In 2003, the Gladstone School District made an approximately $16.5 million bet. Anytime pension bonds are sold, the seller is betting that more money will be earned on those investments than the cost of debt.
For two decades, Gladstone’s bet paid off nearly 100%, saving the school district nearly $16.2 million over the past two decades on costs for the Public Employees Retirement System (PERS). According to financial experts Piper Sandler, the benefit of offsetting PERS liability and increased funding for Gladstone students from approximately 2005-2024 was “absolutely amazing.”
Piper Sandler Vice President Brenden Watkins added that the school district’s bet would be “very hard to replicate anywhere else.” Not all school districts have enjoyed such a lucrative and substantial bet as Gladstone. The first five years of investment returns and the borrowing rates are the largest factors in determining the overall likelihood of investment success.
Gladstone is now in a position where the PERS side account is set to end in December 2027. Should the district soon invest in new pension bonds? That’s a hard “no” according to Piper Sandler representatives who presented to Gladstone School Board members in December.
Piper Sandler recommended waiting for borrowing rates to fall below 5%, ideally to around 4%, before considering new pension bonds. Current rates are too high to justify new issuances, in addition to the district’s current pension-related costs increasing as our side account fully depletes.