Thursday, May 12, 2005

K-12 Forecast: Perpetual Crisis

The 2005 legislative session is in full swing, and the debate over schools is once again centered on the question of money.

The governor has proposed that $5 billion of the state’s roughly $12 billion general fund go to schools, which is slightly more than the $4.9 billion that the schools got in the last budget. Public school interest groups are saying the schools need at least $5.3 billion if they are going to avoid cuts to programs, increased class sizes, and a shortened school year.

They are correct. That is, given the constraints they operate under by virtue of state mandates and their own collective bargaining contracts, the only way they can manage to live within the proposed $5 billion allocation is to resort to these unpopular cost control measures.

The problem is that nobody in the legislature or the public education establishment seems to be willing to even have a discussion about ways to limit cost increases.

First let me explain some numbers, which come from the Oregon Department of Education. The $5 billion the governor has proposed is only part of the revenue picture for school districts. Added to this is the local revenue from property taxes, plus certain state and federal grants available to schools.

If we total them all up, according to the Department of Education, it looks like this:

Source Amount Change from last biennium
State Funding from General Fund $5.0 billion +$100 million (2%)
Local Property Tax Revenue $2.55 billion +$170 million (7.2%)
State and Federal Grants $1.2 billion +$165 million (16%)
TOTAL $8.75 billion +$435 million (+5.2%)

These numbers do not include local option revenue for those districts who receive it, or other federal grants that districts get directly from the US Department of Education, or debt service funds, capital expenditures, nor does it include several other revenue streams the school districts have access to. Leave those revenue streams aside.

The upshot is that school district funding will increase by more than five percent under this budget, according to the Oregon Department of Education. So what’s the problem? Why will a five percent increase in revenue translate into a shorter school year and increased class sizes?

Because school district costs are going up faster than five percent this biennium, and districts do not have the legal authority to control them.

One culprit is PERS. The employer contribution that school districts will be required to pay into PERS next school year went up by more than 50 percent, to about 15 percent of payroll. (Most school districts also pick up the six percent employee’s portion of PERS, which means they will pay a whopping 21 percent of payroll into the retirement system.)

School districts have no control over these costs; PERS literally has first claim on a district’s budget, and whatever is left over can be used to educate students.

The other culprit is collective bargaining. Most every school district pays its teachers according to a salary grid that virtually guarantees their salary costs will escalate by at least five percent each year, regardless of how much funding increases. In any given year, a school district has no way to control the salary escalator, since it is mandated by the collective bargaining agreement.

So, when automatic cost increases outpace the five percent or so biannual funding increase (as they do virtually every time), the only cost management tools available to a school district are cutting staff, programs, or shortening the school year. They quite literally are legally prohibited from taking rational steps to reduce their cost structure.

So that is why we can have the paradox: ever increasing funding to schools, along with ever more draconian cuts to school programs.

Is it possible for the state to allocate enough funding to schools to cover their built-in cost increases? No. If the state tried, then by the year 2013-15 budget, K-12 would consume more than the entire state general fund.

Obviously, it is time for a different conversation. All the legislature ever talks about is funding, but the fact is there is no possible way for revenue increases to match the cost increases unless we are prepared for the state to fund nothing other than K-12.

A new discussion must be centered on giving school districts more control over their cost structure.

Give them a way out of PERS. Unstack the deck in their negotiation with public employee unions. Release them from ridiculous state mandates such as CIM and CAM.

Unless we give school districts the governing authority they need to keep their cost increases in line with the five percent or so biannual increase in revenue, it is easy to predict what is in store for Oregon’s public school system.

Perpetual, deepening crisis.


Cleon said...

Good job Rob. It is most frustrating that so many folks don't realize this ruse can't continue. We need to change the way we do the business of government in whole and in this case in the way we do the business of education. The bureaucracy is smothering and sinking the ship and the only answer is "give us more money". Throwing money at the problem has yet to fix it for many years now. It is time to do something else.

Cleon said...
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ross smith said...

As a retired CPA and former CFO I am continuously frustrated by the inability to get meaningful education cost numbers anywhere -- which you supply here. It is unfortunate that the Oregonian does to lay this out the way you have, so that all Oregon taxpayers can see the eventual financial crisis developing.
What I'd like to see is a discussion of how exactly collective bargaining needs to be modified so that contracts cannot exceed expected funds available, and that excess personnel costs no longer drive the school funding picture. It would also seem that employee contracts would have to allow for their being revisited, should it be found that they exceed the funds available.

gus miller said...

Ross asks: "What I'd like to see is a discussion of how exactly collective bargaining needs to be modified so that contracts cannot exceed expected funds available, and that excess personnel costs no longer drive the school funding picture."

I believe many districts around the state have good relationships with their unions and are able to balance their costs and revenues.

I have been closely observing Portland district 1J since 1992. The district and union follow a regular pattern of allowing contracts to expire in June after several meaningless negotiating sessions in April and May. Then they start a new school year under the expired contract. In midyear there are work rule activities and occasional strike votes. Media, parents and politicians declare a crisis and find a way to come up with additional funds to satisfy union demands. Meantime all talk of workrule or administrative changes in the contract fall by the wayside. Pussycat negotiators such as Portland's board and administration are going to have to acquire some backbone if they are going to keep costs in line.

Jim Gannaway said...

I am an 8 year school board veteran. Rob has hit the nail squarely on the head. Mr. Miller suggests that school board members need to aquire a backbone while negotiating with the Teachers Union. I would suggest that this is not possible under current labor law. I have been bargaining for about six years, and can assure you that even the strongest backbone will be crushed in the legally prescribed bargaining process. I can defend this position in detail, but it would probably be a longer post than the computer would swallow. I recently testefied before the House Education Committee supporting minor reforms to the collective bargaining laws. This is the second year they have been proposed. These proposals would not fix the problem. They are only modest reforms. Inspite of this, Senator Kate Brown has declared them DOA if they ever get to the Senate. And even if they did get to the Governors desk, it is unlikley that he would support them, since he helped establish our current collective bargaining laws. Perhaps we do need some board members with a stronger backbone at the bargaining table, but that in and of itself would not sovle the problem of a bargaining table that is not level. The legislature got us into this mess and only the legislature can get us out of it. The teachers union owns the legislature, and the statewide elective offices. Until this changes, I do not see the kind of fundamental reforms that can save our schools. One could make a case that it is the voters that need the backbone transplant. Perhaps bankruptcy of our statewide school system will be the slap to the side of the head that brings them out of denial, and wakes them up to the gravity of the situation.

gus miller said...


I agree that much can be done to reduce the advantates the teachers union has in the collective bargaining process.

In the meantime I still believe it is up to school boards and administrators to bargain as firmly as they can and point out the "delay to conquer" tactics locals such as Portland Association of Teachers (Enabled by city and county politicians) have been emoloying in negotiation after negotiation.

Jessie said...

To Jim Gannaway (or others), what specifically is the part of Oregon's collective bargaining laws which cause the problem? Why does Oregon have the problems that other states do not have.
K-12 employee costs have become a serious impediment to Oregon education. We (Oregon) are laying off teachers, shortening school years, curtailing programs, enduring the second worst attendance rates in the U.S., enduring poor graduation rates at the expense of having among the highest paid K-12 employees in the U.S. (8th highest, Chalkboard project 2005). Oregon could freeze teacher salaries for five consecutive years and still be higher than 25th ranked New Hampshire (National Education Association, 2004). The above average "total compensation" amounts to more than $500 million per year above similar states of Colorado, Iowa, Wisconsin, Minnesota. Remarkably, those states also have higher academic results. Oregon could hire 5,000 more teachers, expand programs and school days, if it weren't for the added costs.
At the same time we have gone from the 25th most affluent ("per capita income")in 1990 to our present situation of 34th in "per capita income".

gus miller said...


As I posted above, teachers' unions in Oregon are allowed to start a new school year under the provisions of an expired contract. This gives them the additional leverage of threatening or taking a strike vote in the middle of a school year.

This has occurred in Portland District IJ with the expiration of every contract since 1992.

This gives the union every incentive to delay serious negotiations toward a new contract until maximum leverage has been gained. The district and the public wimpishly go along with it by not asking for a no-strike guarantee for the duration of the new school year and paying retroactively for any wages and benefits increases agreed to under duress.

Jessie said...

Thank you, Gus. Specifically, what are the mechanics involved if a school district said, "we want to hire more teachers for the good of the students. And at the same time, we will freeze existing contract levels for two years." I realize there would be a big h--- no! from the unions, but is that a possibility, given the present Oregon collective bargaining laws?

Oregon is putting itself into a financial box at this time with the divergent economic forces. We are heading downward in "per capita income" at a relatively fast pace. At the same time, public employee costs (per individual employee) are becoming very expensive. That is why many school districts are laying off personnel and why jails aren't being opened. It is not a "lack of funding" crisis, it is an "allocation of funding" crisis which has evolved over the last two decades.

gus miller said...


You are correct. As Rob detailed in his "perpetual crisis" post above and as you just wrote the Oregon school crisis is in district spending practices.

I believe that most districts in Oregon are able to work with their union representatives along the lines you describe. There are even a number of districts around the state with substantial reserve funds.

In most Oregon districts though, the union is going to insist that contract language be followed until the contract expires. Once negotiations on a new contract begin a district should be able to ask for a wage freeze, work rule changes and any other changes they deem important. On the other side, the union is free to propose its own changes.

The process is further omplicated by the strong ties that exist between the teachers' union (OEA) and the Democrat party. In most Oregon districts, when there is no more money available for salaries and benefits a contract is worked out. In Portland though, there is a systematic practice of bringing negotiations to a mid-year "crisis" wherein city and county council members (mostly Democrats) come up with funds to head off a mid-year strike. Since 1992 the Portland district budget has been "rolled up" so many times with these "one-time" funds that Portland is a budgetary basket case.

Then the news media and the Democrats blame the legislature for "inadequate funding".

The question in my mind is whether a Portland school board would have the guts to tell the politicians to butt out the next time the contract expires and tell the union they want good faith negotiations starting two months before the contract expires June 31? Then would the board and administration be willing to explore the possibility of bringing in a new supplier of teaching services to start a new school year?

Jessie said...

Thank you for your comments, and I agree. I still think there is language in the Oregon labor/collective bargaining laws (which Jim Gannaway referred) which prevent a district board from starting anew after a contract expires. I have gone 3/4 circle on this. My initial thoughts were that the unions were the primary fault of this present predicament, but I realize their primary function is taking care of membership. Then, I thought it was weak (collectively) school boards that were signing these contracts and allowing the evolution of this negative situation. My position now (and I am searching for the answers) is that our collective bargaining laws are stacked and the "pro-education" coalitions within the state are content with the "status quo", even when the best interest of students are in jeopardy.

gus miller said...


That "pro-education" or "adequate-school-funding coalition" is similar to Ronald Reagan's "iron-trangle coalitions" pushing for more spending on their entitlements. Namely those who deliver the services, those who receive the services and the politicians who push for more spending on the program(s).

Unfortunately the US is so far down the road with both political parties involved that author/commentator Tony Brown calls the US a nation of "Subsidy Socialists."

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