Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, March 16, 1994 TAG: 9403160154
SECTION: CURRENT PAGE: NRV-4 EDITION: NEW RIVER VALLEY
SOURCE: By BRIAN KELLEY STAFF WRITER
DATELINE: CHRISTIANSBURG LENGTH: Medium
Montgomery, like neighboring Pulaski County and other jurisdictions across the region, is facing the dilemma of paying for the early retirements, which the General Assembly allowed in the 1991 session.
The early retirements were designed to save money for local school systems by phasing out experienced, higher-paid teachers and replacing them with teachers at the starting pay level.
The problem is that the state retirement system is charging 8 percent interest on the obligation, a figure representing what it expects to earn on the money over time. But that is well out of line with the 3.5 percent interest rate the county is earning on investments that could be used to pay off the debt.
"Eight percent is unreal for these times," said school finance director Danial Morris.
Local school boards that elected to offer early retirements three years ago have the option of paying off the retirement system over 10, 20 or 30 years. The payments begin in June 1995.
The Montgomery School Board has proposed the 30-year option, which at $214,700 has the lowest yearly cost. But because of the 8 percent interest rate, it also has the highest total payment: $6.4 million.
"It's simply a case of a dependent body making a recommendation to keep the overall [annual] budget low," Morris said.
The elected Board of Supervisors sets the tax rate and appropriates money to the appointed School Board. But in this case it was the School Board, which has no taxing authority, that committed the county to the $2.4 million retirement option, as allowed by the General Assembly.
Robinson, Farmer, Cox Associates, the auditor hired by the county, recommended in a report to supervisors on Monday that Montgomery "take steps to pay off the ... balance before further interest accrues."
Montgomery fiscal management director Jeff Lunsford told the Board of Supervisors on Monday that he is working on several alternatives to reduce the overall cost of the retirement payoffs.
The catch, Lunsford said, is that state law appears to prohibit the county from borrowing money at the current lower interest rates to pay off the retirement system. Generally, the public finance act prohibits the county from borrowing money for longer than 12 months without voter approval.
The issue bothers some members of the county Board of Supervisors, who didn't have a say in whether the county should have participated in the first place, and may not have a say in which payment plan to go with.
"It was a state legislative action and we didn't have any say-so," Supervisor Henry Jablonski said.
Supervisor Nick Rush wanted an updated estimate of the total savings from the early retirements. He said the school system should have been putting aside some of the savings to use to pay the retirement system.
But school Superintendent Herman Bartlett, who came to Montgomery last summer, defended the early retirements. "You, the county, have realized the savings in the amount of money you appropriated to us," he said.
Besides the 30-year option, the county could pay off the obligation over 20 years at a cost of $4.9 million or 10 years for $3.6 million.
Supervisor Joe Stewart of Elliston was not thrilled. "I can't understand how the school system could dump a $3 million debt in our lap at one time and we don't even know about it," he said.
by CNB