Andover Plan Combines Pension Bonds, West Elementary Financing

ANDOVER, MA — Town officials are considering a nearly $300 million combined borrowing plan to deal with the costs of the planned West Elementary/Shawsheen Preschool building project and town's outstanding pension liabilities.

The exact details are still being set, but the town manager has brought to the Select Board a plan to ask for roughly $175 million in pension obligation bonds and $115 million for the school project at the annual town meeting.

The state would cover about $34 million of the school building cost through the Massachusetts School Building Authority.

The town recently received state approval to issue pension obligation bonds to cover its pension liabilities. The town's pension liabilities are less than half funded, leaving $165 to 185 million outstanding, and the state requires the liability to be fully funded by 2040.

According to a version of the plan Town Manager Andrew Flanagan presented to the Tri-Board in December, it would cost the average taxpayer $13,770 over 30 years, in the form of an annual increase of about $810 for the first 17 years.

Town officials say the combined financing plan would save taxpayers money relative to other options for paying off the pension liability and funding the building project. According to the same presentation, funding the school with a debt exclusion without doing anything about the pension obligation would cost the average taxpayer $13,500, in the form of an annual cost of $450 over 30 years.

"The integrated plan costs the same as only building, but does nothing about the pension obligation," Flanagan said.

The idea is that issuing a pension obligation bond would take the pension liability off the general fund budget, and that spare money would be freed up to offset the cost of integrated plan. Once the pension debt is retired after 17 years, those funds would fully fund the school project under the levy limit and go toward other post-employment benefits.

Due to interest, the pension liability cost $13 million for the current fiscal year but will grow about 8 percent a year, to over $40 million in Fiscal Year 2037. Meanwhile, the town revenues will increase about half that rate. If the town issued bonds, it would pay a fixed annual service cost over the term of the bond, ultimately saving millions on the pension costs.

Paying the pension obligation according to the existing schedule would cost the average taxpayer over $25,000, nearly double the cost of the proposed integrated plan.

At another presentation to the Select Board, Flanagan said that without the debt, the town would need a $15 million override for the pension liability just in Fiscal Year 2023.

"We know we're going to have to raise taxes if we're going to maintain services and fully fund the pension schedule," the town manager said.

He summarized the options as follows: From Fiscal Year 2023 to 2040, fully funding the pension liability according to the escalating schedule would cost about 17 percent of the average tax bill, while funding the integrated plan would cost about 15 percent of the average tax bill — and pay for a school.

The combined plan will require town meeting approval of the two debt issuances and town votes to allow the debt exclusions beyond the standard Proposition 2½ levy limit increase. Town meeting is tentatively scheduled for May 3.

The current deficit is due to years of underfunding, partially on the basis of over-optimistic investment projects. The town attempted to mitigate the problem by forcing retired employees to pay more for health insurance in 2016, but that was struck down by state courts.

Alongside the planning to deal with the existing liability, town officials are also working on reforms to prevent future liabilities, including limiting pension eligibility to full-time employees.

The Select Board is planning to again discuss the integrated financing plan at their meeting Monday evening.

Christopher Huffaker can be reached at 412-265-8353 or chris.huffaker@patch.com.