Schools get mixed financial news from state government

Oregon school districts, including Sisters’, received some good financial news — and some not so good — in recent days.

The good came in the form of an increased state general fund revenue forecast for the next biennium, 2005-07. With an improving economy, the Office of Economic Analysis said state government should receive $202 million more in general fund tax dollars than was forecast in December.

While that is not huge, measured against a projected $12.6 billion budget, schools have reason to believe they will receive a good portion of the increase because they represent a large share of the general fund (see related story, page 1).

They also received encouragement from Gov. Ted Kulongoski, whose proposed $5 billion appropriation for schools is considered too little to maintain operations at current levels.

After the news came out Saturday, the governor said: “I want to make sure that everyone knows that when I released my balanced budget, that I proposed $5 billion for K-12 education as a starting point, not an end game, given the revenues available to me at the time. But I always said and continue to argue that education must be a priority for this state because it is critical to Oregon’s future.”

While legislators were happy to have a little budget breathing room, they are aware that the revenue estimate that counts the most will not come out until May.

Sisters School Superintendent Ted Thonstad cheered the news, noting that “each $100 million increase in the state school fund is worth approximately $100,000 in increased state school support to the district, and every additional dollar will make this year’s budget decisions that much easier.”

Less cheerful news came a week earlier when the Public Employees Retirement System (PERS) board announced new employer contribution rates for the next several years. The current rate of 11.11 percent of payroll will rise by nearly six points, to 16.97 percent beginning July 1. It will take another jump, to 22.84 percent, two years later.

The new rates reflect efforts of the giant pension fund for state and local government employees to wipe out the “unfunded actuarial liability” (UAL) that developed from 2000 through 2002. During that period PERS accumulated more than $15 billion in future obligations that its projected assets could not cover.

The 2003 Legislature adopted several reforms that cut the shortfall approximately in half.

Sisters and many other school districts have gained some protection from anticipated rate increases by buying lower-interest bonds to cover their own shares of the UAL. The bonds are pooled in an arrangement managed by the Oregon School BoardsAssociation.

As a result, the official employer contribution rate for Sisters in 2005-06 will be 2.31 percent of covered payroll. But the district’s main retirement fund payment will come in the form of principal and interest on its pension bond, $390,144.

The district purchased the $8.79 million bond in May 2003. The bond will beamortized over 24 years.

There is one other piece of this puzzle. Public employees who participate in the retirement system are required to make their own contribution to the fund, at the flat rate of 6 percent of pay.

But two-thirds of Oregon school districts make those contributions for their employees. This “six-percent pickup,” as it is called, was negotiated in lieu of salary increases, in most cases during the ’90s.

So a district that is not participating in the bond pool but is obligated to make the annual six percent pickup will pay 22.97 percent of payroll next fiscal year. Sisters will pay 8.31 percent, separate from its bond payment.

Until salaries are settled for 2005-06 it’s not possible to calculate how much the district is saving by shifting part of its PERS obligation from a rate-based payment to a bond.

But at the time the bond was purchased it was estimated that over its 24-year life the district would save $2.14 million in 2003 dollars.