Piper Sandler bankers warn district to plan for PERS side‑account phase-out, recommend reserve planning

A pair of bankers from Piper Sandler walked the school board through the district's PERS (Public Employees Retirement System) pension-obligation bonds and the scheduled wind‑down of the district's side account, saying the account is timed to mature at the end of calendar year 2027 and that district officials should prepare for a budgetary increase when the credit expires.

The presenters, identified in the meeting as bankers with Piper Sandler, said the district first issued pension bonds in 2003 (about $17,000,000) and that the strategy has produced roughly $16,000,000 in net savings to date. They described how PERS credits are paid as a percentage of payroll and explained that above‑expected payroll growth in recent years has accelerated draws on the side account, producing larger near‑term credited relief but reducing the account's remaining life.

"The side account has been timed to end at the end of calendar year 2027," a Piper Sandler presenter said, noting the PERS system operates on a calendar‑year basis while the district operates on a fiscal year, which creates a timing mismatch: bond debt payments end in June 2028, after the side‑account credit will have largely ended. The presenters warned this mismatch will cause monthly swings in net PERS expense during the terminal phase and projected a jump of roughly $2.0 million to $2.5 million in annual net PERS expense in the year after the credit drops out (presenters noted the removal of some debt service will reduce the net increase in later years).

Presenters highlighted three key drivers for the district's PERS position: (1) investment returns in the retirement fund; (2) payroll growth at the district (both added positions and raises), and (3) temporary legislative relief. They noted the 2024 advisory valuation put PERS funded status near 73% and that the unfunded actuarial liability for the district was presented as roughly $19.8 million in the valuation (an actuarial estimate, not a cash bill).

The bankers cautioned that the valuation report shows a 0% reported side‑account rate credit for districts with accounts timed to end in 2027, a reporting convention PERS uses to avoid overdrawing accounts; they said that in practice money remains in accounts and that payout timing creates a "sawtooth" pattern in monthly cash flows during the terminal phase.

On the question of whether the district should pursue a new pension bond or side account, presenters said the decision is strictly economic: it depends on the spread between borrowing rates (the blended true interest cost, or TIC) and the pension fund's assumed earnings rate. They noted the fund's assumed earnings rate has been lowered over time (presenters cited an assumed rate around 6.9%) and that current estimated borrowing rates are near 5.5%, making the present gap "too close for comfort" for many practitioners. Presenters said practitioners in prior financings used TIC thresholds in the mid‑4% range as a practical authorization limit.

The presenters also explained that state rules now require an independent economic assessment before pursuing a pension bond; that assessment typically takes two to three months and can be shared among multiple districts to reduce per‑district cost. They estimated prior per‑district assessment costs in past rounds at roughly $1,000–$2,000 when split across participating districts.

Board members asked clarifying questions about the district's 2003 borrowing rate (a presenter responded, "It was $5.73"), how long an assessment remains valid (presenters said there is no hard statutory timeline but many practitioners treat assessments as needing to be within about a year), and when the one‑time legislative relief (Senate Bill 849) expires (presenters said it expires at the end of the biennium, June 2027). Presenters acknowledged public scrutiny of PERS' private‑equity allocations but said any substantial reallocation by the Oregon Investment Council would be gradual and was not presenting an immediate, dramatic change to the fund's structure.

The bankers recommended the board plan ahead in upcoming budget cycles: they suggested not assuming cash‑flow relief for fiscal 2027 but urged setting aside reserves this year to smooth the expected spike in net PERS expense when the side account terminates. They also advised that a new pension‑bond borrowing should be considered only if market borrowing rates move sufficiently lower to create a clear economic advantage.

At the end of the session, board members asked the presenters to bring more detailed scenarios and potential recommendations back to the board (the presenters said additional materials could be provided and noted the district could participate in a pooled assessment organized through OASBO). The board scheduled follow‑up consideration and suggested bringing more information back around April during budget planning.

The meeting paused for a brief break at 6:50 p.m. and planned to reconvene at 7:00 p.m.