The Free Press, Mankato, MN

Local News

July 9, 2009

Kato schools face retirement gap

Likely to sell bonds to pay benefits

By Tanner Kent

MANKATO — One little acronym is prompting one important decision for the Mankato Area School Board.

OPEB — which stands for Other Post-Employment Benefits — is causing headaches for many local government agencies across the state that are now having to pay out retirement benefits negotiated decades ago.

In Mankato schools, such benefits — which typically included health, dental and vision insurance — have been discontinued with most employee groups, including teachers. But as district employees continue to retire in greater numbers, Mankato Area Public Schools are faced with a nearly $16 million OPEB liability during the next 30-plus years.

The School Board is preparing to act on a solution during Monday’s 5 p.m. meeting.

“This situation has been handed to us,” said Board Member Dave Sunderman during an information session earlier in the week. “We have to be very conscious of the economy and being prudent with taxpayer dollars.”

After several months of review by the district’s financial committee and conversations with officials from Northland Securities, the board will consider a resolution Monday to issue bonds for OPEB payments.

According to the resolution, the district would issue $11.9 million in bonds to cover 75 percent of its total $15.7 million liability. The rest would be paid with interest earned through a trust fund established specifically for OPEB payments.

The resolution is recommended by the finance committee, on which Sunderman and fellow board member Tom Rekstein both sit.

To minimize the impact on taxpayers, the district is planning to use savings from the construction of the new elementary school to provide a $13 tax credit for the next three years. By the time that credit expires, the bonds issued for the construction of Dakota Meadows Middle School will be paid off.

According to data from Northland Securities, the yearly tax impact on the owner of a $150,000 home would be less than $14 until at least 2013.

“In the long run, this is definitely the better option for students, staff and taxpayers,” Rekstein said.

There are alternatives, however, to issuing bonds.

One option would be to continue funding yearly OPEB payments out of the general fund. But given the district’s most recent $3 million budget reduction and the near certainty of budget reductions in coming years, that scenario appears difficult and would likely cost taxpayers more in the long run.

Another option would be to exercise a new levy recently approved by the state Legislature. The levy authority, however, would not take effect until the 2010-11 school year, which means the 2010 OPEB payment of nearly $1 million would come out of the district’s general fund. The levy also is capped on a statewide basis.

Supt. Sheri Allen, who replaced the retired Ed Waltman on July 1, said she was impressed with the district’s work so far. She added that OPEB is going to cost taxpayers no matter which solution is pursued and that a bond sale is the most responsible option.

If the resolution is approved, Aug. 3 has been chosen as the tentative date to hold the bond sale.

Text Only | Photo Reprints
Local News