HUBER HEIGHTS — The federal government requirement for local government agencies and schools to begin reporting their share of unfunded pensions as a liability on their balance sheets next summer, has already had an impact on the Huber Heights City Schools.
“Moody’s every year, they come back and review all of our financial records, and based on the upcoming pending release and us having to report that, they have downgraded our bond rating,” said Huber Heights City Schools Treasurer Ann Bernardo.
Bernardo said the report from Moody’s indicates that part of the reason Moody’s is downgrading HHCS “is because we have to report that pension liability.”
Moody’s downgraded the rating on the Huber Heights City Schools general obligation bonds to A1 from Aa3, affecting $76.2 million of outstanding general obligation unlimited tax debt. According to Moody’s, “the downgrade to A1 reflects the district’s history of operating deficits resulting in significantly narrowed fund balance and cash reserves.” According to Moody’s, the rating also “reflects the district’s moderately sized and steadily depreciated tax base; modest declines in enrollment, high debt burden; and elevated exposure to unfunded liabilities of two cost-sharing retirement systems.”
Moody’s examined the potential impact of elevated pension liabilities on the HHCS. “The underfunded status of the plan raises potential operating risks as the state could require growth in school district contributions going forward,” according to Moody’s.
Moody’s also downgraded the rating on the district’s certificates of participation to A2 from A1.
When asked if this liability is appropriate for HHCS to have to report, Bernardo responded “absolutely not.”
“Because we have paid our obligations to both State Teachers Retirement System (STRS) and School Employees Retirement System (SERS) already,” explained Bernardo. “We have paid everything that we are required to to the two retirement systems. We don’t have any liability to them because we have paid our portion.”
Bernardo said that to the average reader, it will look like HHCS has not paid their portion of retirement debt.
“And that is absolutely untrue,” said Bernardo. “We have paid our obligation for retirement. It is now at this point and time reflecting a liability that is not ours.”
Bernardo said that the SERS and the STRS will calculate the amount of the new liability that the schools will be required to report on next summer based on the size of HHCS payroll.
Don Jones, Assistant City Manager of Huber Heights, said he does not think it is a good idea for local governments to report their share of Ohio’s unfunded public employee pensions.
Jones said that unless you are a city with its own pension plan, pensions such as the Ohio Public Employees Pension Fund or the Ohio Police and Fireman’s Pension Fund, these public pension funds are the responsibility of the state of Ohio and the pension itself.
“By placing these liabilities on the books of a city, it really actually overstates that true liability because there is no actual legal liability on the part of the city to pay a pension for anyone,” said Jones. “We pay our contributions per the state mandate into the pension plan. The pensions themselves, the pension obligation, is the obligation of the state…The city has no obligation other than to pay their premiums.”
Jones said Huber Heights will not have this liability on their books this year, but will be required to report beginning next summer. When asked if the city had calculated the amount of the new liability the city will be required to report, Jones said the state has not distributed those numbers yet. He said the pension plans are the only ones who can come up with those numbers.
“They have to allocate a portion of the liability of the unfunded liability and that number changes year in and year out, it can have a tendency to overstate and understate depending on whether or not there are investment gains or investment losses,” said Jones. “…It overstates the liability from now on because that liability doesn’t exist with the city. Now, if the state comes back and changes the law, then that might be okay. But right now, in Ohio, it doesn’t make any sense.”
When asked if this new liability will have an effect on the city’s ability to issue bonds or borrow money, he said, “Who knows?”
“It could easily have a liability because all of a sudden, everybody’s books are going to go negative, because it’s a big liability and it didn’t exist before,” said Jones. “It’s not comparable with other states, you need to do it on a state by state basis, that’s why this rule doesn’t work for the state of Ohio.”