Options for Better Managing Teacher Compensation Citizens Budget Commission Realignment Committee Meeting January 10, 2011

2 Overview of the Presentation 1. Background- why school aid and school spending are crucial to the budget 2. Issues with current compensation structure Salaries Health Insurance Pensions 3. Reform Options

3 Fiscal Conditions Necessitate Spending Cuts Source: New York State Division of Budget, Mid-Year Financial Plan, October 2010

4 School Spending Critical: for NYS and Local Taxpayers School aid is “Big 3” - $25.1B – fully 32% of State operating expenses Planned growth is driving the budget gaps - $7.2B increase accounts for 40% of $17.2B gap in FY New York State Operating Spending by Major Category $78.2 B Fiscal Year Cash Disbursements Source: New York State Division of Budget

5 Salaries & Fringe are the Lion’s Share of District Spending o In NY the annual estimated cost of school district compensation is $24B (w/o NYC) o The lion’s share of any school operating budget- about 72% Source: State of New York, Office of the Comptroller, Financial Data for Local Governments, School Expenditures by Object, Fiscal Years 1999 and 2009; available at: 72%

6 Significant Growth Expected Retiring Tier 1 and 2 teachers replaced with entry-level teachers (60% of all teachers have less than 10 yrs experience) “Turnover” savings used to reduce class sizes (39% more teachers than there were in 1999) With longevity a key feature of the salary structure, these cohorts of junior teachers will rapidly become more costly as salaries grow at 5-6% per yr and fringe benefits grow at 10-15% per yr Source: Office of the State Comptroller

7 Typical Salary Progression is “Steps and Lanes” A grid that moves from left to right and top to bottom with salary increments associated with additional years of teaching (steps) and educational credits (lanes) Prioritizes seniority Collective bargaining increases on top of steps and lanes; entire scale “moves” up

8 Steps for Experience - Lanes for Educational Advancement; Plus Collective Bargaining Example: If a teacher started in at a salary of $31,910, earned a masters degree while teaching continuously until , his salary would have increased to $51,279, an average annual increase of 8.6%

9 Problems with 700 Locally- Negotiated Contracts Salaries – irrational pattern of salaries compromises quality for some districts within regions and drives costs up Health Insurance – premium sharing standards are irregular and discourage cost containment Pensions –negotiated at the statewide level and forced on locals

10 Findings on Salary Variability While the overall statewide average is high there is a wide degree of variation both among labor markets (to be expected to some degree) and within labor markets (not to be expected) Pace of annual increases varies among districts

11 Salary Variability in Different Labor Markets Source: CBC staff analysis based on data from the New York State Department of Education Districts grouped by economic region determined by the NYS Department of Labor; Largest regions and highest salaries are in Mid-Hudson and LI Regional Salary Progression: Median at Each Percentile of Pay Scale,

12 Salary Variability Within Labor Markets The range in each salary percentile within regions can be as much as 60 to 90% Lower payers tend to be poor suburban and rural districts Source: CBC staff analysis based on data from the New York State Department of Education Intra-Regional Salary Variation: Highest and Lowest Salaries at Select Percentiles of Pay Scale,

13 Problems of Salary Variability Within Labor Markets Disadvantages some districts in hiring quality May have equity implications Leapfroggin’ and whipsawin’ May lead to inefficiencies in State aid in “mismatch” districts where compensation is driven by wealthiest, but paid for by a larger share of State dollars (Mt. Vernon, Wyandanch)

14 Variation in Pace of Increases The effect of 700 local contracts is that divide and conquer can be successful – unions can drive different bargains Tough for fragmented management to push back with zeros Steps and lanes also difficult to change one contract at a time Source: CBC staff analysis of school district contracts Notes: Data from 185 contracts were obtained for 2010 Range in Collective Bargaining Increases Taking Place in 2010

15 Health Insurance Premium Sharing Requirements Also Exhibit High Variability Districts purchase health insurance in 3 ways: 1) about 350 participate in consortiums that get “experience rated” 2) about 150 participate in NYSHIP (a large public insurer) and 3) about 200 purchase individually Each contract requires that the employee or retiree share in these costs to the degree negotiated locally Retiree premium sharing cannot be increased without negotiated changes with current employees (Tier V made annual extender permanent law)

16 Premium Sharing Varies Within and Among Regions; Overall Families Low Source: CBC staff analysis of school district contracts Notes: Sample size of contracts in 2009 is 466 for singles and 463 for families. Benchmark NYS requires 10% for singles and 25% for families

17 Pensions- the Largest Unfunded State Mandate Employer contributions on the rise; fastest growing component of compensation in past 5 years Sources: New York State Teachers' Retirement System, Administrative Bulletins , , , and Note: *Figures for are for planning purposes. Bulletin from August 2010 anticipates that the final ECR will be significantly higher than 8.62 percent.

18 Options for Reform More centralized collective bargaining with greater power for management at the bargaining table State pension takeover

19 More Centralized Collective Bargaining for School Districts Alternatives: Statewide standards - state sets maximum allowable collective bargaining increase and “recoups” the cost of settlements above that from State aid One contract - state does one negotiation with NYSUT that governs all compensation (could include regional cost-of-living adjustments) Regional collective bargaining – conducted by a regional entity (e.g. BOCES), with local school district input

20 More Centralized Collective Bargaining - Pros One salary scale could help recruitment for districts on low end of pay scale within regions Districts within high paying regions will not be as prone to leapfrogging and whipsawing Collective bargaining increase could be less generous Larger structural changes may be more feasible (e.g. modification of steps and lanes) Uniform premium sharing more likely Better power in Albany for management to repeal “no diminution” and secure pension changes Fewer conflicts of interest on local school boards Ease of district consolidation

21 More Centralized Collective Bargaining - Cons “Leveling up”- the raising of lower paying districts to higher salaries, and potentially the highest in each region - could be costly Statewide options (standards and/or one contract) – Could be too susceptible to union pressure on legislators in Albany Could “freeze” inequities in place for lower spending districts with difficulties meeting spending adequacy targets because the State aid “penalty” on them is potentially more costly May not be sensitive enough to local labor market conditions

22 State Funding of Pension Mandate Takeover of some sort? 1. Fully deduct pension costs from school aid – does not take into account shared responsibility for the drivers of pension costs 2. Fixed growth rate on districts (a la Medicaid takeover) set to reflect the impact of their hiring and salary decisions