The San Marcos Unified School District has developed a financial strategy intended to pay for the health benefits of retired employees, a future liability expected to cost about $177 million.
The plan involves selling bonds and investing the resulting money. It is supposed to satisfy the cost of the district's health benefits given to retirees hired before June 30, 2007, for the next 60 years or so. Employees hired after that date are not entitled to the benefits.
Public agencies are being required to disclose long-term unfunded costs for retiree health benefits by the Governmental Accounting Standards Board, an independent organization that establishes accounting standards for state and local governments. The first year that San Marcos Unified must report its unfunded liabilities is in the 2008-09 school year.
Monday night, the school approved hiring experts to help the district sell about $50 million in bonds to be repaid over 35 years. The money from the bonds will be placed in an irrevocable trust with the state's Public Employees' Retirement System, known as CalPERS, which will invest it.
The intent is that the district will earn at least an average return of 7.75 interest a year for 60-years, while repaying bondholders 5 percent. The difference, as well as some money from the general fund, would be used to pay retiree benefits.
Investing the $50 million from the sale of bonds would allow the district to save money compared to paying several million dollars a year for benefits, said Gary Hamels, assistant superintendent of business services. District officials expect to save about $50 million in the long run.
Board member Mary Borevitz was the only trustee who voted against the plan. She has expressed concerns about supporting the financial strategy because it's still an emerging way to pay for retiree health benefits.
But Benjamin Dolinka, the district's financial consultant who proposed the strategy, has said the same mechanism has been used before to fund pensions.
District officials are “pretty comfortable” with the plan, Hamels said, because CalPERS's is one of the largest investors in the world and has a solid reputation. “They have a good track record, good staff,” he said this week.
On average, CalPERS's return on investments for the past 20 years has been close to 12 percent, Hamels said.
In August, the board hired Dolinka to study the issue. It approved paying $1 million to all the experts who will be involved in the deal, including an underwriter who will get about $500,000, attorneys and Dolinka's company, Hamels said. The $1 million also will come from bond sales.
Bonds are expected to be sold before 2009, Hamels said.
Palomar College has also been looking at how to comply with the health benefit reporting requirements. Its first year to release financial information is also in 2008-09. The community college's estimate of its unfunded retiree health benefits liability, as of November 2007, is $68.4 million.
Trustees might start discussing this summer a plan for creating an irrevocable trust to pay for Palomar's liability, said Bonnie Dowd, vice president of finance and administrative services. Palomar has various retiree health benefits for employees based on the date they were hired, she said.
The city of San Marcos has no health benefits for its retired employees.
Linda Lou: (760) 737-7574; linda.lou@uniontrib.com
