Rolling the dice

by Loren Martell

Photo credit: Ted Heinonen
Photo credit: Ted Heinonen

I’ve often wished I could be a fly on the wall in the school board conference room, where closed meeting are held, behind the public dais.  Needless to say, I would hear some very interesting things that never reach the ears of the general public.  
During the last teachers’ contract negotiation, I was particularly curious about what was being said in private.  I wondered how potential pay-and-benefit increases were being addressed, given that our school district was obviously skidding downhill financially.  Poking around and talking to staff, I discovered a very interesting fact.  The closed meetings become open to the public after the teachers and all the other district bargaining units approve their new contracts.  After the contracts were signed, I could morph into a nosy little fly and listen to every word. 

It took practically a year for all the union groups to settle their respective contracts, so it wasn’t until recently that I was able to hear what was said behind closed doors.  .  
The teachers’ contract is the largest expense for the district.  During negotiations with the teachers’ union, the school board meets from time to time, to review progress and set negotiating “parameters” for Administration        
Three closed meetings were held during the teachers’ contract negotiations. The first meeting was held on 4/18/17.  One of the primary topics was the teachers’ healthcare plan.  The district’s cost-out estimate for the teachers’ benefit package this year projects a total increase of $557,751.  Healthcare accounts for the lion’s share of the expense, at $464,998.  (Dental is calculated separately from other healthcare costs, but adds another estimated $170,000.)

Total employee benefits for the district this year are expected to consume 23% of general fund expenditures, or more than $25 million ($25,164,518.)  Teachers’ healthcare expense is projected to be just shy of $10 million ($9,942,955.) If you count dental in, the figure tops $10 million ($10,062,955.)

Opening the closed door

During the 4/18/17 meeting, a key point of discussion was the arrangement between the district and the teachers’ union for single-payer healthcare coverage.  
“The way the plan is currently structured,”  former CFO, Doug Hasler, pointed out, “they (the teachers) are able to get full payment of what their out-of-pocket maximum expense is under the plan.  For singles, the out-of-pocket maximum is $2000.  The way the plan reads now is open-ended.  Whatever the out-of-pocket maximum under the plan is drives what our payment into those accounts needs to be…I would suggest that it would be a good thing if we modified the language…”

Family coverage is structured the same as single-payer in the district, except that the maximum out-of-pocket expense is doubled: $4000.  This money is deposited, tax free, into employees’ health savings accounts every year and isn’t use or lose.  Whatever money is left remains in the account, and a new deposit--$2000 or $4000--is made by the district every year.  The total of the account rolls over and accumulates all the way to retirement.  Employees are free to take the money (along with all earned proceeds from investments of the plan) with them when they leave.  This part of the teachers’ healthcare plan is estimated to cost our public school district $1,728,000 this year.   

Mr. Gronseth agreed that if the change Mr. Hasler was suggesting (to unyoke the district from automatically covering maximum employee out-of-pocket expenses) “became a function of negotiations” it would be included in the parameters set by the school board, but also warned that it would be “a challenging item to take on.”  

As sizeable as the out-of-pocket healthcare cost is for the district to cover, it’s just part of the package.  An even larger expense is the health insurance premium payments.  
“Do we pay the healthcare premiums for singles?”  Member Sandstad asked.
“Yes.”  The Super answered.  
Our public school district pays 100% of the health insurance premium payments for single employees.   
“What do we pay for families?”  Sandstad next asked.  
“75%”
“That’s pretty good.”
“Yeah —”  Super G agreed. “not too bad.”  
“Is there a way to grandfather a change in for new hires?”  Member Oswald asked.  
The Superintendent, in response to this question, talked a bit about creating “dual levels” within the employee ranks and conceded that “it’s a strategy.”  
Some Board members, such as Loeffler-Kemp, strongly objected to taking the approach of having some employees covered more generously than others.
Member Oswald brought the conversation back to the health savings accounts. She said she’d “never heard of an employer filling up (an employee’s) account.  I’ve never heard of that.  It’s always come out-of-pocket…” She said she’d had friends and other people express surprise to her over the generosity of this benefit: ‘That’s a huge thing!  That’s a great benefit!’  I understand why you’d want to hold onto that (as an employee,) but I don’t know how realistic that is, in healthcare in general.” 

Member Sandstad pointed out that health savings accounts were added into teacher benefits when the plan was linked to PEIP — the state’s public employee insurance plan.  “I feel comfortable that we’ve kept them pretty stable, but at the same time we have to hold control of some of those costs — so it makes sense to keep it there (the current amount included under contract) and have it be part of negotiations (going forward.)”

Member Johnston told his colleagues he’d checked with the Minnesota School Boards Association during the previous contract negotiations.  “They don’t track health benefits very well, but they did run some numbers for me and our benefits are pretty--”
“Healthy — ?”  The Superintendent inserted, making a bad pun.
“Yeah!”
Laughter broke out in the conference room.  
“In fact, Johnston continued, “they’re very high.  In regard to the health savings account, he (the MSBA official Mr. Johnston contacted) looked up some figures from Minneapolis, St. Paul and Rochester, and most employees pay a portion (of the money deposited into those accounts.)  They don’t get all of it (paid by the employer.)  He (the MSBA official) made some graphs for me, and this is something we should know as a school board: how we compare to the rest of the school districts…”

Sandstad countered that “there is an advantage to having better benefits than others do, in that it makes us more attractive for applicants.  It’s something that people appreciate, and I feel we should all have great coverage and not be saddled with out-of-pocket costs, but, in the world we live in — this is very good coverage.”

“And it’s a ‘me-too’ benefit, so it’s (for) everybody.”  The Human Resources Manager, Tim Sworksy, chimed in.  “I know we tend to talk only about the teachers, but it’s everybody (who is a member of a district union.)”  
“I’ve worked for the federal sector for many years.”  Member Johnston told the room.  “I pay 30%; the federal government pays 70% for insurance.  That’s pretty standard.  I’d like to give teachers these kinds of things, but we’re looking at budget deficits, here (in the school district.)  We’re looking at ways to cut costs.  We know this is an issue.  We know our health benefits are certainly pretty premier.  We should be getting more in line with other school districts, more in line with other government agencies.”

“In the last negotiating sessions,” Mr. G., our superintendent said, “20% (employee contribution to premium costs) on single-payer was our charge, and well (chuckling,) we didn’t get there.  Then we tried for 10%, and we didn’t get there (either.)”  Gronseth then stuck up for the teachers’ union, which he, not so long ago, was part of: “We can’t expect teachers to go backwards.  We can’t expect our (union) groups to go backwards.  So I think that (getting unions to pony up more for costs) would be an item that would take heavy negotiating and some financial investment that we’re not ready to make.”     

“Can we offer a cap on health care?”  Member Oswald asked.  “Can we say: ‘We have this much money to put towards that, and if you go above and beyond that, you have to absorb it among the (union) membership?’”
“Put a freeze on — ?”  The Superintendent asked.
Member O elaborated: “We can only afford to pay what we can pay: $11 million, let’s just say, towards healthcare — and if increases happen, you (the unions) are going to have to start paying 10%, or you’re going to have to absorb those costs, somehow.”  After a second’s pause, she asked: “Is that too generic?  Is that something nobody understands?  I’m getting a lot of blank stares (apparently, from everyone in the room.)”

“The HR Manager, Mr. Sworsky, who has been through many of these negotiations, said: “One of the things that happens with the (teachers) bargaining group is that when we moved to PEIP, we actually maintained very small increases (in overall health coverage) compared what the national averages were--”

“Negative — .”  Mr. Gronseth chimed in.  
“Yeah.”  Mr. Sworsky said, agreeing with this ‘negative’ assessment.  “And they (the teachers) have a running total of that, and they’re saying, ‘You want to do this to us now, when we saved you ‘X’ amount of millions of dollars.’  It’s flawed logic, but they kind of believe that.  But having said that: to have totally paid health insurance, whether it’s single or family, is totally unheard of in this day and age…”  He further described the bargaining difficulties around the issue, then equivocated: “It’s kind of (become) the cost of doing business.  I hate to say it, but we have to look beyond some of that.”  

The cost of doing business is going to continue to climb.  No new concessions were carved out healthcare benefits in the recently completed teacher contract negotiations. 

Meeting two 

The middle meeting, 5/31/17, was held so that Administration could get the go-ahead for negotiating four years (two, two-year) of contracts with teachers.  Friction between some Board members grew fairly intense, when Superintendent Gronseth mentioned that teacher representatives had expressed concern about comments member Welty had posted on his blog about the negotiations.  

Member Harala dressed Welty down with the most pointed ire: “We want our negotiations to go well, and we don’t want what happened, historically, the last time you were on the Board, when you had to quit being Chair and the voodoo doll and all of that stuff--we don’t need that!  What we want to do is move forward and have healthy conversations with our staff…”

“I will operate the way I think makes the most sense for me.”  Mr. Welty responded.  “I’m quite familiar with what took place in the past and make no apologies for it.  I probably prevented a strike.”
“That’s fine.”  Harala shot back.  “We’re not moving towards that (a strike.)  You were the leader at that time; it didn’t work.  And now you don’t have that leadership role on our Board.”
Mr. Welty fired back: “Well, you’re speaking as though you have a great deal of knowledge about what took place at those negotiations a long time ago, and you were in third grade at the time.”
“Excuse me!  I would ask that you not use such age-ist comments!”
I’ll make an age-ist comment about this internecine squabbling.  It’s probably getting pretty old, so I’ll move on.    
 
Meeting three   

The last meeting was held on 6/5/17.  The most striking part was that nearly everyone in the room openly admitted the Board was poised to approve two, two-year contracts with teacher salary increases district 709 could not afford.  Member Sandstad expressed the dilemma best. 
She began by asking: “Can we make years 3 and 4 (the second two-year contract) conditioned upon a successful levy referendum?  Because, without a successful referendum, this makes me a little nervous.”
Member Welty responded: “I don’t think the teachers would want to gamble.  That would be a very novel tactic, not necessarily a bad one--”
“But it makes economic sense not to make promises you can’t deliver on,”  Sandstad said, adding worriedly, “if we don’t — I mean, we’re going to have HUGE class sizes if we’re part of the 75% (of school districts) that aren’t able to pass their referendums these days.”  She expressed worries about State funding, then observed: “We’re going to be on the hook, and that makes me very uncomfortable.”  She said she’d love “to pay teachers and our staff much more than they get, but we only have what we have — and, I don’t know, maybe this is something we always do, sort of gamble on the future — ”

“A bit.”  The Superintendent inserted.  
“It is a gamble.”  Member Welty chimed in.  
The taxpayers of Duluth were the ones who lost in this gamble.  Instead of all the ubiquitous “Think Kids!” promo for the levy, some of the yard signs should have read: “Think Teachers!”  
As the above conversation clearly shows, the district’s pitch for the levy was to some degree another bait-and-switch hustle.  Everyone in this closed meeting knew a sizable portion of the referendum money would have to be directed towards employee compensation, to cover contracts that exceeded revenue.  

Only five months after this meeting, ISD 709, flat broke, its reserve in the red, had to cut $1.5 million from operations.  Compensation increases for district employees will add a total cost in the neighborhood of $10 million to the expense side of the ledger over a four-year span (last year, through 2021) — factoring in educational levels, length of employment and salary jumps for teachers, pay increases for all the other bargaining units, as well as district-wide healthcare and other benefit increases.

Without the levy money, the school district would already be rapidly circling the drain, in catastrophic fiscal shape.  I really hate this gamble, especially when they use my money to roll the dice!