Financing the $9.7 million Clatsop Community College owes to the Public Employees Retirement System with a bond is too risky, the college board decided Thursday.
The board voted unanimously to opt out of the Oregon Community College Association Pension Bond Program.
"We don't believe that given the unknowns and risks that this is an action worth taking at the time," Clatsop Community College President Greg Hamann said.
Last month, the board decided to investigate if it would be cheaper to settle its PERS debt (a major expense for the college) by issuing bonds through the Seattle-Northwest Securities Corporation. Instead of owing PERS, the college would be responsible for repaying bonds.
The college's situation is like buying a new car. A driver can obtain a loan from his bank, pay the car off all at once, and end up owing the bank. Or, the person could accept payment terms through the dealership. One method is usually cheaper or less risky, but it takes research to find out.
One reason the board opted out is that the interest rate for the bonds, currently at 6.05 percent, can fluctuate until the February purchase is made. If the rate goes up further, the college wouldn't save as much money.
Another issue is that the state could make changes to the PERS system and lawsuits could affect how PERS is operated. These changes, good or bad, could affect the college's PERS debt.
"I'm not a financial person," board member Frank Satterwhite said. "I don't have that expertise. But I think it's the right decision."
Talk of refinancing the college's debt is a result of radical PERS restructuring at the state level.
The state discovered that it was not going to have enough money to pay retirees their PERS benefits. To try to solve the problem, it increased the contributions required by employers in the system, so that over time, the employers would put in the money necessary to cover the debt, also known as an unfunded liability.
Satterwhite had another reason for skipping the pension bonding program - the economy.
"With a strong economy the UAL (unfunded actuarial liability) could diminish," Satterwhite said. "I think there is a reasonable chance that will be the case."
Satterwhite was referring to the possibility that PERS accounts could start making more money. If they make more money, the state will be better able to pay its retirees, and employers wouldn't owe the system as much.
PERS changes are not only making colleges re-examine their finances, but college employees are looking at their bank accounts as well.
The board granted early retirement to Dave Phillips, vice-president of instructional programs and a college employee for 31 years.
"Our state Legislature passed some sweeping legislation and for people who have been in the PERS system for a long time, it has an impact," Phillips said, explaining why he decided to retire.
Phillips said he wouldn't have left until the end of 2004-05, but the risk of loosing 8 percent interest on his retirement account was too great.
"I've become pretty attached to the college, its people, its students," he said. "It's treated me well."
Satterwhite said Phillips has been a fixture at the college, sticking through the good and the bad times.
"His endurance and commitment to education and the college is to be commended," Satterwhite said.
In other action, the board passed a resolution in support of Measure 30, which leaves in place tax revenue to support education, human services and public safety.
"There is no doubt in my mind about what the negative effects of the defeat of this will be," said board Chairwoman Marilyn Lane.
Satterwhite said he supported the resolution, but questioned its impact.
"I've often wondered if passing resolutions such as these makes a difference," he said.