Baby boomers are getting old--no news there. And the repercussions for health care and social security, among other things, are well known. What is less well known is how graying flower children affect school districts. As healthcare costs rise (at a rate of more than 10 percent a year according to a survey by the Kaiser Family Foundation and the Health Education and Research Trust), an increasing number of school districts' budgets are being consumed by benefits--or "legacy costs," in economist lingo.
USA Today recently said that legacy costs are a "death spiral" for school districts. Nationally, a stunning two out of every five new dollars spent on education in 2003 went to pay for generous benefit packages for teachers. And the number is rising.
Between 1999 and 2003, 85 percent of states experienced at least a 10 percent growth in the costs of public employee benefits, according to an analysis by Standard and Poor's. This spending crowded-out nearly every other facet of school operations, from purchasing new computers to payroll for current teachers.
The picture in Ohio mirrors the nation.
- Between 1998 and 2002, benefit costs for Ohio schools rose on average 42.8 percent.
- In 2003, of the $8,555 spent per pupil, $1,655 went toward benefits. This was $254 more than the national average.
- More retirees drawing from the system are just over the horizon. Nearly 40 percent of Ohio teachers are age 50 or older.
GM and its parts supplier, Delphi, are familiar with this problem Delphi is struggling mightily to get out of bankruptcy, and GM just announced they are offering buyouts to 113,000 employees.
But school systems cannot file for bankruptcy. Health care for teachers is negotiated through collective bargaining agreements, and unions are doing everything they can to see that the generous health care coverage won in past negotiations is not reduced.
The Legislative Office of Education Oversight examined 583 contracts in effect between 2002 and 2004 and found that 38 percent still paid 100 percent of health insurance premiums for teachers (and of those that covered 100 percent of teachers' health care costs, a fourth of them did the same for the teachers' families). Moreover, most contracts paid the total dental and vision premiums, as well.
That is a package most American workers today would envy.
School districts are stuck. Since they cannot file for bankruptcy, their only options are to make budget cuts or increase revenue by passing tax levies. Taxpayers are tired of paying more in taxes without seeing an increase in school success, so they are unlikely to support still more tax increases. Not surprisingly, the number of operating levies that passed in the Dayton area fell from 70 percent in 2000 to 45 percent in 2006, according to a study by the Miami Valley Regional Planning Commission. If struggling districts are unable to raise the money through local taxes, they will be forced to turn to the state's emergency loan program to bail them out. Either way, unless things change, taxpayers will have to foot the bill for legacy costs. And a hefty bill it will be for no improvement in overall school productivity.
The bottom line is this--legacy costs are real and not going away. Those districts that start grappling with the issue sooner rather than later are more likely to come out ahead. Gadfly would like to hear from district leaders struggling with this issue and willing to share their stories.
"Schools face 'death spiral'," USA Today, February 2006
"School systems face health care squeeze," by Gregg Toppo, USA Today, February 2006
"Buyouts Only a Partial Solution for Dephi: Auto Parts Firm and UAW May Remain at Odds," by Dina ElBoghdady, Washington Post, March 2006