School districts struggle to pay retirees' health benefits

Ray Marsnik
Ray Marsnik is chair of the Ely school board. He voted against bonding for OPEB costs because the public wasn't given an option to vote on the plan. A bonding proposal was strongly defeated by the board July 13.
MPR Photo/Bob Kelleher

Some Minnesota school districts may have to go into debt to pay for the rising cost of health care for their retired employees.

Local Minnesota governments have until October to sell bonds -- without a public referendum -- to help pay for retired employees' health care. But with the economy in the tank, some people are unhappy about paying higher property taxes to fund someone else's health benefits.

The retirees' health policy costs fall under something accountants call OPEB -- Other than Pension Employee Benefits. OPEB obligations, especially for health care, are really starting to put the squeeze on school districts statewide.

"We're actually paying for a larger number of retirees, from a pot that is generated by a smaller number of students," said Robert Belluzzo, superintendent of the Hibbing school district.

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In that district, $1 of every $5 of its budget goes to retiree benefits, primarily for health care. Meanwhile, Belluzzo says the retiree pool keeps growing.

"The number of retiree health insurance plans is more than the number of active insurance plans that we have," said Belluzzo.

That's not unusual, especially in northeastern Minnesota. Belluzzo says his district approved lucrative lifetime health coverage for teachers back when times were good, when taconite mining employed four times as many workers as now.

"It's a situation that was created, I guess, decades ago when benefits were relatively cheap to negotiate," said Belluzzo, "and they've come around, I think, to haunt many school districts, Hibbing being one of them."

Under new accounting rules, governmental bodies have to recognize the liability and plan how to cover it over the coming decades.

Many districts are choosing to sell bonds, which create a pile of cash to pay benefits directly, or to earn interest that helps cover the expense.

Special state legislation permits the bonding without a public referendum until this October.

The Hibbing school board is expected to consider a $10 million bond this summer, but that would cover only a fraction of the district's $61 million obligation.

Nearly 50 Minnesota districts have issued bonds, according to a spokesman with the Minnesota Department of Education.

But the proposals aren't going over well everywhere. Bonding does raise property taxes.

Sitting in her kitchen in Ely, Geri Koschak says many of that community's residents were outraged at the concept of paying higher taxes for other people's benefits, especially in a town where businesses are closing and unemployment is over 15 percent. Koschak says people in Ely are already strapped.

"They have had to suspend their medical insurance. They don't have insurance," said Koschak. "So here's the school district. asking the people of Independent School District 696 to go ahead and pay for this premier plan."

Koschak is a retired teacher, but she doesn't take the school's insurance. She says it costs her and the district too much, and she can get by with a Medicare supplemental plan.

Ray Marsnik, who chairs the Ely school board, said he turned against the proposed $4 million bond issue when he saw growing public resentment.

"It's pretty hard to basically ask someone for some more tax money to pay for somebody else's health insurance, when they're losing their own, or can't afford to buy it," said Marsnik.

But district residents will still pay -- one way or another -- according to Greg Abbott with the Minnesota School Boards Association.

"Just saying, 'I don't want to bond for it' doesn't make those benefits go away. They still have to pay them," said Abbott.

Without a pot of money set aside, the health costs come from each year's operations budget -- money that could be spent on building maintenance, books, or teacher salaries.

Abbott says the OPEB liabilities just add to a bleak future for Minnesota schools.

"Two years down the road, the funding is going to fall off a cliff for schools," he said.

That's because the governor and Legislature couldn't reach a long-term agreement to balance the state budget. Without an agreement, the governor chose to balance the next two-year budget in part by delaying almost $2 billion in payments to schools.

Abbott says districts know they're in for big cuts. He says bonding now for benefits can get that cost out of a school's general fund, freeing up a piece of a district's budget for education.