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Retirees risk districts' fiscal health

Published (1/30/2009)
By Kris Berggren
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An issue that could cost school districts billions of dollars received mixed reviews.

At a joint meeting Jan. 26, the House K-12 Education Finance Division and House Taxes Committee considered benefits and risks of a law allowing school districts and other government jurisdictions to fund liabilities for Other Post-Employment Benefits by creating trusts and issuing bonds that aren’t subject to voter approval.

Benefit costs overall are estimated at $3.3 billion, mostly in health care expenses.

A few districts have huge benefit liabilities compared to their total revenue. But Jody Hauer, a project manager with the Office of the Legislative Auditor, said even districts that don’t pay retiree benefits are liable for “implicit rate subsidies,” because retiring employees are eligible to retain employer-sponsored health care insurance. Premium costs are pooled, however, so active employees subsidize retirees. These “implicit rate subsidies” are absorbed into districts’ general operating revenue.

Hauer said an evaluation of nine districts found implicit rate subsidies cost an average of $1,300 per student and could cost all school districts $1.1 billion over the next 30 years.

Thomas Wieczorek, Alexandria Public Schools business director, said his district drew from its trust to cover outright liabilities. Trust earnings also offset implicit subsidy expenses in its general fund, thereby freeing money to implement district goals such as offering free all-day kindergarten and improving classroom technology. This arrangement is legal, but it highlighted concerns about risk and inequity.

“In effect, you have unequalized general education levy,” said Rep. Paul Marquart (DFL-Dilworth), who chairs the House Property and Local Sales Tax Division. “I don’t think the intent of this law was to use these benefits and this levy authority to put money back into the classroom.”

Rep. Tina Liebling (DFL-Rochester) questioned the risk of borrowing critical funds only to invest in an unpredictable market.

The meeting was intended to surface these concerns and as a “a precursor of how the education finance committee and the tax committee can work more closely on overlapping issues,” said Rep. Mindy Greiling (DFL-Roseville), who chairs the education finance division.

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