Denver Public Schools officials are promoting two measures on the Nov. 6 ballot that would add $515 million to the school district’s debt load, which some contend already is weighed down by past bond issues and unfunded pension obligations.
The district is asking Denver voters to approve a $49 million mill levy (3A on the ballot) and a $466 million bond issue (measure 3B) for classroom programs and critical maintenance needs in the district. If both measures pass, they would add about $140 a year to the tax bill of a $225,000 home, according to the district.
While there’s no denying that state budget cuts have hurt Colorado school districts and that many Denver schools are in need of maintenance and upgrades, some current and former public officials are concerned about the debt burden created by the district’s past bond issues.
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Tom Boasberg, DPS superintendent, said if the measures pass, Denver taxpayers still will be paying less than taxpayers in neighboring jurisdictions.
“Funds for K-12 education have been severely cut for last three years,” Boasberg said. “We are getting $800 less per student than we did three years ago — that’s $60 million less a year than we were receiving three years ago.”
At the same time, DPS has grown by almost 11,000 students, or about 15 percent, in the last five years, he said.
“The mill levy would allow us to expand arts, music, sports and enrichment programs and provide critical tutoring and small-group tutoring for our kids,” Boasberg said. “It will allow 1,000 4-year-olds in poverty the chance to go to full-day preschool … instead of sitting on wait lists for this critical opportunity.”
The $466 million bond issue will enable the district to “perform critical maintenance and renovations on our school buildings,” he said.
But those concerned about the district’s debt point to $750 million in pension certificates of participation (PCOPs) the district issued in 2008 to take care of its unfunded pension liabilities. They note that DPS’ pension liabilities are higher now than they were before the district did the complex financing, which will cost Denver taxpayers a total of nearly $2 billion by 2038, according to DPS figures.
The DPS Division of the Colorado Public Employees Retirement Association (PERA) had $637 million in unfunded pension liabilities at the end of 2011, according to PERA’s latest annual report.
When DPS issued $750 million in PCOPs in 2008, the district had a $400 million pension shortfall, about $265 million in previously issued pension debt and the costs associated with the issuing of new debt.
“We suffered the worst crash since the Great Depression, so all of PERA is down,” Boasberg said of the increased DPS pension shortfall since 2008.
Lynn Turner, board member of PERA, said the district bond issues have “only shifted who they owed money to from the pension plan to the bond investors. They never changed the fact they still had to come up somehow with money to cover the debt and cash-flow shortfalls.”
Turner, a former chief accountant for the U.S. Securities and Exchange Commission, said DPS officials have long been trying to figure out ways to make up for unfunded pension liabilities without hurting the district’s cash flow.
“DPS has had shortfalls in cash flows since the late 1990s that have led to the underfunding of their pension plan obligations,” Turner said, noting he was speaking only for himself, not for PERA. “DPS, instead of addressing the core issue, has put their heads in the sand and issued bonds trying to make it look like their pension problem has been solved, when the reality is that it hasn’t.”
John MacPherson, a retired DPS teacher and principal who was a board trustee for the Denver Public Schools Retirement System when the 2008 PCOPs were issued, asserts that DPS “has not contributed enough to its pension plan to cover even the normal cost for active employees” since July 1, 2009.
Employers with defined-benefit pension plans are required to cover “normal” costs for employees, or the present value of benefits that have accrued on behalf of members during the valuation year. In addition, employers in PERA also are required to contribute to pay down unfunded liabilities.
Legislation passed in 2009 related to the DPS merger of its pension fund with PERA allows DPS to reduce the amount it contributes to PERA based on the PCOPs payments it makes.
In 2011, DPS contributed 3.67 percent of its payroll to pension benefits, compared with 15.31 percent by the School Division (the rest of the state’s public schools), according to the PERA annual report. DPS was able to reduce its contribution by 14.88 percent last year, with the PCOPs credit.
“What we have today, and my concern, is that DPS is purposely defunding the employees’ pension plan to be able to save money in the name of the 2008 PCOPs transaction,” MacPherson said. “They are correct that it is perfectly legal. My question is … is it ethical?”
Boasberg countered that the DPS Division is better funded than the School Division of PERA, thanks to the PCOPs; that DPS pays a lower interest rate to bondholders than the School Division pays to PERA; and the credit it gets on its contributions is meant to bring DPS in line with the School Division in terms of its unfunded pension liabilities.
At the end of 2011, the DPS pension was 81.9 percent funded, down from 88.2 percent at the end of 2010, the first year the DPS pension was part of PERA.
The School Division was 60.2 percent funded at the end of last year, down from 63.3 percent at the end of 2010.
But Turner thinks the 2009 legislation “ensured the funding levels of the pension would fall precipitously to very low and dangerous levels.”
“This was the result of DPS being able to, in essence, count their bond payments toward the amount of annual contributions into the pension fund, even though they would not be making the required annual fund contribution,” he said.
And Turner isn’t a fan of the PCOPs transaction in 2008. “DPS gambled with taxpayers’ money when they decided to enter into interest-rate swaps — and they lost,” he said. “To date, that gamble has taken a lot of money out of the classroom that would have otherwise benefited students. And instead, money has gone into the pockets of bankers.”
Richard Allen, the DPS assistant superintendent for budget and finance from 2001 to 2006, said chronic underfunding of the DPS pension has created the problems the district now faces.
“It’s the wages of past sins that makes this happen,” Allen said. “And 20 years from now, someone else will be having this same conversation.”
Heather Draper covers banking, finance, law and the economy for the Denver Business Journal and writes for the “Finance Etc.” blog. Phone: 303-803-9230.
Copyright 2012 Denver Business Journal. This article is reprinted with permission.