C–FC school board takes action on an unfunded liability


(12/24/2008)

From: Thomas Hiebert

Superintendent

Cochrane-Fountain City School District

In a previous article, I made mention that the board was reviewing options to pay off an unfunded liability with the Wisconsin Retirement System. Following is the information explaining the board action and how this is a positive step by the board in showing fiscal responsibility.

At their regular school board meeting on November 19, 2008, the Cochrane-Fountain City(C-FC) School Board took action to ensure that an unfunded liability owed to the Wisconsin Retirement System (WRS) is paid off. The unfunded liability originated in 1982 within the WRS due to a merger of three retirement systems and needing revenue to fund the merger. The original plan was to charge districts 1.3% per year of their total salary package to pay off the unfunded liability over a 40 year repayment schedule. After the original merger in 1982 the C-FC debt was $282,000 with the intentions that within the 40 year time period it would be paid off. As the debt was paid down an average interest rate of 7.8% was and is being charged on the balance based on the assumption that is what the WRS could receive if they had the revenue to invest.

The formula of using 1.3 % and a 40 year time period was based on 1982 staffing levels. Due to staff reductions over the years total salary amounts have been reduced, thus causing the payments to be less and lag behind the amount needed to keep a current pay off schedule up to date. With the compounding interest at 7.8% the debt ran up to $920,000 by the end of 2008.

The WRS unfunded liability has plagued the district for years in trying to resolve a logical way to pay it off and seek relief of the 7.8% interest being paid. School districts throughout the state have utilized different methods to pay off the liability ranging from voter approved referendums to spending down fund balances, to utilizing long-term borrowing. Trying to “pay as we go” became a difficult thing to do because of the variable expenses of the district. By utilizing a loan it sets a definitive expense amount for each year, not to mention the lower interest rate that will help pay off the loan quicker. The C-FC School Board’s action to approve borrowing $920,000 at 4.9% to pay off the WRS liability will ensure a payment plan and help with budgeting purposes. The financial firm of Hutchinson, Shockey, and Erley and Co. handled the transaction of the loan which is for an initial five month period of time. During that five month window the plan is to seek an interest rate for a five year loan with a balloon payment at the end of that five year period. At that time, the loan will be reviewed for another renewal or other options. One more factor to favor the decision is that through this type of financing both the principal and interest will receive the designated yearly aid from the state.

More Topics To Be Explored And Acted On

In sticking with my goal of updating the public on topics the board is exploring and those that they are taking action on, I would like to mention a few items in general.

Policy Governance-Currently the board is finalizing a proposal for the implementation of Policy Governance model for the operation of the district. It is a form of governance that sets parameters and clarifies roles for all those involved with the governance of the school district. The committee work is being completed and the initial first reading of the policy will be on the December 17 agenda.

Strategic Planning-A strategic planning process is critical to the future of a well functioning school district. Finding the proper method to ensure a plan is utilized is a challenge. When strategic plans are developed, the carrying out the plan is where the challenge begins. Utilizing the policy governance model the strategic planning process is being reviewed and being structured within the parameters of the policies.

Transportation-The auxiliary function of the transportation is being reviewed. The current fleet is becoming outdated and costing the district repair expenses that are escalating at a rate higher than acceptable. Several options are being investigated including bus purchasing, leasing, and contracting. As this function is reviewed the best interests of the students, staff and public are considered along with an efficient financial operation.

Community Education-Currently C-FC has a well organized Community Education program with some interest in expanding the offerings. Along with an interest in expanding the offerings there is a growing number of outside entities that have been using the district facilities for various programs that could come under the supervision of Community Education. As a result of this increased interest, the Community Education programming is being reviewed by the board and advisory committee. I would like to thank the advisory committee for their donated time to see a program like this function.

 

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