APS could put risky pension bet on hold

The Atlanta school board will delay fully funding its pension fund by four years. APS will pay less than currently planned into the pension fund over the next 11 years, but will make up for those savings in the following years, eventually paying an additional $30 million.

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The Atlanta school board will delay fully funding its pension fund by four years. APS will pay less than currently planned into the pension fund over the next 11 years, but will make up for those savings in the following years, eventually paying an additional $30 million.


How we got the story

The Atlanta Journal-Constitution first reported earlier this year that Atlanta Public Schools was considering adopting a potentially risky investment strategy in order to shore up an under-funded pension plan. Reporters Mark Niesse and Russell Grantham analyzed APS financial data and investigated pension obligation bond deals in other states to find out how a similar deal could play out for APS. On Monday, the school board is scheduled to vote on a plan that could put considerations of issuing pension obligation bonds on hold.

A controversial proposal to fund an Atlanta Public Schools pension fund by borrowing money to bet on the stock market appears to be on hold.

Earlier this year, the APS board had considered selling up to $540 million worth of bonds to shore up a district pension fund, one of the worst-funded pension plans in Georgia.

But finding a long-term solution to the district’s pension woes will require more time, says a co-chairman of a board committee studying the issue.

The pension plan has become a huge cash drain on the district. It has less than 16 cents in assets for each dollar of benefits it has promised, and is essentially paying out cash nearly as fast as it comes in.

Critics called selling bonds a risky strategy that could exaggerate losses if the stock market slumps. But district officials said selling bonds could save the district money by taking advantage of historically low interest rates and giving the school system breathing room to invest the proceeds for the long haul.

Instead of selling bonds now, the APS Pension Fund Task Force has recommended the district reduce its pension fund payments in the short term. That will allow the district to avoid cutting spending in other areas while the task force works out a long-term solution to APS’s $550 million unfunded pension liability.

"It's not only about the pension plan being financially sound, it's about making sure that we're maximizing dollars for kids," Jason Esteves, a co-chairman of the Pension Fund Task Force, said. "There are all kinds of options that enable the plan to be financially sound, but not all are what's best for kids." The task force includes current and former school board members, the superintendent and an outside financial expert.

The school board will vote on the recommendation Monday.

That long-term solution could still include selling bonds, Esteves said. It could also include other options such as increasing the district’s tax rate or limiting new pension members, Esteves said, though the latter option would be unlikely to produce significant savings because most participants in the pension are already retired.

If the board adopts the task force’s recommendation, APS would delay fully funding the pension fund by 4 years. APS would pay less into the pension fund over the next 11 years than currently planned, but would make up for those savings in the following years, eventually paying an additional $30 million.

The pension debt has been building for at least 35 years. When many Atlanta teachers transferred from the school pension plan to the Teachers Retirement System of Georgia in the late 1970s, they brought most of the school retirement plan’s assets with them. About 3,100 active and retired school system employees, many of them bus drivers and custodians, remain in the pension plan which is overseen by a city of Atlanta pension board.

Incoming superintendent Meria Carstarphen, who officially starts in July, has said shoring up the pension fund's unfunded liability is among the first things she'll do once she's on the job.

Esteves said he expects the pension task force to produce a recommendation for a longer-term solution by the end of this year.

“Whatever we do, we want to make sure we do it right,” he said.