Local school districts will spend millions more to fund Public Employee Retirement System pensions next year, after an increase in employer contribution rates was approved by the PERS board last week.

Local school districts will spend millions more to fund Public Employee Retirement System pensions next year, after an increase in employer contribution rates was approved by the PERS board last week.

"We're going to have a bigger hole to fill," said Brad Earl, chief financial officer for the Medford School District, which now will see about 30 percent of its payroll going to retiree pensions. "It's a pretty substantial increase."

The district's PERS costs will climb by about $3 million annually, a large chunk of cash even for a district with a $90 million budget.

"They're coming at us again," said Earl. "But we knew it was coming."

Earl said when budgeting earlier this year, the district predicted the increase at about $2.5 million.

Although the district is expecting more funding from increased enrollment in the coming year, Earl said the money will be quickly eaten up by the PERS increase.

When adding in utility increases, step increases for qualified employees and a deficit spending budget this year, the district will have plenty of tough financial decisions to make.

"We will be looking at some changes," said Earl.

The district is launching a communication plan to get the public involved early as it builds next year's budget.

Administration hopes to plan a community summit later this fall to begin discussions about the budget process, and it plans to conduct a community survey.

The PERS system, which has school districts, cities, fire departments and other state agencies paying into a fund for retiree pensions, is only about three-quarters of the way funded, Earl said.

The district was hit with a $3 million annual increase last biennium also.

"We did expect it," said Earl. "They're still trying to fill that unfunded liability."

Collectively, the increases will cost agencies and taxpayers across the state an extra $900 million during the 2013-15 biennium as PERS looks to shore up its funding for the pensions. Efforts to reduce benefits to retirees have been rejected by the courts and the state Legislature has not made any significant changes in the system in recent years as the problem continues to worsen.

Until PERS reform in 2003, many longtime employees who retired received 100 percent of their salary rate as a pension. The reform decreased PERS amounts for all retirees who stopped working after 2003, but the state is still obligated to fund the earlier retirees at their full pension amounts.

Across the state, employer contributions will increase by 5 percentage points, from about 16.3 percent of total payroll to about 21.4 percent of payroll. School districts will pay more — on average about 26.7 percent of their payroll starting in 2013.

Facing declining enrollment for the last few years, another blow to the budget will be difficult in the Phoenix-Talent School District, said Doug Spani, district business manager.

Spani said the increased rate means another $700,000 in costs for the 2,700-student district, which operates on a budget of about $23 million annually.

"This year is going to be tough," said Spani. "We're going to have a tough budget year. Our reserves are dwindling."

Spani said the district predicted some increases, but it was surprised at how much costs will go up.

"We didn't think it would be this drastic," Spani said.

In Eagle Point, the increases will lop off another $1 million dollars from a $32 million budget that's already been tight.

Last year, budget cuts let to the district closing Elk Trail Elementary, a small rural school outside Trail.

"It's a big portion of our expenditures," said Scott Whitman, district business manager

Whitman said Eagle Point also expected the increases, and hoped they could be controlled through careful budget planning.

"We've done a lot of budgeting to mitigate this," said Whitman.

Earl said the increases cannot continue indefinitely, as districts across the state continue to cut jobs and school days in order to fund pensions.

"I think the Legislature is going to have to address this," said Earl. "Something has to be done.

"Obviously it's impacting services to kids, health and human services and public safety."

Reach reporter Teresa Ristow at 541-776-4459 or tristow@mailtribune.com.