School districts in Clatsop County are feeling the bite from PERS.
The Public Employees Retirement System (PERS) cost increases are causing leaders to keep cutting their budgets, often having to slice into teachers and classes – the heart of education - to save money.
Meanwhile, PERS remains an ever-growing omen that on average siphons off more than 8 percent of school districts’ budgets. It is required for almost all school employees and will cost agencies statewide an extra $900 million annually starting July 1, the beginning of the next fiscal year.
“As far as controlling costs, there is not much that can be done at the local level, other than lowering subject wages, which is almost impossible with current PERS rules,” said Mike Moha, finance manager for the Warrenton-Hammond School District.
PERS already costs the five school districts in Clatsop County – Knappa, Jewell, Astoria, Warrenton-Hammond and Seaside - $4.3 million this year for several hundred employees.
School officials are uncertain whether they’ll be forced to slash more classes and teachers to remain solvent.
The Seaside School District, for example, is bracing for a 36 percent increase in PERS costs next year, and district officials are only just beginning to grapple with it.
The district paid $1.7 million in PERS pension costs this year, in addition to a bond that covers $672,791 in unfunded liabilities. Of the district’s $20.8 million operating fund, the pension equals 8 percent.
But next year, the expected increase will be $630,022. Of that, the district will pay $600,205, and the bond will cover $29,817, said Business Manager Justine Hill.
“The increase will adversely affect Seaside’s budget,” Hill said. “There is no possibility that the district can absorb the increase in retirement costs. Rate increases will directly translate to reductions.”
But what those reductions will be is up to a district administrative team, which will make recommendations to the school board. That team will meet soon to begin dealing with budget projections and funding issues, said Superintendent Doug Dougherty.
Information is still being gathered from Clatsop County and elsewhere to determine how much revenue the district will receive next year and what expenses it will incur.
“We’re still trying to put the whole picture together,” Dougherty said.
Clatsop Community College alone has more than 100 employees receiving PERS, costing the college nearly $750,000, or roughly 7.5 percent of its general fund, this year. JoAnn Zahn, the vice president of finance and operations, said the expected increase this year for PERS costs is nearly $250,000.
The college, she said, will pay 16.9 percent of costs while individuals pick up another 6 percent.
“The cost of PERS is included in the annual budget development process, and no special steps are taken to mitigate or control PERS,” she said.
Gov. John Kitzhaber is pursuing significant Cost of Living Adjustment (COLA) freezes to PERS during the 57th Legislative Assembly in Salem that could save agencies statewide more than $900 million on pension and disability costs. It’s unknown, though, whether those cuts will be legally defensible.
PERS leaves school districts, like other agencies, doing what little they can to offset the costs. One option has been turning public bonds into investments.
These pension obligation bonds, as they’re known, are low-interest public bonds taken out, the proceeds funneling into PERS-managed investment accounts to help pay for future contributions.
“The PERS fund is a highly diversified pension trust that is actively managed by professional investment managers overseen by the OIC (Oregon Investment Council),” said Carol Samuels of Seattle-Northwest Securities Corporation, a firm Astoria and other school districts work with on bonding issues. “The fund is invested in a wide mix of public equity, fixed income, private equity and real estate products.”
So far in Clatsop County, Astoria, Warrenton-Hammond and Seaside school districts have taken out pension obligation bonds:
• Astoria School District took out $17.3 million in bonds in 2003;
• Seaside School District took out $10 million in bonds in 2005; and
• Warrenton-Hammond School District took out $4.7 million in bonds in 2005.
“If we did not take the bonds, our rates would be much higher,” said Moha.
There has been some criticism of the bond strategy, detractors saying the investment funds are a high-risk venture. Samuels said the OIC periodically creates a “Statement of Investment Objectives and Policy Framework” for the Oregon Public Employees Retirement Fund (http://tinyurl.com/asccgef).
This story originally appeared in Daily Astorian.