Tuesday, January 25, 2011

Testimony in Favor of SF 0056--the temporary hard freeze

Jerry Von Korff
Bruce Mohs
School Board Members–St. Cloud District

Written Testimony of Gerald W. Von Korff
and Bruce Mohs
In Support of Senate File 0056

Please accept the following written testimony in support of Senate File 0056, the mandatory hard-freeze for employees of public school districts and charter schools. We are both entering our eighth year of service on the St. Cloud Board of Education, a District with about 9600 students. Both of us have served as board chairs. Both have served as bargaining representatives for the district. Bruce Mohs devoted his career to teaching and was an active member of his teachers union. Both of us are lifelong Democrats. Our board of education is in the process of deliberating on its legislative position and has not yet taken a stand on this legislation. We write on our own behalf, because we believe that SF 0056 is one component of a temporary fix to the financial crisis facing school districts in Minnesota. We both believe that the solution to this crisis will involve relief on the cost side and on the revenue side.

It would be a terrible mistake to support SF 0056 on the grounds that teachers are overpaid, because they are not. Teachers are on the front lines of the most important work that government has to do in Minnesota--to strengthen our economic future by assuring that the next generation is well educated. And that job is getting harder, not easier. It is getting harder, because the standards that they must comply with are getting more demanding. It is getting harder, because we have shifted to a two-earner culture, where parents have less time of their own to invest at home in meeting their traditional responsibilities towards education. It is getting harder, because more of our children live in poverty, more of them are coming to school not speaking English, more of them are coming to school without the fundamental school readiness skills, and at the same time, we need more of the next generation to do far better than the last. In the long run, we must, in Minnesota, find a way to provide the funds to keep and attract quality education professionals in the classroom.

Minnesota faces catastrophic destruction in public education. In the last four years, the funding formula rose 2 percent, 1 percent, 0 percent and 0 percent respectively. After a brief respite, the special education deficit is on the rise. At the same time that education revenues are stagnant, school districts all over the state – including school districts that have already engaged in massive program and staffing cuts-- nonetheless agreed to settlements with their education professionals that will wreak another round of financial destruction. Here are some examples of the total package cost of settlements as reported by MSBA. The percentages reported by MSBA are lower than the actual percentage increase, because MSBA has adopted a formula for reporting increases that intentionally understates the increase, and the understatement is more significant for the higher percentages.

Total Package Cost Increase
(MSBA Understatement Method)
2009-2011 Settlements

Albany 3.3 percent
Alexandria 4 percent
Anoka-H 4.19 percent
Burnsville 5 percent
Hopkins 5 percent
Lakeville 5 percent
Little Falls 5.8 percent
Melrose 5.8 percent

Milaca 4.1 percent
Rochester 5 percent
Roseville 6.4 percent
Sauk Centre 4 percent
St. Cloud 2.4 percent
Stillwater 6 percent
Virginia 5.3 percent
Wayzata 6.8 percent

While some of these districts are taking money out of their reserves to fund these settlements, others have already implemented huge cuts that have already shocked their citizens. Even the Districts that have used reserves will discover, of course, that when you grant compensation increases out of reserves, the following years, huge cuts will follow. Under the current bargaining system and the current ethic in Minnesota’s educational governance and leadership, school boards have been unable to withstand the bargaining pressure that drives them to pay what they cannot afford.

The Opponents of SF 0056 say that it represents an assault on local control, but that argument ignores the overwhelming pressures that cause local boards to increase compensation costs beyond what they can afford: Among these pressures are the following:

Automatic Continuing Contract Increases: While public education labor contracts extend for two years, so that they can take legislative appropriations into account, most school district contracts contain significant built-in compensation increases that extend beyond the two year contract term, because of provisions of PELRA. The amount of these increases can be very significant, and in tough times, will exceed substantially the amount of revenue increases provided by the legislature. The district can charge the cost of these increases to the total package agreed to, but doing that when the state gives us zero, would require actual wage decreases to recover the unaffordable increase. If the continuing contract costs exceed what the District can afford, at the table, labor takes the position that “we already have these increases, so you have to give us more.” When you look at the total package increases above, you should ask, how much of this was agreed to, because of the continuing contract costs imposed by PELRA.

School Board’s Believe in their Educators: Overwhelmingly, we school board members believe in our professional educators. The worst part of our job, is sitting across the table and arguing with them about compensation. As I said above, we know that their job is getting harder. We know that we are asking for better results, even while in many districts more of the students we are putting in their classrooms present greater challenges. We cannot look them in the eye and say, you don’t deserve this raise.

The Strike Threat is far more powerful under open enrollment: Under open enrollment, the threat of loss of students to neighboring districts, charter schools, and private schools threatens long term financial destruction. If garbage workers go on strike, the garbage business doesn’t move to a neighboring city. In addition, in today’s two-earner environment, the strike threatens to leave children at home unattended.

The Shroud of Secrecy Surrounding Collective Bargaining avoids public review of the consequences of settlements. For many reasons, school boards and labor refrain from discussing the true consequences of the compensation increases that are granted. In order to understate the cost of settlements, we refer to a settlement that increases compensation costs substantially as a “freeze.” In order to make a deal, there is extreme pressure on the negotiators to structure agreements with hidden long term costs.

Pay Structures Place Enormous Pressure on Negotiators to Drive Compensation Costs Upward. The step and lane system does not provide increases to all teachers. That means that if a district grants steps, lanes, and health insurance increases, at tremendous cost, a significant number of teachers receive no increase. That forces negotiators to demand an increase in the entire pay schedule, on top of steps and lanes in order to deliver increases to all members. In addition, teachers nearing retirement, many of whom have used up their steps, see their last five years compensation as critical to the calculation of their pensions.

A pay freeze is not a permanent solution. We cannot attract quality education professionals to the teaching profession if we announce that our long term plan for the future is to freeze pay. The central fact that must be addressed, is that the State budget is currently shifting heavily towards medical care costs and custodial care costs for seniors. As a state, we must confront the fact that we must reward teachers appropriately, and that is going to require substantial increases in the education budget over the long haul. Reforming the step and lane system is a good idea, but reforming it by reducing the total cost of compensation will not achieve the educational improvements that we need. If the purpose of the freeze is to reduce teacher compensation over the long run, then it is a terrible idea.

We face, however, an emergency that requires us to take drastic steps to bring revenue and costs.

We want to close with some examples of the kinds of issues that school districts are facing.

St. Cloud: Our special education deficit is over $8 million and growing, despite the fact that we have virtually frozen special education spending for four years. Based on current projections, our special education deficit will rise by $350,000 per year, $700,000 for the biennium, even if we continue to freeze special education expenditures another two years. Approximately one million dollars of that deficit is accounted for by state special education mandates that exceed the requirements of IDEA. Our “continuing contract” costs, if agreed to in bargaining, will include $300,000 annual increases, $600,000 for the biennium, in health insurance cost increases and lane improvement costs of $180,000 per year, $380,000 for the biennium. Many school districts have significantly higher automatic continuing contract increases. The increased TRA and PERA costs imposed in the last session will increase our pension contribution cost by $500,000 for the biennium. All of these cost increases would occur if we impose the “hard freeze” under S.F. 0056. Our district has faced rising child poverty and significant increases in the population of non-English speaking students.

We have tried to confront theses challenges by cost containment measures as well as the imposition of an OPEB levy (which we could impose as a result of comprehensive post-retirement sunset agreements). We are cushioning children from the impact of the financial crisis, in part, through use of stimulus and other one-time funding. As of 2003-2004, when we joined the Board of Education, our unreserved fund balance was negative. We have restored some of that balance, but as a result of the fiscal impact of the special education deficit, we still stand as a district with one of the lowest unreserved fund balances per student.

We are not alone in St. Cloud in facing a crisis that derives from funding shortfalls, unfunded mandates, and labor settlements that are fair in the abstract, but which outpace our revenues. Here are some other examples of what school districts are facing.

Lakeville settled its teacher contracts at well over 5% last time. That’s 5% out of nothing. So, the combination of large compensation increases and frozen revenues has been an even more massive cut this coming year, even before the next legislative session. If Lakeville experiences more compensation increases next year, catastrophe is going to ensue:

Lakeville School District, with a student population of about 11,000, is facing a $15.8 million budget deficit for the next two years. District administrators have proposed to cut the equivalent of 100 full-time jobs next year, as well as eliminating programs ranging from fifth-grade band to "Early Bird" classes offered to high school students before the regular school day. “Class sizes would go up, students would choose from fewer electives, and funding for some sports and clubs would be cut under the plan. The "team-teaching" class structure of middle schools would be gutted. To save money on busing, start and end times at some schools would change.”

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. However, Anoka Hennipen followed that levy with a 4 plus percentage compensation increase for the last biennium.

As a result in 2009, Anoka-Hennipen found itself $10 million short in funding just a year after receiving that levy support. . To produce the 7 million dollars in “savings” last year, Anoka-Hennipen had to cut 73 licensed positions and 42 non-licensed positions. Thus shortly after passing a levy to prevent crippling cuts, A-H started making the very crippling cuts it had hoped to avoid, but nonetheless increased compensation well beyond its means.

South Washington School District. A few days ago, the Woodbury Bulletin reported on budgetary problems in the South Washington school district, (District 833), one of our state's larger school districts. The Bulletin reports that District 833 may tap most of its reserve funds, rather than cut programs, to balance next year's budget. The article continues:

The district will face an $11.7 million deficit if the School Board makes no cuts to projected spending in the 2011-12 academic year and the Minnesota Legislatures leaves aid to South Washington County Schools goes unchanged.

Now in its last bargaining round, South Washington County settled with its teachers for a MSBA reported total package increase of 4.16%. For that biennium, the District received no increase, and it raised compensation by a MSBA reported 4.16, which translates to close to 5 percent in real money.

Rosemont Apple Valley

Roseville Apple Valley increased its compensation by 7 percent in its last settlement thrusting the District into a severe crisis. "One of the largest cuts was eliminating 144 full-time equivalent staff for $7.65 million in savings. The district also reduced its supply budget by 10 percent, eliminated middle school sports including football, baseball and softball and reduced energy costs."

A recent article in the Rosemont Patch reports on the another impending crisis in the Rosemont-Apple Valley school district, another of Minnesota's largest. According to the Patch:

Superintendent Jane Berenz said at Monday's meeting that even if the state doesn't make any cuts to education this session, the district still will have to cut or find revenue for $14 million for its 2011-12 budget.


Just recently the Minneapolis School District, after holding out for nearly a year past the bargaining deadline of last January 15, finally settled its labor contracts. The teacher settlement alone will cost an additional $10.9 million. The District's refusal to pay these increases, originally, had cost it an $800,000 fine. Before settling for these increase, the District had projected "a huge looming budget deficit of $30 million to $45 million next year." Once the tentative settlement is approved, if it is approved, "negotiations will have to start again this summer for the next school year's contract."

This pattern repeats itself across the State, in district after district. We are supporting SF 0056 as a temporary solution because Minnesota needs a time-out from these massive public education cuts. The only way this is going to happen is for there to be a time out from compensation cost increases and a time out from revenue reductions. If a machine constantly injures people, we don’t say that we don’t need to fix the machine, because the workers who use it are careless. We fix the machine. The machinery of Minnesota’s education finance is broken, and it is broken in two ways. The State has refused to fund education adequately, by failing to provide regular and reliable increases to the funding formula and to special education while mandating increased costs. . But at the same time, the last decade proves that school districts cannot withstand the bargaining pressure that forces them to increase compensation faster than they can afford. Both aspects need to be repaired.

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