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School board gives final approval to OPEB bonds

By Tom Larson

Sun Tribune

The Morris Area School District will put bonds up for sale to take care of its post-employment benefit liabilities.

The board voted unanimously at its meeting Monday night to adopt the bonding option, which it first approved in September 2008 through a "trigger" resolution, which allowed the district to pursue a bond sale once terms were favorable.

The district will sell $1,160,000 in bonds to cover its liabilities in the next 20 years at a rate that isn't to exceed 7 percent.

Superintendent Scott Monson said the district will repay $1.86 million over the life of the bonds, but that the district will realize an additional $1.88 million infusion into the district's General Fund - roughly $100,000 per year -- over that time by not having to pay the Other Post-Employment Benefits (OPEB) from the General Fund.

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.

Monson said OPEB represents the amount of money the district would owe retirees if the district ceased operations immediately.

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, 2008.

Removing OPEB from the district's General Fund budget would free up the $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.

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.

Board chairman Kurt Gartland noted in September 2008 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.

Monson said he will be contacting companies to handle the OPEB financing. Board member Mark McNally asked if, like construction bonds, the OPEB bonds can be refinanced if conditions are lucrative. Monson said he would determine if refinancing is possible, noting that refinancing building bonds in the past has saved the district money.

In other board business:

• Board members James Solvie and Lory Lemke will serve as an ad hoc committee to review applicants for an interim board member.

Brent Fuhrman is taking at least a one-year leave for military duty with the Morris National Guard, which will be deployed overseas this spring.

The board will begin the process by contacting recently retired board members about their interest in serving the interim term. The committee will review other applications if needed.

• The board approved a preliminary budget measure directing Monson to determine what cuts might be needed for the 2009-2010 school year.

The move is a formality - a "transparency issue," Monson said - so the district can plan for potential cuts should enrollment decrease, which would reduce state funding that already is in peril.

The state Legislature is working on its biennial budget now, and they must find ways to erase a budget deficit ranging between $4.8 billion and $6 billion.

It's too early to know how their deliberations will affect school funding, and, as such, district administration is only beginning to flesh out its budget, Monson said, adding that he had no concrete figures to present to the board.

"Obviously, we know funding from the state is going to be a challenge, even with stable enrollment," he said.

DENCO's temporary closure and other layoffs at area businesses could have an impact on school enrollment, he said.

"We hope those people stay in the community, but you don't know what affect that will have," Monson said.

On the plus side, the district will see an increase of about $36 per student thanks to forest land money that previously had been allocated elsewhere. Enrollment also has stabilized compared to previous years. District enrollment currently is 930 students, an increased of 20 students since the final day of the 2007-2008 school year.

However, the minuses include loses of $51 per student in one-time funding for this year, and another $51 per student loss of technology funds that end this year. The district might see a continued decrease in special education funings, Monson said.

A federal economic stimulus package being debated could result in additional money, but Monson said it's too early to know if the package will materialize or if it will produce additional funds.

• The district will make up three missed days due to poor weather by shuffling its schedules in March, April and June.

Classes will be in session on March 20 and April 13, which previously were school vacation days, and a staff development day has been scheduled for June 1 to make up the third day.

The schedule will be reevaluated should district staff and students miss additional days because of bad weather this winter.