By Jenny Neyman
By the dictionary, fiscally conservative is a simple term — the economic philosophy of prudence in spending and debt.
As applied to the Kenai Peninsula Borough School District budget, as it’s being hashed out in contract negotiations between the district and the Kenai Peninsula Education and Support associations, however, the term becomes more complicated, as both sides lay claim to the concept.
For the district, being fiscally conservative means hedging against rainy-day scenarios of rising costs and/or decreasing funding, and avoiding as much budgetary uncertainly as possible. For the associations, which want to ensure parity in compensation and no surprises in health insurance contributions, fiscally conservative means not bloating a budget by squirreling money away in various funds and savings accounts when it could be put to immediate use.
“So you compare all three years here, we’re pretty much spot on,” said Matt Fischer, a teacher at Soldotna Middle School and a member of the KPEA bargaining team, comparing the associations’ and district’s latest proposals on salary and health insurance conditions. “The difference is kind of the theory of how we get the money to the employees.”
Bargaining teams for the district and associations have been meeting since last year to set three-year employee contracts that were supposed to begin with this school year. Even after a round of mediation, talks deadlocked at the end of June, when the old contract expired, snagged on the high-dollar areas of salaries and health insurance. Arbitration began Monday, continued Tuesday and is scheduled for Oct. 5. On Sept. 21 the associations invited the district back to the table, and the teams met Sept. 26 as a last-ditch effort to settle contracts before arbitration.
At the end of the session, the two main sticking points remained stuck.
Cost of living
On salary, both sides are proposing fairly similar numbers, through different mechanisms. The district’s proposal for certified staff calls for a 1 percent increase in salaries each of the three years of the contract, with a $600 stipend each of the three years, a $400 “bottom out” boost (for positions that have advanced to the top rungs of the salary schedule ladder and so aren’t as affected by salary schedule percentage increases) each of the three years, and an $800 “inflationary” payment only in year one, meant to keep salaries up with cost of living increases. The total in year one is $43,326,759, $43,256,764 in year two, and $43,684,564 in year three.
The district’s proposal for support staff is 1 percent increase per year, $300 stipend per year, $400 “bottom out” per year and $800 inflationary in year one.
The associations are proposing an annual increase equal to the Consumer Price Index for Anchorage, which is released on a year-to-year basis. For this year — year one of the contract — the CPI would be 2.8 percent, equaling $43,111,306 for certified staff. The CPI covering year two of the contract was released over the summer, so the associations now can plug that 2.5 percent figure into their calculations — $44,189,089 for certified staff. CPI for year three isn’t yet known. The associations are using an estimator of 2 percent, which would equal $45,072,871 for certified staff.
For the associations, inflation-proofing the salary schedule is a prime concern, as bargainers have said that employees already have lost ground in pay against rising heat, gas, electricity, grocery and other costs.
“When we have support staff and teachers who can’t afford to pay a fuel bill, can’t afford to come to work, because of the health care costs, we’ve got a problem. It’s not going to stay that way, and we’re trying to come up with a solution,” said Elaine Chalup, a teacher at Voznesenka School, with KPEA.
“You look around this community and you’ll see our employees that are bagging at Safeway, you’ll see them moving carts at Fred Meyer. They’re full-time district employees but they have to make ends meet,” said Terri Tidwell, a custodian at Skyview High School, with KPESA. “What value would I be — mind, energy and the whole works — being dedicated to the staff and students of my building if I had to come off the graveyard shift and then come to work here. It is truly happening to support employees in this district. That puts the health and safety of the students and the staff at harm.”
In a concession to that argument, the district included the year-one $800 inflationary payment in its last offer. But it draws the line at linking the salary schedule to CPI because that percentage is variable and unknown in advance for all three years of the contract. The associations presented a verbal “supposal” in the session Sept. 26 of a two-year contract, using only the known CPI amount, but the district did not accept.
The three-year CPI uncertainly is particularly unpalatable to the district when the revenue side of KPBSD’s budget — funding from the Legislature and Kenai Peninsula Borough — isn’t known more than one year out, said Dave Jones, assistant superintendent of instructional support for KPBSD.
“Forecasting revenue with the Legislature doing one-time funding is not applicable to making large increases or set increases in future years when you don’t know how much you’re going to get from them,” Jones said. “You’re saying you know it’s going to be 2.5 (percent, for year two of the contract), can you tell me what the Legislature is going to give me next year? Because I won’t know that until next May.”
The associations point out that CPI inflation-proofing was included in contracts for a good 20 years — from 1975 to 1996 — in which time the Legislature also did year-to-year funding of education.
“So how detrimental could it be?” asked Joe Rizzo, a teacher at Nikiski Middle-Senior High School, with the KPEA team.
“What I do know now — what I have to deal with now — is the Legislature that I have now,” Jones said.
Today’s Legislature is more interested in providing funding — beyond the state’s per-pupil funding mechanism — in terms of specific purposes, like money to offset busing costs, or to support career and technical education, Jones said.
“We’ve gone from funding schools on a three-year plan to funding one at a time and going into the details of how you’re spending that money. And they’re making it pretty clear that they don’t want it spent on large salary increases because that’s not what they want to fund,” Jones said, noting funding last year for transportation. “… That says, ‘We’re willing to support education but we’re willing to support it in this manner, and we’re not willing to give you monies that you can independently use at this time.’”
The association, though, responds that funding is funding, using the analogy of a scale. Even if it’s legislative funding designated for one area, it frees up general fund money that could then be put to another use, Fischer said. Following the idea of merit pay — that investing in teachers is an investment in quality education — Fischer argued that, compared to other large districts in the state, KPBSD teachers are paid less. That’s not going to entice the best and brightest to stick around.
“I look at Mat-Su district, compared by pay and insurance, I make $9,000 less. We’re the lowest of every single comparable district. How can you sit there and say you believe in merit pay and pay us $9,000 less than a teacher in a district that is not performing as well?” Fisher said.
Sean Dusek, KPBSD assistant superintendent of instruction, questions the fairness of that analogy, saying that factors can vary from district to district, such as pupil-teacher ratios, and staffing with interventionists and other specialists, which aid instruction.
“I understand your point, and we have tried to put forward something that we believe is responsible and will allow us to maintain our existing services, such as interventionists and small class sizes that compare very favorably. That’s the other side of the coin, there’s the pay and then we’ve got the class sizes,” Dusek said. “We’re trying to maintain what we currently have, that’s what our proposal is based on.
Maintaining the status quo, when it comes to health insurance, isn’t an option for the associations, Rizzo said. The district is self-insured, so the premiums paid by the district and employees cover the cost to administer the plan and pay the covered claims, with stop-loss insurance that kicks in to cover exorbitant costs over a predetermined amount.
In the previous contract, when costs overran the contributions — from an increase in claims and/or from particularly expensive claims, yet before stop-loss insurance kicked in — the district and employees split those additional costs 50-50. For employees, that could mean upward of $100 extra taken out of their pay every month. The associations have dug their heels in to avoid that in the next contract.
“We can’t continue to do this 50-50 on health care. We can’t. Teachers, and specifically support staff, they can’t afford it anymore,” Rizzo said. “… That last time around when all of a sudden we got hit with hundreds of dollars increase in health care, that made a huge impact on employees. So much so that we’re sitting at this table right now, trying to resolve this because — I’m not particularly thrilled about going to a strike vote — but this 50-50 in health care is going to push (employees) over the edge.”
The associations are proposing a per-employee cost of heath care at $1,455 per month the first year of the contract, $1,476 the second year and $1,498 the third, with the district contributing 85 percent of those costs and employees 15 percent (about $218 the first year, $221 the second and $225 the third). The district is proposing a cost of $1,600 per employee the first year, $1,620 the second and $1,650 the third, with employees paying $270 per month each year (about 18 percent) and the district the rest (about 82 percent) — $1,330 the first year, $1,350 the second and $1,380 the third.
Beyond the monthly premium, though, what’s really hung up negotiations on health insurance is how cost overruns would be assessed.
“Ultimately, what their biggest fear is, is that we’re going to go to that 50-50 and they’re going to get skewered in their health care. And, historically, they have reason to believe that,” Rizzo said.
Under the associations’ plan, heath plan contributions would stay at the 85-15 percent split, whether costs stay under the proposed per-employee monthly amount, or exceed it. Under the district’s plan, if an employee participates in the district’s wellness plan — requiring a yearly thorough physical exam — the split to pay for cost overruns would be 60 percent, 40 percent the first year, 70-30 the second and 75-25 the third, with the district shouldering the larger contribution. If employees don’t participate in the wellness plan, they would face a 50-50 split.
The wellness plan, with its emphasis on preventative care and early detection and treatment of illnesses, is expected to result in significant cost savings to the district’s health insurance plan, realized progressively in two to 10 years, Jones said.
“We believe that when we have people that go and get physicals they will find these problems that we experience as large claims before they become large claims. And that we will experience large savings from (treating a serious medical condition) when it’s little,” Jones said. “It does two things — it has savings in the year but it also has long-term savings because when it comes to stop-loss (insurance) then, we haven’t experienced those three, five, six (substantial) claims, and then stop-loss people are seeing your potential for large claims is reduced, and so the stop-loss (insurance) becomes less.”
The associations had no objections to the wellness plan with its emphasis on preventative care, but do question the district’s estimates for the per-employee cost and how much the implementation of the wellness plan could save.
The district’s proposed $1,600 health care cost per employee in year one of the contract is a 10 percent increase over the current cost per employee.
“Our health care costs have increased at about between 7 to 10 percent every single year over the last 10 years,” said Tim Peterson, human resources director with KPBSD.
In years two and three of the contract, the district proposes only raising the health care cost per employee by 1 percent. That’s because the district expects to realize cost savings by implementing the wellness plan, and factoring in an expected $1.2 million to $1.3 million savings from a change to the district’s preferred provider network, Peterson said.
“The thinking was the increase in the first year was based on historical (cost increases), and the increase in the second year is based upon savings we believe that will come from the implementation of the programs that we’ve offered,” Jones said.
The associations are skeptical, however. If the district is wrong in its estimation of cost savings or the speed in which they might kick in, and the 1 percent increases in years two and three aren’t enough to cover costs, then employees will be on the hook to help pay the overruns.
On the other side of the coin, the associations also question the 10 percent increase to the district’s proposed year-one employee health care cost of $1,600. At the end of last school year, the district’s health care account — the pool of money from the district’s and employees’ premiums — had a surplus of about $600,000, or about 3 percent variance from what those costs were estimated to be. That $600,000 adds to the $2.9 million that was already in the account. Contributions of $1,600 per employee in year one of the district’s proposed contract would swell that account even more, Fischer said. His estimate is the $1,600 would be $145 per month more than is being paid now, multiplied by 1,200 employees and again by 12 months to equal about $2 million. Socking that money away in the health care reserve account restricts it from being used for other purposes.
“I am not going to take the school district’s money, which you’re saying is tight, and put it into an account to the degree of $2 million, that can’t be touched by the district. I think that’s fiscally irresponsible when we’re overpaying something,” Fischer said. “… We’re looking at $2 million surplus that we’re going to be putting in the bank, that we can’t use for students, we can’t use it for books, we can’t use it for aides … and I want that money to go to kids.”
The district, though, finds it important to maintain a buffer amount in that account.
“It’s your opinion that we’re going to pay that ahead of time, it’s my opinion we’re going to need it, and that’s the difference between the two positions,” Jones said.
Looking at the district’s health insurance claims last year, the smallest amount of claims in a month was just over $1 million, and the largest amount in a month was just over $2 million, Jones said, for a little over $21 million in expenditures with the $600,000 surplus at the end of the year.
“So guess what, if instead of a million-dollar month you have a $2.2 million month, what just happened to that extra money, if you want to call it that? It’s gone,” Jones said. “When you’re looking at funding this year at the same amount, which doesn’t account for medical inflation and it doesn’t account for any kind of (cost) increases, there’s a possibility that just usage could put us over that.”
Nonbinding arbitration — closed to the public — began Monday, with the district and associations presenting their positions on health insurances and beginning presentations on salary. LaDawn Druce, president for KPEA, said Monday that the teams agreed to attempt to finish presentations with the arbiter Tuesday. After that, the district and associations have two weeks to submit written comments — closing arguments, in a sense — to the arbiter. The arbiter then has 30 days to submit her advisory decision. The bargaining teams then must meet again to discuss whether they will accept the arbiter’s decision, negotiate their own settlement to contracts or remain at impasse. As the process continues, the associations continue making their case that their proposal will save the district money and prevent funds from being tied up in use-restricted accounts. They hope the borough assembly and school board also hear their message.
“They’ll realize that what (the district’s) proposal is doing is just depositing money in a bank account for future use. They’re going to catch on to that, and when that happens they’re going to say, ‘You know what, we’re not going fund you guys to the cap, because look at your savings accounts,’ and then we’re going to be having financial problems,” Fischer said. “Are we using (money) for the intent the board wanted? What opportunities are we cheating kids out of because we’re not using money the board designates to the activities?”
The district also hopes its message is heard.
“What I’m basing my proposal on is what we believe to be conservative fiscal responsibility,” Jones said. “… To go beyond what we’ve offered isn’t fiscally responsible because where we’re at is already on the edge.”