By Ryan Ekvall Wisconsin Reporter
MADISON – Despite claims to the contrary, the Wisconsin Retirement System is not fully funded.
Not only because the public pension system assumes what in recent years has proved to be unrealistic rate of return on its investments, boosting its funding ratio, but towns, counties and school districts across the state owe tens of millions of dollars in back payments to the pension fund.
At the end of 2010, the most recent data available, Wisconsin school districts owed WRS $65.93 million. In total, the fund was owed $131.932 million by various government bodies, via the taxpayer.
The Edgerton school board, for example, recently passed a resolution asking voters to approve a $2.98 million bond to pay off its debt — or unfunded liability — to WRS. After a decade or so of interest-only payments, the Edgerton school board wants to begin to pay down its obligation. The amount now owed to WRS is more than three times the $784,014 the district contributed toward staff pensions in 2011, and about a third of overall payroll.
“Our contributions aren’t matching the interest owed,” said Mark Worthing, business manager at the Edgerton School District, a small public school system about 30 miles southeast of Madison.“Our balance keeps going up. If we don’t pay it off, it would continue to go up and up and up.”
Currently, the school district pays WRS about $200,000 per year just to service most of the interest on its debt. If passed, the bond would likely be paid off in 15 years.
The state Department of Employee Trust Funds, which administers WRS, charges 7.2 percent interest on debt owed – the rate of return assumed to keep the fund solvent. Over the past five years, the fund has returned 2.1 percent on its assets.
Matt Towns, president of the Edgerton School Board, said the bond’s interest rate would be about 3.5 percent, half what they’re charged now.
Worthing said the district didn’t have the money available to pay off the debt aside from fulfilling the obligation with more debt.
“The problem is our balance is so high, it would take a long time to pay it off at the amount that we’ve got to put towards it,” he said. “(The bond issue) would free money up for other operational type things.”
The $200,000 servicing the WRS debt comes from the school operations budget. If voters pass the referendum, that $200,000 becomes available for other uses. It also means higher taxes until the debt is repaid.
Several school districts across the state find themselves in similar positions. Watertown Unified owed $4.3 million. West De Pere’s obligation was $2.1 million, Richland, $2.9 million, the La Crosse School District,$8.3 million, and Grafton, $4.2 million.
“Back around 1999 the state basically juiced up the pension system for retirees of state and local governments,” said Dale Knapp of the Wisconsin Taxpayers Alliance, a nonpartisan tax research organization. “When they did that, essentially what it did is create a big liability for school districts, townships, county governments. The pensions of their employees were now bigger than what they had paid in. A lot of districts — when interest rates got really low — borrowed what they owed and paid them back. Some districts didn’t do that and they owe money.”
Because enrollment is declining in many school districts across the state, the back payments owed to WRS become more burdensome, as revenues reflect enrollment numbers.
Wisconsin Taxpayers Alliance reported that overall school districts’ reserves are increasing across the state, but many districts find themselves drawing down their reserves.
Knapp said that’s a sign school districts are uncertain about the future.
“It’s like in a household when business gets rocky where you work and you’re not sure if you’re going to be laid off in next year. You might cut back spending a bit and start putting money away — just in case,” Knapp said. “There’s uncertainty with aid and revenue limits so they’re being very cautious. If there’s a change that is negative for them, they have a cushion to whatever change might come down the road.”
Other school districts might find a cushion in their operations fund the way Edgerton looks to, by borrowing to pay off debt.
Contct Ekvall at firstname.lastname@example.org