The Albany school district could be looking at a $3 million increase in expenses in its 2011-12 budget cycle just to cover pension contributions.

Oregon's Public Employees Retirement System suffered its worst investment loss ever in last year's economic downturn, more than a quarter of its value overall.

To public entities such as the school district, that drop is expected to lead to a large rate increase to offset the loss.

When PERS announces its advisory rate later this month - which takes effect in July 2011 - Greater Albany public Schools is anticipating a rate of at least 18 percent of payroll, up from 10.2 percent this July, said Russell Allen, the district's director of business.

The rate could change, Allen said, because the actual 2011 rate will be based on fund returns received this year and last year. But those returns would have to be at least 26 percent this year to prompt a reduction in the expected rate, he said. Returns through August were closer to 9 percent.

Bottom line, Allen said: Albany likely will be obligated to pay another $3 million annually to PERS starting two years from now, on top of any other budgeted increases.

The current rate is down from 13.5 percent in 2007, Allen said, saving Albany approximately $1.2 million per year. However, the district chose to use the savings to offset other budget increases and prevent further budget reductions this year.

Allen said he plans to provide a full report to the Albany School Board in November, following the announcement of the advisory rate.