School District 197 may approve a small property tax increase to purchase bonds to cover employee benefits in the coming years.

The board discussed the bond purchase during its Sept. 15 meeting before setting its preliminary levy cap for property taxes payable in 2009.

The bonds, called other post-employment benefits (OPEB) bonds would establish a trust to pay for costs related to retired employees' health care and other benefits. The state Legislature passed a law last session that allowed districts to establish the trusts rather than pay for the benefits out of the general fund.

The change in state law was the Legislature's response to new federal accounting standards that require government entities to show OPEB liabilities in annual financial statements. Previously, the expenses were recorded when the premiums were due.

Currently the West St. Paul-Mendota Heights-Eagan district pays anywhere from $600,000 to $700,000 from its general fund for costs that would be covered by the trust, said Business Director Carl Colmark. The bond issuance could also result in a one-time general fund savings of $500,000 related to severance pay for former employees.

"It significantly reduces the amount we would need to dedicate [to benefits] in the future," said Colmark.

The total amount of the bond purchase would be $11.2 million and would be paid back over an 11-year period. The estimated cost to an owner of a $250,000 home in taxes payable in 2009 is $25 if the bonds are approved.

The trust would cover benefits over a 30-year period. If the trust ends up yielding more than enough money to cover the benefits, the money goes back to the taxpayers.

"If we find out we have more than enough, we can reduce our property tax levy," said Colmark.

The board will make a decision on the sale of the bonds before the final property tax levy is approved by the end of the year. This year's maximum levy as set by the board represents a 0.5 percent increase from last year.

The small increase is largely a result in a $700,000 reduction of debt service payments the district will have to make in the coming year, said Colmark.

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