Monday, May 10, 2010

Sacramento grand jury issues dire financial warning to school districts

By Diana Lambert
Published: Monday, May. 10, 2010 - 12:05 pm
Last Modified: Monday, May. 10, 2010 - 5:12 pm

Sacramento County school officials may be ignoring mounting debt that could bankrupt districts or leave retirees without health benefits, according to a grand jury report released today.

Twelve of the 13 districts in the county don't have enough money to pay the health benefits promised future retirees and are not setting aside any money to pay them, said the report.

Collectively, the county's school districts owe about $1 billion for retiree health benefits.

"Who is going to tell retired teachers that they have lost their health benefits or tell students and their families that there is no money for school programs?" stated Rosemary Kelley, jury foreperson in a letter accompanying the report.

Even more striking is that some school board members and administrators are unaware of the shortfalls, according to the report. Four districts reported there had been no discussions with their school boards about the unfunded liabilities within the last three years.

"These obligations are not going away, however, because they are ignored," warns the report.

Instead, these liabilities continue to grow, fueled by skyrocketing healthcare costs.

Only two districts - the County Office of Education and Elk Grove Unified - have interest-yielding funds that are used to pay retiree health benefits. But, despite the account, Elk Grove Unified is still underfunded by $244 million.

But most local school districts pay their annual retiree benefits on a pay-as-you-go basis, taking the money from their general funds. Seven county districts have developed plans to pay their unfunded liabilities, but six have put it off because of budget shortfalls caused by state cuts.

"The problem with pay-as-you-go is that districts may not have sufficient funds to pay the current year's retiree health benefits and also pay for necessary school programs," the report says.

Each school district should immediately reduce its unfunded liability for retiree health benefits, recommended the grand jury in the report. It is asking that districts include a funding plan and schedule of contributions as part of their 2011-12 budgets.

"All of those involved - administrators, school boards teachers and unions - have a responsibility to resolve this problem," said Kelley's letter. "Either that or they face dire financial consequences."

Sacramento City Unified officials told the grand jury it has $560 million in unfunded liability for retiree health benefits - more than its annual budget of $366 million. The board had voted to set aside $1 million to start funding this liability, although no funding stream has been identified, said the report.

San Juan Unified officials reported $74 million in unfunded liability. The district's board had decided to pay $2.8 million annually toward the debt, but voted in 2008 to delay that indefinitely because of state budget cuts.

The grand jury says the financial problem at county school districts is compounded by school board members with limited experience in finance and because of the influence unions have on local school boards.

Most school boards and superintendents are short-term, while unions have long histories in districts.

"School boards and school district superintendents can easily assume the unfunded liability costs will occur in the future, under someone else's leadership," said the report.

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