best of myshortpencil
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My Turn: The wheels are about to come off the school bus
By MAX MERTZ, local CPA and the Juneau School District’s auditor, Juneau
Empire
Originally posted September
27, 2003

See, also, “A Primer on Teacher Contracts” Part
One and Part
Three.

I happened to see the teachers picketing the school board the other night. They
were out in force to make their point and to right what they perceive is an
injustice. More power to them. I believe that Juneau is fortunate to have a lot
of caring teachers and, incidentally, administrators and support staff, who work
hard to give our kids a quality education. But there is a problem coming that
teachers’ desire for more money seems to be at odds with.

Here
we have an example of how to say you wish someone could have something, and top
it with accolades of desert, while at the same time (below) presenting the facts
that suggest they can’t have it. Anytime it’s impossible for someone to have
what they want, it’s always good politics to say you’d like them to have it and
they deserve it. Such statements are almost always made more for the benefit of
the bearer of bad news than the recipient of it, which makes judging their
genuineness problematic.

Because of poor market performance, bad actuarial assumptions and other causes,
the twin retirement systems that most government employees in Alaska are
participating in, PERS
and TRS,
are going to have to substantially increase the contributions that the school
district makes on employees’ behalf in fiscal 2005 (the year that begins on July
1, 2004). The increases will be from the current 12 percent of salary to 16
percent for teachers, who are in TRS, and from about 8 percent to about 13
percent for other employees, who participate in PERS. Calculate it out and this
means that the district will have to pay about $1,150,000 more in benefits for
district employees next fiscal year over the current fiscal year. This
benefit increase doesn’t even take into account likely increases in health
insurance costs that are currently not known.

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In addition, scheduled salary scale step increases for teachers and other
district employees are projected at about $850,000 next year. On top of these
two huge cost increases is the fact that the current budget (fiscal 2004) for
the district is projected to use a little over $900,000 of the district’s fund
balance to balance the books this year. Guess what - that’s pretty much the
entire fund balance of the district. This means that the district won’t be able
to use fund balance again next year.

Add all this up and you get a budget hole of about $2,900,000 for fiscal 2005.
Where’s this going to come from? Additional CBJ (City and
Borough of Juneau) contribution? Not likely - the Assembly already funds
the district at the maximum amount allowed by state law (the "cap").
In fact, our Assembly is already using creative means to fund district
activities outside of the cap where permitted by state law. Local taxes? Nope,
due to legal equity issues - as local residents we are not even allowed to
additionally tax ourselves to cover a district shortfall. The state Legislature?
Possibly, but that would require the use of some permanent fund earnings,
additional income or sales taxes or the like. So far, they’ve proven unwilling
to use any of these means to increase revenue. And remember, they’ve got to
balance the state budget before they increase the amount provided to school
districts and other local governments.

Nope, this most likely means the district’s financial hole will be filled by
some combination of laying off a lot of teachers and other staff, cutting or
eliminating programs, or even potentially more drastic measures like closing
schools (certainly closing an elementary school would save some money?).

These are some tough issues, but the fact of the matter is, they are on the
horizon. The current school board members as well as the successful board
candidates (there are 12 candidates running for five
seats) are going to face these as they prepare next year’s budget. I’m
all for teacher’s getting paid more on top of their step increases. Certainly
they deserve to be paid well for their hard work. But I want to be sure that we
don’t have to lay off a bunch of teachers or take even more drastic measurers in
the process, something the board is likely going to have to do anyway.

Between
this article and this
prior story, Juneau residents have a complete, no-spin, factual picture of
school district finances. I commend the school, the authors of the stories and
the newspaper for doing this. In New York, all we get are school district press
releases that distort the truth, especially by reporting a tiny teacher
sacrifice as if it completely offsets compensation increases that are reported
in ways to make them look as small as possible. (See, e.g., Carl Strock’s [Saratoga
Springs] teachers’ raises more than billed.)

Here we learn that salaries reported as ranging
from $33,591 to $64,694 actually result in earnings or total compensation
of between $46,222 and $81,057 per year. That means the public hears teachers
are paid between 25% and 38% less than they actually earn! Pension
and health insurance contributions aren’t just given away because teachers are
good people. They are part of the pay. Based on a
survey from Education Week, this means that these teachers are earning
between $28.39 and $49.79 per hour based on total compensation and time spent on
school work outside the normal school day. (Yet, at these hourly rates,
teachers routinely complain they aren’t paid for work done outside the normal
school day. See, e.g., Teachers
threaten new tack).

But hold your polar bears!
Teachers want a step increase. The school board has agreed to give it. I
don’t know how much a step increase is worth in Juneau–it depends on how many
steps are in the salary schedule–but here’s the Fairbanks
(Alaska) North Star Borough School District’s salary schedule. As you can
see, its bottom and top salaries are very close to Juneau’s. On this salary
schedule, a step amounts to an average 3.1% per year. (In Scotia-Glenville a
step averages 3.5%). 3.1% step increases are way above what most workers and
many teachers receive. (See, Florida
lawmakers consider paying teachers $100,000).

So, based on the school district’s offer, which includes a step increase for
all but the top-step teachers, the total percentage increase in compensation
being offered to teachers ranges from 4.5 to 8.2%! The teachers want a
compensation increase of between 6.3 and 9.9%! You
see how a modest request for a 2% increase in salary really translates into a
huge 9.9% pay raise? Teachers are no dummies when it comes to concealing the
true amount of their compensation increases and school board members play along
to save their political hides. Under the
teacher’s plan, a first year teacher last year would see an hourly increase in
compensation of $2.81 an hour to $31.20 from $28.39. A teacher on the top step
would receive an increase of $3.14 an hour to $52.93 from $49.79.

In my opinion, it is fiscal malfeasance during times of economic difficulty
to offer public servants increases in compensation that exceed the rate of
inflation unless the residents of the school district can afford it or the
employees offer something of equal value in return for the increase above the
rate of inflation. By "afford it" I mean at a minimum the roads
are fixed, the elderly and poor have adequate food, housing and medical care and
the schools are properly supplied with teachers, technology, books, libraries
and classroom space. If any of these are lacking, the tax money should go
to these before giving employees inflation-busting raises.

With median household income, when adjusted for inflation,
falling
1.1 percent to $42,409 last year and inflation running under 2%, the
teachers’ demands and the school board’s offer are a disrespectful
"slap in the face" to students and taxpayers.

So, how is it that school boards offer, and teachers demand, compensation
increases far exceeding the rate of inflation? It’s simple. First, the
public believes teacher compensation is much lower than it really is. Second,
the public is misled by reportedly small increases in salary that mask huge
increases in compensation. Third, teachers hold the power to strike and the
ability to leverage parental inconvenience with resultant childcare costs into
higher salaries, and/or they hold the power to compel mandatory arbitration
before hearing officers that routinely require school districts to compensate
teachers at rates much higher than inflation.}

The right to strike or to compel mandatory arbitration for total compensation increases in excess of the rate of inflation on salaries exceeding the national average by more than 1%, adjusted for local living costs, must be terminated for all government workers, including educators. If public employers and school boards want to offer more, it’s their choice. Moreover, increases in compensation should not be stated in terms of fixed percentages, but in terms of annualized inflation rates. In all cases, increases in compensation above the rate of inflation must be earned, not given away.

Note: I have telescoped the pension increase into the
current year in this example, however, I do not believe it is a distortion of
the truth. Next year, when the pension payment increases are required, teachers
will want a cost of living increase plus additional contributions to their
health insurance premiums, which are likely to rise about as much as they rose
this year. Moreover, contracts often cover three or more years. Finally, even
without counting the increase in pension costs in the current year, the teachers
are seeking raises of between 3.6% (for top-scale teachers) and 8.1% (for the
rest), including the step and health insurance increase.

When it comes to bad news, NY government and schools always seek cover. In this
case, they blame the stock market for increased pension costs knowing everyone
understands the market has fallen and they aren’t responsible for that. What you
rarely hear about is the part they are responsible for–salaries rising faster
than inflation and automatic cost-of-living increases. And while people are
living longer, that doesn’t mean the increased pension costs can’t be passed on
to the teachers rather than the public. As noted above, Alaska teachers
contribute 8.65% of their salaries toward their pensions. New York teachers pay
3% of their salaries for their first 10 years towards their government pensions
and nothing after that.