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School district faces $9.2 million debt

The Superior school district faces a massive, growing debt that may require excess taxes to be levied. School board members on Monday discussed options to satisfy the Wisconsin Retirement System liability, which totals $9.2 million. On Feb. 11, t...

The Superior school district faces a massive, growing debt that may require excess taxes to be levied.

School board members on Monday discussed options to satisfy the Wisconsin Retirement System liability, which totals $9.2 million. On Feb. 11, they will consider the administration's recommendation to dedicate this year toward preparing a debt refinancing plan.

Officials are working with State Sen. Bob Jauch, D-Poplar, to draft legislation that would allow school districts to pay off their liability outside the revenue cap, said Dan Kanninen, the lawmaker's office representative. The school district contacted Jauch's office to formulate a solution for school districts struggling with a Wisconsin Retirement System liability, he said.

In 2001, the Superior school district paid an extra $500,000 toward its pension retirement liability. Officials assumed that decision solved the problem, Business Manager Jack Amadio said in January. As recently as April 2007, when the Maple school board voted to refinance its debt within the revenue cap, Amadio said he trusted Superior's amortization schedule eventually would balance out, and the Superior district's payments would cover pension debts.

This fall, a Superior board member asked district administrators to investigate refinancing options.

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The liability has been a headache for several Wisconsin cities, counties and school district's for decades. In the early 1980s, Wisconsin realized its municipalities weren't paying enough to cover employee pensions. As a result, the state in 1989 calculated the debt each entity owed to cover prior service costs and established a formula for each community or district to repay the system at about an 8 percent interest. At the time, $2.1 billion was owed. Each entity was given 40 years to repay the debt.

The formula was predicated on growth, estimating that more future employees would mean more funds would be paid to cover the debt. For many communities, growth never occurred; interest outpaced payments, leading to a growing, instead of shrinking, debt. Several districts, city and county governments have already addressed their liabilities.

That scenario played out for Superior School District, which now owes about $9.2 million.

Last year, Superior paid about $355,000 toward its debt, while interest on the debt was about $664,000, increasing liability by $309,000, according to Wisconsin's Unfunded Actuarial Accrued Liability Amortization Schedule.

If the district doesn't increase its contribution, that liability would grow to about $17.7 million by 2029, the year the debt was set to be erased, according to the schedule.

That schedule doesn't tell the whole story, Amadio said, suggesting the debt could be even worse. The district's financial advisor, Baird, agrees. It estimates the district's liability will grow to $23 million in 2029 if no change is made in its payment. Its calculations are based on a 2 percent growth in salaries, unlike the state's repayment schedule, which may base its calculations on a higher salary growth, Amadio said.

Amadio's initial recommendation is for the board to prepare to refinance the liability in January and pay the first principal and interest in October 2009. The 2009-2010 budget would have to reflect an additional $355,000 to pay principal and interest on the bonds. This could be accomplished by reducing some programs and using "a small portion of the building fund interest income to offset the impact to the general fund" Amadio said in his recommendation.

The district's ability to repay the loan could be helped by legislation the district seeks from the state legislature. It would allow school districts to levy outside the revenue cap to pay additional costs associated with terminating its liability. The district is lobbying to have the legislation proposed and passed, Amadio said.

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The district contacted Jauch's office seeking assistance to pay off the liability, Kanninen said. The senator's office felt the best solution would be to write legislation to allow districts to create a new payment schedule to pay off the debt outside revenue limits. It would create an exemption to spending limits, but would save taxpayers funds in the long term by paying off the debt instead of allowing it to continue growing, Kanninen said.

Superior is not the only district affected by the liability. Dozens of school district's are facing the same situation. Jauch's draft attorneys are working on the bill, which should be finished later this month, he said.

Douglas County, which once had the highest projected liability by 2029 at $44 million, is also struggling with its $6.9 million pension debt. The county has been making extra payments to pay down its principle and reduce the rate of its interest increases, but it's still projected to owe about $23 million by 2029. It would not be helped by the legislation.

"Even if the legislation doesn't go through, we need to address it." Amadio said. "Then we would need to be a little more creative."

The administration's wants the district to continue monitoring the situation and plan to borrow funds to pay off the liability in January -- whether the legislation passes or not, Amadio said.

"We have to tackle the problem," he said. "(The board) wants to do that, so it won't affect programs in the schools."

Interest rates are low, and the liability will keep growing if nothing is done, said William Rehnstrand, board member.

"The time to deal with this problem is essentially now," he said.

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The liability payments could be met without eliminating programs. It could result in increases in the student/teacher ratio or employee reductions in other areas based on reduced enrollment, Amadio said.

"This recommendation give us one to one-and-a-half years to get ready and prepare for it and still not affect actual programs," he said.

The board would need to know how the plan would affect the district before making a final commitment, said board member Mary Klun.

Anna Kurth covers education. Call her at (715) 395-5019 or e-mail akurth@superiortelegram.com .

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