tavares that included a minimum retirement age for the first time since 1984 (at least 59 years old after 29 years of service); curbs on the 3-percent, compounded cost-of-living pension increases for state retirees; and a reduction in the maximum retirement benefit from 80 percent after 35 years, to 75 percent after 38.

The changes, opposed by unions representing the employees, applied only to new teachers and state workers and to those who had fewer than the 10 years needed to be vested in the system.

“While there is some savings, the savings don’t really start kicking in until 2009,” Beardsley said. “But those savings may be offset by the new liability of teachers living longer.”

More dramatic pension changes are required, such as moving away from a “defined benefit” system to a “defined contribution system,” like the 401(k)s that dominate the private sector, Sasse said.

Robert A. Walsh Jr., executive director of the National Education Association Rhode Island, said his union would strongly oppose such a move.

“We shouldn’t act in that very bad way just because corporations have been able to get away with murder,” he said. “We should be fighting so that everybody gets [pensions].”

He blamed the current taxpayer burden on alleged mismanagement of the state pension system decades ago that largely caused the unfunded liability. “Why kill a good thing that’s affordable when it’s run correctly?” he said.

Meanwhile, Beardsley said that the retirement board has asked a consultant to study the possibility of moving to a defined contribution system and report back in September. He said the current system is largely unsustainable.

“I’m afraid to think of what the outcome will be two years down the road,” he said.

speoples@projo.com