SAN MARCOS: School board hears retirement plan

Bond measures proposed to cover shortages

By SHAYNA CHABNER - Staff Writer | Wednesday, April 2, 2008 10:07 PM PDT ∞

SAN MARCOS ---- About $175 million in unfunded health benefits for retirees from the San Marcos Unified School District could be covered by selling, investing and collecting the interest on bonds, a financial consultant told trustees Wednesday.

Trustees at a special board meeting were told they could meet their liability for retiree health benefits for the next 75 years by selling about $48.9 million in 35-year bond measures.

Proceeds from the "other post-employment bonds" would be placed in a trust, and interest earnings from the bonds could be used to satisfy the district's annual "pay-as-you-go" obligations for retirees' health benefits.

Depending on the interest the district collects on the bonds and the management of the funds, the district also could use surplus funds to pay off current retiree benefits or the principal of the bond, Benjamin Dolinka, president of the Dolinka Group financial consulting firm, told the board.

"We are talking about saving some funds out of the general fund and maybe offsetting some of those cuts," Dolinka said.

The practice of selling bonds to cover future health retirement costs would be similar to the financial trusts many government agencies run to fund pensions, he said.

It is, however, a new idea for school districts and San Marcos would be among only a handful of districts to do so if the board agrees to follow through with the proposal.

Districts have only begun to look at their long-term health benefit liabilities, following a new federal accounting law that requires them to report and create a plan for paying the debt.

Superintendent Kevin Holt said he supports the plan, noting that with it, the district could begin saving immediately.

The district's projected retiree health benefits obligation is expected to climb from the $2.2 million it owes in the 2008-09 school year to as much as $5.8 million in 2022, financial reports show.

By selling bond measures, though, it could reduce that drain from the general fund by at least $1 million a year, officials said.

While no board action was taken during the information-only meeting, many board members expressed an interest in proceeding with the plan.

Trustee Mary Borevitz was the one person to express reservations, saying on several occasions that the proposal's savings and earnings seemed too good to be true.

Dolinka presented the board with two separate proposals: one where they earned an average of 7.75 percent and another where the reinvestment rate was 10 percent.

"I am nervous about being out in the front of this," Borevitz said. "I just can't believe it's going to be as great as it looks."

The proposals were presented to the board Wednesday night as a follow up to an August board meeting, at which the district hired the Dolinka Group to develop a funding program to meet the district's retiree benefits shortfall.

At that time, the district was projecting that the 75-year liability was as high as $360 million. That shortfall has since been reduced significantly through contract negotiations with the two unions.

Those reductions, reflected in the $175 million shortfall, included new rules stating that employees hired after July 1 are not eligible for retiree health benefits and the district has a maximum contribution cap of $11,265.

Contact staff writer Shayna Chabner at (760) 740-5416 or schabner@nctimes.com.