SAN MARCOS: Bond-financing plan moves forward

SM district hopes to use $54M in bonds to cover retiree health benefits debts

By SHAYNA CHABNER - Staff Writer | Monday, August 25, 2008 10:45 PM PDT ∞

SAN MARCOS ---- School district trustees took steps Monday toward implementing a plan to invest the proceeds of $54 million in bonds to earn interest to pay off future retiree health insurance bills and the bonds.

For nearly a year, the San Marcos Unified School District has been exploring its options for funding roughly $58.4 million in health insurance bills the district projects it will owe nearly 1,300 retired employees over the next 60 years.

Trustees agreed this spring that they would move forward with the plan to sell bond measures, called "other post employment bonds," and invest the money in a trust with the goal of earning enough interest to cover their retiree obligations and the loan. District officials have said they hope to sell the bonds by January.

On Monday, the district took the first of several procedural steps toward putting that plan into action.

In a unanimous vote, the board approved an updated actuarial study that outlines San Marcos Unified's current and future health insurance obligations for retirees as of July 1. Trustees also agreed to apply to enter into trust with CALPERS, a California Employee Retirement Fund, for the bond proceeds and investment.

In its upcoming Sept. 8 meeting, the board also will be asked to challenge the plan in court, opening it up to legal questions and concerns from the public for 90 days, Assistant Superintendent of Business Gary Hamels said.

"This is what we believe to be the best, most secure way" for meeting the district's obligation, Hamels said.

"We have tried to shoot holes into it," he said. "But it's a 60-year project, and we are done paying it in 35 (years). It's hard for me to turn away from it."

All but one of the district's trustees, Mary Borevitz, has backed the plan. Borevitz, who reiterated her concerns Monday and voted against entering into a trust with CALPERS, said the plan seems "too good to be true."

"I am just not comfortable doing with taxpayers money what I consider to be a gamble," Borevitz said. "I hope I am wrong."

District officials and fellow trustees have countered that to not do something to meet the district's health benefits obligations to retirees would be foolish.

Under the plan presented to trustees, the district hopes to earn an average annual interest of at least 7.75 percent on the money it collects from selling its 35-year bond measures.

If that happens, the district would then raise enough money to not only pay back the bond measures, but to pay off its bills for retiree health benefits in almost half the amount of time it would take San Marcos Unified in the current system, where it pays down a small portion annually.

According to the actuarial study, paying off the $58.4 million in health benefits in a pay-as-you-go method over a 60-year period could cost the district roughly $191.7 million. The district's funding plan, on the other hand, cost the district the $55 million loan.

The savings "is just huge," Trustee David Horevitz said.

San Marcos Unified reportedly is the first school district in San Diego County to move forward with a plan that would finance health benefit debts with bonds. Hamels said Monday, though, that other nearby districts, including Escondido Union School District and Poway Unified School District, are exploring such options.

District officials have only recently begun adding up the true costs of retiree health benefits. For years, they only reported the annual cost of benefits.

But a federal accounting change in 2004 made it a requirement that all districts and other government agencies report and create plans for paying off future costs of health care and other benefits for current employees and retirees.

In addition to outlining a bond financing plan, San Marcos Unified adopted rules last year that eliminated health benefits for retirees hired after July 1, 2007, and placed a cap on the district's maximum contribution. In 1996, the district ended a long-standing policy under which it provided lifetime benefits to employees with more than 10 years of service.

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