WRS payoff to save district $1.3 million
A decision to pay off the Clintonville Public School District's Wisconsin Retirement System (WRS) Unfunded Liability was unanimously approved by school board members Monday, Jan. 23.
The decision will save the district $1.3 million in interest payments.
Business Manager Jenny Goldschmidt had been working feverishly with board members and the district's financial advisor to explore all options to aggressively pay down the district's WRS Unfunded Liability.
"There are two important terms to keep straight. One is the fund balance: the policy on the school district's Fund Balance is to maintain a Fund Balance between 20-25 percent of the General Fund Budget (Fund 10). Currently the Fund Balance is at approximately 28 percent," explained Goldschmidt.
"The second term is the Wisconsin Retirement System (WRS) Unfunded Liability. The Clintonville School District's WRS Unfunded Liability as of Dec. 31, 2011 is $1,611,901.67," Goldschmidt continued.
According to a Clintonville Public School District audit report, the district's unfunded pension liability is an actuarially computed liability by the WRS resulting from increases in employee pension benefits that exceeded actual prior years' contributions by the district to WRS. The liability was originally calculated by the WRS as of Jan. 1, 1990.
Since that time, the district has been making additional monthly payments to the WRS in order to amortize the liability over a 40-year period. In addition, the district is charged 7.8 percent interest per year on the unpaid balance. As a result, the outstanding balance of the liability may increase annually if payments made by the district to the WRS are less than the interest charged. The WRS's 40-year amortization schedule from 1990 anticipates that the unfunded pension liability will not be reduced annually for approximately the first 20 years of the schedule.
"At the meeting on Monday, Jan. 23, the board approved reserving $100,000 of the Fund Balance for the purpose of the fiber optic cable project to connect from the high school to Rexford-Longfellow Elementary to improve data and technology storage, transfer and communication. The board also approved to use $500,000 from the Fund Balance towards the payment of the school district's WRS Unfunded Liability," said Goldschmidt. "Those two actions brought the Fund Balance to approximately 24.8 percent of the General Fund (which keeps the district within the target 20-25 percent as outlined in the Fund Balance Policy)."
The board then passed two motions that support each other in paying off the district's WRS Unfunded Liability.
"A resolution was outlined last fall by Carol Wirth of Wisconsin Public Finance Professionals LLC. Carol is the district's Financial Advisor. The WRS Unfunded Liability currently has an interest rate of 7.8 percent. The school district is restructuring and going to refinance the liability over 10 years at a projected rate of approximately 2.6 percent," said Goldschmidt. "We will not know the actual rate until the end of February. But at this time, it is coming in at 2.6 percent. The projected savings in interest by paying the $500,000 towards the WRS Unfunded Liability and refinancing the rest at this time is estimated to be around $1.3 million.
"Prior to the board adopting the resolution, the motion to advance $1,111,901.67 out of the Fund Balance to prepay the remaining amount on the WRS Unfunded Liability in January will save the district an additional interest payment, which amounts to about $115,000," explained Goldschmidt. "The Resolution - which in fact is to pay off the WRS - will be used to go back into the fund balance to maintain that 20-25 percent in the General Fund."
Board member Ben Huber was very active in the process leading up to the decisions made at the Jan. 23 meeting.
"We are replacing the higher, variable interest rate of 7.8 percent with a lower, fixed rate of around 2.6 percent," Huber said. "This will give us a chance to pay down the WRS Unfunded Liability as well as allowing us to fix the heating system at the elementary school without a big increase to the tax levy.
"This is a good solution you came up with," said Huber to Goldschmidt. "This will save the district at least $1.3 million, and possibly as much as $2 million, depending on interest rates. It's a win-win for the district."
Wirth will be at the last board meeting in February to present a payment schedule. The district will receive borrowed funds on March 8. Depending on various tax scenarios, the district may need to take out a line of credit to cover payroll at the end of February, but Goldschmidt said that is a worst-case scenario. The board was authorized to take this step if needed by a vote at the annual meeting.
In other business, the board approved the following:
• Teacher retirements: Bob Arkens, Ingrid Coobs and Barb Meyer;
• A CEA resignation;
• Recognition of Eastern Valley Conference Honors Band/Choir students;
• Second reading of revisions to graduation requirements; and
• Second reading of revisions to Series 4000 policies.
The board later went into closed session for a student disciplinary hearing.
The next school board meeting is Monday, Feb. 13 at 6:30 p.m. in the middle school IMC.
The decision will save the district $1.3 million in interest payments.
Business Manager Jenny Goldschmidt had been working feverishly with board members and the district's financial advisor to explore all options to aggressively pay down the district's WRS Unfunded Liability.
"There are two important terms to keep straight. One is the fund balance: the policy on the school district's Fund Balance is to maintain a Fund Balance between 20-25 percent of the General Fund Budget (Fund 10). Currently the Fund Balance is at approximately 28 percent," explained Goldschmidt.
"The second term is the Wisconsin Retirement System (WRS) Unfunded Liability. The Clintonville School District's WRS Unfunded Liability as of Dec. 31, 2011 is $1,611,901.67," Goldschmidt continued.
According to a Clintonville Public School District audit report, the district's unfunded pension liability is an actuarially computed liability by the WRS resulting from increases in employee pension benefits that exceeded actual prior years' contributions by the district to WRS. The liability was originally calculated by the WRS as of Jan. 1, 1990.
Since that time, the district has been making additional monthly payments to the WRS in order to amortize the liability over a 40-year period. In addition, the district is charged 7.8 percent interest per year on the unpaid balance. As a result, the outstanding balance of the liability may increase annually if payments made by the district to the WRS are less than the interest charged. The WRS's 40-year amortization schedule from 1990 anticipates that the unfunded pension liability will not be reduced annually for approximately the first 20 years of the schedule.
"At the meeting on Monday, Jan. 23, the board approved reserving $100,000 of the Fund Balance for the purpose of the fiber optic cable project to connect from the high school to Rexford-Longfellow Elementary to improve data and technology storage, transfer and communication. The board also approved to use $500,000 from the Fund Balance towards the payment of the school district's WRS Unfunded Liability," said Goldschmidt. "Those two actions brought the Fund Balance to approximately 24.8 percent of the General Fund (which keeps the district within the target 20-25 percent as outlined in the Fund Balance Policy)."
The board then passed two motions that support each other in paying off the district's WRS Unfunded Liability.
"A resolution was outlined last fall by Carol Wirth of Wisconsin Public Finance Professionals LLC. Carol is the district's Financial Advisor. The WRS Unfunded Liability currently has an interest rate of 7.8 percent. The school district is restructuring and going to refinance the liability over 10 years at a projected rate of approximately 2.6 percent," said Goldschmidt. "We will not know the actual rate until the end of February. But at this time, it is coming in at 2.6 percent. The projected savings in interest by paying the $500,000 towards the WRS Unfunded Liability and refinancing the rest at this time is estimated to be around $1.3 million.
"Prior to the board adopting the resolution, the motion to advance $1,111,901.67 out of the Fund Balance to prepay the remaining amount on the WRS Unfunded Liability in January will save the district an additional interest payment, which amounts to about $115,000," explained Goldschmidt. "The Resolution - which in fact is to pay off the WRS - will be used to go back into the fund balance to maintain that 20-25 percent in the General Fund."
Board member Ben Huber was very active in the process leading up to the decisions made at the Jan. 23 meeting.
"We are replacing the higher, variable interest rate of 7.8 percent with a lower, fixed rate of around 2.6 percent," Huber said. "This will give us a chance to pay down the WRS Unfunded Liability as well as allowing us to fix the heating system at the elementary school without a big increase to the tax levy.
"This is a good solution you came up with," said Huber to Goldschmidt. "This will save the district at least $1.3 million, and possibly as much as $2 million, depending on interest rates. It's a win-win for the district."
Wirth will be at the last board meeting in February to present a payment schedule. The district will receive borrowed funds on March 8. Depending on various tax scenarios, the district may need to take out a line of credit to cover payroll at the end of February, but Goldschmidt said that is a worst-case scenario. The board was authorized to take this step if needed by a vote at the annual meeting.
In other business, the board approved the following:
• Teacher retirements: Bob Arkens, Ingrid Coobs and Barb Meyer;
• A CEA resignation;
• Recognition of Eastern Valley Conference Honors Band/Choir students;
• Second reading of revisions to graduation requirements; and
• Second reading of revisions to Series 4000 policies.
The board later went into closed session for a student disciplinary hearing.
The next school board meeting is Monday, Feb. 13 at 6:30 p.m. in the middle school IMC.
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1 Comment for "WRS payoff to save district $1.3 million
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The district is supposed to pay into a retirement fund for its employees. The district is in arrears (or owes) $1.6MIL.
The district's plan for paying this bill was to make payments FOR FORTY YEARS AT 8% INTEREST. Which means the district was paying ONLY interest for the first 20 YEARS. That's pure insanity.
Now, they plan to make a $500,000 payment (scooping it out of a required reserve fund) and refinance at 2.6% - which should have been done several years ago.
And, they want you to think that they have "SAVED" $1.3MIL because they finally came to their senses and ended the insanity. When, in fact, they wasted several years of interest payments at 8%, when the rest of the world had rates below 3%.
They're financial geniuses.
Well, except for this:
[b] "the district may need to take out a line of credit to cover payroll at the end of February" [/b]
It never ends.
lastpercentile Jan 25, 2012 1:15 PM