Bill before Minnesota Legislature changes rules for schools struggling to pay for retiree lifetime health care

A proposal before the Legislature would change a year-old law that allows school districts to raise taxes or sell bonds without voter approval to pay mounting health care costs for retirees.

The change would require school districts to get voter approval — or avoid a vote by agreeing to a cap on how much they could charge taxpayers. With the capped levy, school districts would have to eliminate lifetime health care and benefits from their contracts.

So far, 13 percent of Minnesota school districts — mostly larger ones in the metro area — are using the current law to help pay their health care debt, the state Department of Education reported.

Meanwhile, smaller school systems — with less staff available to do the work of implementing the law — continue paying their debts from general funds. And others aren't using the tool out of fear of raising taxes without voter approval.

"If we don't do anything, these (health care) costs are going to squeeze out education and at the same time increase property taxes," said Rep. Paul Marquart, DFL-Dilworth, the bill's author.

The law last year was designed to help pay off retiree health care debt, which could surpass $1 billion statewide. About 70 percent of school districts are still on the hook for lifetime health insurance promised years ago.

Today, schools have two ways to pay for retiree health care: from their general funds or by raising taxes.

However, some school districts don't want to use the tax-raising tool in the midst of a struggling economy, home foreclosures and job losses in their communities. Schools also are facing financial squeezes from stagnant state funding and rising expenses for gas, food and supplies.

Thirty-three school districts used the tax tool this year, and 11 more plan to next year, including Roseville and Burnsville-Eagan-Savage schools.

Finding other ways to pay for retiree health care frees up a district's general fund for educational programs, Marquart said.

Under the proposal, taxpayers would vote before schools could levy taxes or sell bonds to pay health care debt for retirees. The vote would be a "tough sell" but would make the process more transparent, Marquart said.

Schools wanting to avoid a public vote could pay the debt with the capped tax levy, starting at $24 million for taxes payable in 2010, and $50 million for those payable in 2011. After that, the levy could increase by $19 million a year.

The provision that would change school districts' bonding authority is part of the House DFLers' education package but is not in the Senate version. House and Senate education committee members are negotiating what will appear in the final bill.

Maricella Miranda can be reached at 651-228-5421.