Eight legislative ideas to provide a two year reprieve to public education

Over the last decade, at least, public schools have been engaged in an unsustainable downward financial spiral because revenues and contract settlements have been systemically out of balance. In each of the last two bargaining rounds, school districts have agreed to compensation cost increases far beyond the rate of state funding increases . In this last biennium, the state froze the funding formula, while inflicting massive new special education deficits on many school districts. In the face of these unprecedented financial challenges, school districts across the state nonetheless increased compensation and then made massive cuts and sought property tax increases to make up the difference.

Systemic structural problems in state law create almost insurmountable pressure on superintendents and boards to continue this cycle of increases followed by cuts and property tax increases. In this post, I argue that Minnesota needs a time-out, a breather, from this downward spiral. I suggest that we must for two years suspend the current cycle of labor cost increases and consequent massive cuts and/or property tax increases. At the same time, the legislature needs to call a halt to unrestrained increases in special education spending, and to provide deficit relief to the districts with the largest unfunded state mandated deficits. In order to make that acceptable to the Governor, I suggest some further reforms that would significantly enhance the financial sustainability of school districts.

Summary of Suggestions. Here is a list of my suggestions. Following that list, I provide a brief explanation of each

● (1) Two year statewide legislatively imposed compensation freeze of salaries and benefits at compensation levels as they will exist effective June 1, 2011.
● (2) Eliminate (prohibit) automatic continuing contract increases that currently put all school districts in a financial hole before they even begin to bargain.
● (3) Eliminate the bargaining penalty.
● (4) Implement special education cost and revenue reforms. Require all districts to freeze spending at current levels. Fully equalize special education cross subsidies.
● (5) Permanently Prohibit the Right to Strike against school districts who have offered to increase total compensation costs by the amount of the district’s proportionate legislative increase.
● (6) Require all school districts to implement rigorous, standards based, professional evaluations of all licensed staff.
● (7) Allow School Districts to use integration revenue for programs that directly impact learning
● (8) Use the two year breathing space purchased with the freeze and other reforms to conduct a comprehensive searching inquiry into the causes public education’s permanent fiscal crisis and to propose lasting solutions.

Let me use the Anoka-Hennipen school district as an example of what is happening across the State.

In 2007, Anoka-Hennipen took a referendum to the voters seeking $30-$50 million per year in new taxes. The voters approved question 1, providing $29 million a year for five years. It also passed question 2, providing for $15 million per year. According to campaign proponents, the two levies together would provide funds necessary to prevent precedent-setting cuts: School closings, hundreds of teachers laid off, and hundreds of dollars added to activities fees.

But in 2009, Anoka-Hennipen found itself $10 million short in funding just a year after receiving that levy support. It solved this problem by taking $3 million out of its budget reserves and making $7 million in budget reductions. To produce the 7 million dollars in “savings” last year, Anoka-Hennipen had to cut 73 licensed positions and 42 non-licensed positions. Taking money out of reserves is a temporary solution. When you take money out of reserves, you are maintaining programs at a level that are unsustainable. You must eventually make that up with $3 million in additional cuts. That means, even if the State were to “hold education harmless,” whatever that means, A-H has another $3 million in cuts to make, even if it provides no compensation increases whatsoever. Thus shortly after passing a levy to prevent crippling cuts, A-H started making the very crippling cuts it had hoped to avoid.

A-H’s fiscal problems can be traced to two major problems, an unaffordable settlement, and massive increases in its special education cross subsidy. Last year, although the State provided no formula increase for the biennium, and imposed major cuts in special education on Districts like A-H, Anoka-Hennipen settled its contracts with increases that were measured as having “total package cost” increase of 4 percent for the biennium. This 4 percent represents an understatement of the amount of the increase, because for several years now, the MSBA has intentionally understated the percentage increase in bargaining settlements, so as to make school boards appear more frugal than they really are.

According to the MDE, in the last reporting period, Anoka Hennipen’s Adjusted Special Education Cross subsidy was $28 million, or $614 per pupil. Two years before, the Anoka Hennipen cross subsidy was $427 per pupil, or $22 million. There was a 50 percent increase in the deficit over a two year period, and the current state budgeting plans for further substantial increases in that deficit. Minneapolis deficit has skyrocketed to $985 per student in the last reporting period.

If the State had fully funded A-H’s Special education expenditures, A-H could have avoided all $7 million of the cuts it made, kept its $3 million in its fund balance, and added $18 million back to its fund balance. Of the $7 million in cuts that A-H made last year, all but one million could have been eliminated if the State had merely held A-H harmless from the increase in special education cross subsidy that has occurred in the last two years.

This pattern repeats itself across the State, in district after district. My proposal is predicated on the concept that we currently face a monumental sustainability crisis in public education that requires an immediate stand-still in public education. Over the last four years, the general fund formula has increased by 2 percent, 1 percent, 0 percent and 0 percent respectively. Nonetheless, to make up for the deficit created by compensation increases, districts across the state have implemented massive layoffs and in many districts convinced voters to avoid these increases by approving referendums to raise taxes.

During the next two years, I suggest, we need to engage in intensive and thoughtful review of all aspects of the Minnesota school funding system. I believed that one result of that review must be a recognition that the State must reliably provide increases in funding to school districts, but that districts must have the power to avoid unsustainable compensation increases. We need to find a way to provide fair and reasonable compensation to teachers, for if we do not, we cannot attract outstanding people to the profession. But if we continue the current system of allowing compensation and funding to remain constantly out of balance, public education cannot thrive.

Below I discuss these suggestions in more detail.

(1) Two year statewide compensation freeze of salaries and benefits at compensation levels as they will exist effective June 1, 2011. All compensation would be frozen, including district contributions to health insurance and other benefits.

Public education is in a downward spiral caused by compensation increases that regularly exceed appropriation increases; school boards, administrators, the education community cannot get out of this spiral. A freeze will not and cannot happen without legislation.

During the compensation freeze, a bi-partisan task force would meet to develop a long term solution to the financial sustainability for all aspects of public education. Notice that a compensation freeze at June 2011 levels would actually result in a cost increase for school districts for the biennium, because all districts have agreed to contracts in which year 2 compensation is greater than year 1 compensation.

As a result, the additional cost to districts of a freeze would be (Year2-Year1)/2-Year 1, which is generally a significant number. Notice also that it is really important that any freeze attack automatic cost escalation that occurs in the continuing contract. That automatic cost escalation is very significant for many districts.

My proposal of a freeze is not based on a belief that teachers are overpaid. I believe that we need to come to grips with the fact that if we want quality teaching, and if we want to make the reforms that need to be made, we are going to have to invest more in quality teaching by paying them appropriately. What we cannot do is delude ourselves in education that we can keep on with the cycle of making cuts, year after year to fund compensation increases at the expense of children. We need two things: appropriate funding to compensation teachers fairly, and fiscal responsibility that stops paying increases when there is no money provided to pay those increases.

(2) Eliminate (prohibit) automatic continuing contract increases. You should understand that under PELRA, every labor contract has a continuing contract obligation. The theory of the continuing contract obligation is that the “contract-in-effect” should continue during bargaining. If you are being paid $50,000 you continue to be paid $50,000, until the parties arrive at impasse, at least. But provisions in most contracts allow for escalators in compensation as part of the continuing contract, which impose cost increases on the district beyond the term of the CBA. PELRA should be amended to prohibit these unsustainable automatic increases beyond the term of the CBA.

Many school district CBA’s have automatic increases which by contract implement themselves automatically, in a way causes significant cost-increases independent of collective bargaining. The result is that the district experiences a significant compensation cost increase before it has begun to bargain. For some districts, this un-bargained for cost increase can be 2, 3 or even 4 percent per year. What that means is that in a year where the State freezes funding, the District takes a 2-4 percent loss before it even starts bargaining. The cost increases that are automatic in many contracts may include, lane changes, health insurance cost increases, and step increases. In theory, the District can negotiate a give-back, but basically the union is going to say, why should we give you something that we are getting right now, without a new contract. All increases should be bargained for.

(3) Eliminate the bargaining penalty. In our district, we have to offer our union a minimum of $250,000 more than we can afford each time, in order to avoid the penalty.

(4) Implement special education cost and revenue reforms. Special education is an aspect of our commitment to educate all children. But we cannot continue to meet that commitment by ignoring the cost. If the commitment is appropriate, then it is worth funding. Over the last 8 years, the Governor and legislature have allowed the spending and funding equation to fall wildly out of balance, and this problem needs to be fixed.

(A) Freeze for two years special education spending in all school districts. Require school districts that want to increase their special education spending to go through a rigorous neutral evaluation and seek a waiver. When a school district increases its special education spending, it is committing itself permanently to that new spending level, because of the maintenance of effort law. In effect, the board of education is committing the taxpayers to a permanent level of spending for years to come. Ordinarily, this would be prohibited by the rules preventing local government from committing expenditures beyond the current year. Nonetheless, all over the State, school districts are increasing their spending levels in special education with virtually no scrutiny.

(B) Eliminate all state special education mandates that exceed the federal requirements. In our district that would allow us to save about $1 million. The cost savings statewide would be significant. Until the State fully funds the special education deficit, it is unfair, and frankly ridiculous, for the State to increase the mandate to a level higher than federal law requires.

(C) During the two-year freeze period, implement a statewide bi-partisan study of special education costs and spending leading to full funding of special education subject to rigorous state scrutiny of that spending.

(D) Fully equalize the special education cross-subsidy during the two-year study/freeze period to the average cross subsidy experienced by all school districts. Fund this cost with a two year temporary tax surcharge. The surcharge could be on (a) income tax payers with income exceeding $100,000, or (b) sales tax, or (c) a surcharge on local school property taxes, with equalization. The advantage of the first of these is that it would provide an incentive to the Dayton administration to accept the labor reforms.

(5) Permanently Prohibit the Right to Strike against school districts who have offered to increase total compensation costs by the amount of the district’s proportionate legislative increase. Combine this with a budgetary policy that is designed to provide inflationary increases to school districts once the two-year emergency freeze is expired.

(6) Require all school districts to implement rigorous, standards based, professional evaluations of all licensed staff. The evaluations should include:

(A) Use of nationally norm-referenced testing results that measure both proficiency of students and progress towards proficiency

(B) A regular regimen of professional classroom observation by a trained team including administrators, experienced successful teachers, and outside team members.

(C) Every teacher should have a written teacher improvement plan with SMART goals which is approved by the Superintendent or his delegate.

(7) Allow School Districts to use integration revenue for programs that directly impact learning. At the present time, Districts who want to use integration revenue to close the achievement gap must fight with the MDE.

School districts need a moratorium. We need a break from the cycle of cuts and more cuts. We need some help from the legislature and the governor to make that happen. These ideas seem conservative, but they are not: they are pro-children and pro-future. I believe that if we have a moratorium, if we get the break that we need, we can regroup in public education and regain the public's confidence so that we can advocate for, and receive, deserved pay increases for teachers and other employees. But right now the public is tapped out; they won't tolerate more cuts and more taxes, until they see us get our fiscal house in order: if they see us spend the next two years like we spent the last two, we are going to forfeit the support of the public and send public education into a downward destructive spiral.