Tuesday, February 1, 2011

Unfunded Step Pay System Will Destroy Public Education

I've been running a series on cost drivers in public education. On Sunday, I finished a series of posts on health insurance costs. I argued that the skyrocketing cost of health care costs, and especially health insurance, makes it impossible for public education to stay sustainable, if school districts attempt to hold employees, or even some of them, from increased health insurance premium increases.

Today, I want to post about another cost driver that deserves careful review -- the system of step increases which reward education professionals for longevity of service. The step system is part of what is known as the "single salary schedule," which rewards all teachers the same, based upon longevity (steps) and training (lanes).

The system of step increases, and the single salary schedule system of which it is a part, permeates public education across the country. When introduced, it was designed to address some major issues with previous compensation systems. Proponents believed that it would prevent gender inequities that had previously existed in public education. In some states and some districts, there was a perception as well that without a pay schedule, raises might be distributed as a form of patronage, distributing the best pay increase to the friends or favorites of school leadership. Without a systematic pay system, there is always a danger in a politically driven system that pay will not be distributed based on merit, but rather on political support inside or outside the organization. Also, proponents of step-based pay schedules believed that a fixed schedule would attract more qualified persons to the profession. Since teacher pay had been historically low as compared to some other professions, the idea of a moral commitment to regular pay increases found in a schedule might keep teachers from leaving education.

Debate about the single salary schedule, and especially steps, has two aspects, a policy aspect and a financial aspect. The single salary schedule has been under increasing attack on many fronts, these days. For example, a report "Teacher Compensation and Teacher Quality," by the Committee on Economic Development argues that:
The so-called “single salary schedule” which structures how most teachers are paid is too rigid, resulting in perennial shortages of teachers in some subjects. It rewards teacher characteristics (years of experience and academic credentials) that are not strongly linked to student learning, and it ignores measures of teacher effectiveness in the classroom. Recent research documents how teacher resources are misallocated across schools (to the detriment of the most at-risk students), a misallocation that results in part from the lack of monetary incentives for teachers to take on the toughest assignments.
Today's post, however doesn't take a stand on these pay- policy issues. I want instead to take a look at the arithmetic of steps, and how that relates to the structural issues that confront us in school finance. Is the State of Minnesota providing sufficient revenue to sustain step-based salary schedules across the State? If not, is it realistic for legislators to wish away or will away the step system by starving it to death economically? If the step system disappeared, is it realistic to believe that what replaces it would really be any cheaper, and if it were cheaper, would that be a good thing in the long run?

The arithmetic of steps works just fine, when the State provides enough money to school districts to cover the cost of two years worth of step increases, any health insurance cost increases absorbed by the district, plus some salary schedule improvement to provide increases to teachers who earn no step increase because no step movement is provided at their position on the salary schedule. But when state funding increases are not sufficient to do that, the step structure can lead to friction between labor and management, and often to significant reductions in programs, increases in class size, or other financial retrenchments. For this reason, its important for policy makers to understand the arithmetic of the step system as it exists in Minnesota school districts.
Before I do that, however, I want to pause to point out that this issue of labor costs is not the most significant financial challenge that faces school districts. I say this, because my posts are discussing labor costs arithmetic right now, and I don't want to leave the wrong impression. By far the greatest financial challenge that is driving school districts towards financial destruction is the bankrupt special education funding system. In FY 1999 and 2000, the difference between state mandated special education spending and revenues to pay for that spending was about 350 million per year. The Department of Education is projecting that based on current trends, that difference--that shortfall in funding for mandated spending compared to state and federally provided revenues--will rise to over $700 million per year by FY 2013, or $1.4 billion for the biennium that begins with 2013. During that same period, total state and federal mandated special education spending in the state of Minnesota (not counting the $5000 in regular funding provided for all students, including students with disabilities) will more than double to two-billion dollars. Yet to date, no Republican nor Democrat has introduced any legislation designed to address this problem, nor has the Dayton administration even mentioned it as a problem. If this unfunded mandate were funded, many school districts across the state, including our own, could eliminate their operating referenda completely, and actually be better off. So let's not lose site of a sense of proportionality. I'm talking about steps today, but the elephant in the room, is the mandate-deficit that nobody wants to fix.
So with that sermon, back to the arithmetic of the step system. Here is a short summary of the issues that confront us when revenue increases from the State are non-existent or at the low end.

In the years that the State fails to provide adequate revenues to fund step increases, financial chaos results.

Step systems still create a class of employees who receive no increases from the single salary schedule: Under almost all step systems there are employees who are at a step level that doesn't provide an increase. In our own school district here in St. Cloud, almost half of the steps on our grid provide for no salary increase. The step movement is concentrated in the first 7 or 8 years of longevity, and in the following years, there are numerous years in which an employee receives no step increase. The total cost of step increases is relatively high, but not all employees receive the benefit of that cost. As a result, at bargaining time, there is tremendous pressure on the labor representatives of teacher to provide step increases plus an upward increase in the entire salary schedule so that all members receive some form of increase.

The number of "empty steps" and their distribution varies from district to district. In some districts most, or all, teachers in the range of steps (that is 12, 20 or more) get step increases, but the amount of any one step increase may be reduced because there are more steps to pay. The amount of the step increase in some districts may be higher at some steps than others. In the St. Cloud District, our first 7 or 8 steps are all filled in. But in later years, there are a number of "empty steps" where the teacher receives no step increase at all. The District's cost of the first 7 or 8 steps is much higher, then, than the following years, because the schedule is designed to move teachers rapidly upward at the beginning, meaning that there is less step money available in later years.

Step systems create a perceived automatic cost increase that suggest to employees that when management delivers only step increases, employees have experienced a pay freeze. This freeze, which is called a soft-freeze, denies many employees a pay increase, because they are in a step free zone of the pay schedule, as I stated above. Employees perceive the step increase as nothing more than what they were expecting all along, and they have a great deal of difficulty understanding why the District is suffering financially when they personally did not get a raise.

In some school districts, step increases occur after the contract term is complete, during bargaining. If the State has not provided sufficient funds to pay those step increases, the district is losing money even before bargaining has begun.

Minnesota legislators and the governor need to come to grips with the arithmetic of step increases. They should begin by getting financial information on the actual cost of the system as it exists in Minnesota. They would be fooling themselves to think that step increases are going to disappear as if by magic and that somehow raises are just going to go away permanently, without an adequate replacement. But if legislators refuse to fund the cost of step increases, and if school districts continue to pay them, public education is destined to die a slow and painful death.

Excess Cost-Aid proration
Lane Improvement Costs
Increased TRA Costs Imposed on Districts
Health insurance, Part I
Health insurance, Part II
Health Insurance, Part III

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