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Early retirement programs major reason for increased costs

Early retirement incentives (ERIs) – also known as supplemental retirement programs – are among the major reasons behind school district cost increases, according to Oregon Secretary of State Bill Bradbury.

Bradbury came to that conclusion after taking a deeper look into a December 2002 audit by his agency (May 19, 2004, follow up report No. 2004-19). Bradbury’s office estimated school districts could save $162 million per year if they spent the state average on support services.

ERIs were cost-effective a few years ago when they began. But as more and more staff retire, school boards assume a growing financial burden because they must pay more insurance premiums (employer-paid health insurance was the main benefit of this incentive).

The report notes the main cost drivers in these support service categories:

Support service   Description   Main cost drivers
Business and Other Support Services Budgeting, Payroll, Printing, Information Services, Technology, Recruitment - Supplemental Retirement
- Fiscal Services
- Technology

Student Support Services Attendance, Social Work, Health, Speech Pathology, Audiology - Salary and Benefits 

School-Level Administration Principals, Assistant Principals, Directors, Clerical Staff - Salary and Benefits

Cost controls

Health insurance: In recent years, more school boards have placed caps on premium contributions. In 1999-2000 only 48.4 percent of districts had insurance caps. By 2003-2004, 97.1 percent had insurance premium caps.

PERS: The employer contribution is a major cost driver, although very little can be controlled by local boards. The unfunded actuarial liability (UAL) still lurks, despite an improved economy – which means employer rates may be increased from 11 to 17% in the 2005-2007 biennium to help pay it.

Weaning away ERI: The bargaining trend is to reduce Early Retirement Incentives. Data from the Oregon Department of Education show the average expenditure toward supplemental retirement programs for 91 districts was 4.17 percent of the total support service expenditure.

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