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Board OKs bonding to pay retiree benefits

By Tom Larson

Sun Tribune

The Morris Area School District approved putting bonds up for sale to fund post-employment benefit liabilities.

The board voted unanimously at its meeting Monday night to adopt the bonding option, which will separate its benefits liabilities from its General Fund and possibly stabilize one aspect of the district's budget.

The board made the move on a night when it also learned that its proposed state aid levy will likely drop more than 35 percent in 2009.

"Funding for education isn't going to be overly generous," said board chair Kurt Gartland. "We need to look at some different methods for funding."

Other Post Employment Benefit liabilities typically consist of retiree health care and health insurance, dental, vision and life insurance, termination benefits and other liabilities not covered by pensions.

Nationwide, governments have incurred about $1.5 trillion of OPEB liabilities, and through 2006, OPEB accounted for about $3.3 billion in Minnesota.

The Morris Area district has almost $1.5 million in OPEB. As Superintendent Scott Monson explained, it's the amount of money the district would owe retirees if the district ceased operations immediately. Based on actuarial calculations, the district would pay retirees benefits of about $2.06 million through 2048.

Governments usually covered OPEB responsibilities through general funds, but the Government Accounting Standards Board now requires local governments to include unfunded liabilities on financial statements.

Governments, recognizing the squeeze OPEB liabilities could place on future financial operations, are opting to bond to cover them. The Minnesota Legislature last session gave local governments the authority to issue bonds, without an election and exempt from the net debt limit, to fund their OPEB liabilities. The law was effective July 1.

Removing OPEB from the district's General Fund budget would free up about $100,000 annually that could be applied to other school programming, Monson said.

Additional revenue could be found in investment earnings from the bond proceeds, which are placed in a trust and disbursed annually to retirees.

But what the move does represent is a tax increase for district residents.

According to a bond overview, the district plans to bond for $1.16 million over 20 years, with the amount repaid through levy at $1.95 million.

That means almost $2 million will be available in the General Fund over that time, but it will cost taxpayers. The estimated tax impact on a $100,000 home is $22 per year. A commercial property worth $100,000 would see a $33 per-year increase. Rental property worth $100,000 would see a $28 per year hike, and seasonal and recreational $22 per year. The estimated tax impact on farms -- one house, a garage, one acre and 80 agricultural acres, based on an estimated value of $3,000 per acre -- is $62 per year.

Gartland noted that the bonding process creates no new liability for the district and its residents -- the benefits are owed and the district would have to pay for them in some way. The OPEB bonding means it can pay the liability without further straining the General Fund.

Board member Laura Carrington and Brent Fuhrman supported the bonding plan as a more stable budgetary method when statewide school funding is in flux, although Carrington noted that market volatility recently is a concern.

Monson said that while the bond sale was approved, it won't proceed unless a "trigger" in the resolution guarantees that the proceeds from the sale are equal to or higher than the costs of borrowing. If not, the deal is off, regardless of the board's decision.

Board member John Luetmer asked what the OPEB situation would be after 20 years, when the bonds are paid. Monson stated that the State of Minnesota has been urging districts to negotiate OPEB liabilities out of district contracts in the future.

Board member Mark McNally approved the measure while adding that he didn't like businesses getting hit so hard with additional taxes. He also stressed the need to work out a long-term plan detailing how the additional General Fund money would be used in the district.

In other board business:

• A preliminary levy for 2009 of 3 percent was approved.

The district's 2008 all-fund levy was about $2.75 million. That will increase by just more than $82,000 to more than $2.83 million for 2009. With the OPEB bonding included, Monson estimated the total tax burden increase at about 6 percent.

The district has Truth in Taxation meetings in December, after which its final levy will be approved. Once a government sets its preliminary levy, it can lower the amount but can't increase it before final passage.

Monson compared 2008 with the proposed 2009 levy. In 2008, levies accounted for almost 81 percent of all funds, while aid comprised 19 percent. In the proposed 2009 levy, almost 89 percent comes from levies while 11 percent is aid dollars.

• The board approved a cooperative agreement that brings Chokio-Alberta wrestlers into the Morris Area and Hancock combined squad.

Hancock and Chokio-Alberta also approve of the new agreement. The Minnesota State High School League must approve the agreement.

The team will be called the MAHACA Tigers.

All three schools cited low participation numbers. Morris Area will serve as the host school district, and costs will be allocated on a per-participant basis.