The Superior school board voted Jan. 19 to approve action to refinance its prior service liability. The district will issue $8,845,000 of taxable note anticipation notes to be paid off in three months and then enter into a 20-year plan for the remainder of the debt.
Typically a bond referendum is needed before a school district can incur debt, but this case of one of the exceptions.
Jack Amadio, business manager for the school district, said the refinancing will create an added cost for the school district initially, but it will save $6 to 7 million in the long haul. Because of the state of financial markets, short-term note interest rates are very favorable at this time.
The refinancing will not create any additional cost to taxpayers; costs will be absorbed by the general fund.
"I think it's terrific to have this behind us," board member John Hendricks said of the refinancing. "It's a terrible obligation to have to pay."
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The debt the Superior school district currently faces is a state issue, not the result of benefits extended to employees contractually, and many other Wisconsin districts find themselves in a similar situation.
In 1983, school district, state and municipal employee retirement programs merged into the Wisconsin Retirement System. When combined, the group adopted the retirement system of the state employees. While it offered better coverage, it was also more expensive, resulting in additional costs for the district.
To pay off the debt, a formula was set up to amortize the obligation over 40 years. Each year, districts were required to put 1.3 percent of the total salaries paid to district employees toward the liability. This money was first applied to the 8 percent interest districts paid on the balance of the debt, and the remainder went toward paying off the debt itself.
The idea was that salaries would increase regularly, allowing more of the debt t o be paid off each year.
"The assumption they made with salaries was that they would continue to increase by 4 percent each year," Amadio said.
But for many districts, including Superior, the amortization schedule did not proceed as planned.
Teacher salaries did not increase as predicted. At the same time, lower student enrollment forced a decrease in the district work force. Instead of paying off more of the debt each year, districts like Superior paid off less. It reached the point that the interest on the balance of the liability, now at 7.8 percent, was more than the district could afford.
After it was obvious the state would not intercede to rework the amortization schedule, the Superior school district decided to take action.
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"We could absorb the burden or just continue on our merry way and let that debt get bigger and bigger," Amadio said.
The district put $500,000 toward reducing the debt in 2003, before taking its current action.
