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Friday, March 04, 2011

The Irony of Who’s Hit Hardest by Walker’s School Aid Cuts

For the time being, I'll pretend to be a Republican and simply ignore certain crucial facts.

I'll pretend that if all school districts switch from plans where the district pays 100% of pension and health insurance costs to plans where workers' deferred compensation is cut by 5.8% and workers are required to pay 12.6% of health care costs, this will actually add up to savings greater than the cuts in state aid to schools. I'll even ignore the fact that many school districts have entered into contracts with their employees and the state constitution explicitly bars any legislation from upsetting a contract and thus regardless of whether the "budget repair" bill passes, many districts cannot implement any changes in compensation to absorb the cuts.

Instead, I'll focus upon a single detail, seemingly overlooked by Walker and his supporters, whereby his draconian cuts in school aid will ironically have the greatest impact upon precisely the school districts that should be held out as the premier examples of fiscal discipline and tax moderation advocated by Republicans.

Many teachers already make sizable contributions to their health insurance premiums. (Abbottsford—46%; Beaver Dam—10%; Black River Falls—20%; Eau Claire—10%; Fox Point—10%; Glendale-River Hills—10%; Greendale—10%; Greenfield—10%; Muskego-Norway—10%; Wausau—15%) (I have not identified similar data regarding deferred compensation). Thus, a district where teachers already pay 12% or more towards their health insurance premiums, will realize no savings from the passage of the budget repair bill, whereas a district where teachers make no contribution will be able to realize the most significant savings.

These districts and their teachers negotiated a contract whereby teachers agreed to pay more in exchange for keeping tax rates in the community low, avoiding layoffs, and maintaining essentials for education. In short, these districts already did everything the state's Republicans are now demanding.

But being ahead of the curve is not rewarded in this budget. Ironically, these models of Republican fiscal ideals are precisely the districts that will suffer the greatest under Walker's budget proposal. The reason is simple. To the extent that the "budget repair" bill provides school district's with "tools" to close the gaping holes created by the budget's cuts in state funding, forward-thinking districts are deprived any tools because they have already used them.

Rather than making cuts in local in proportion to the district's ability to absorb those cuts through cuts in benefits in accordance with the budget repair bill, the budget cuts aid to all school districts.

To exemplify this, let's turn to three hypothetical school districts each with 1,000 students and 50 teachers. Each teacher makes about $50,000 per year in salary. Health insurance premiums for each teacher average about $1,000 per month for a total of $12,000 per year, per teacher.

Reaganstan took the hardline stance years ago and cut teacher benefits so that all teachers pay 12% for their health insurance.
Clintonville took the middle road and so its teachers pay 6% for health insurance.
Johnsonburg's teachers pay nothing for their health insurance.

Each district has 1,000 students and so with a cut in state aid amounting to $555 per student, each district will lose $550,000.00.

School District
Total Premiums
Current Premiums Paid By District
Current Premiums Paid By Teachers
Savings Realized By Requiring Payment of 12% of Premium
Reaganstan
$600,000
$492,000
$72,000
$0
Clintonville
$600,000
$564,000
$36,000
$36,000
Johnsonburg
$600,000
$600,000
$0
$72,000

Now let's do this same analysis with pension contributions. To make it a bit easier, I'll just use round numbers and say that the overall pension contribution is 12% of salary and that Walker is proposing that this be split with the school district contributing 6% and the teacher paying the other 6%.

Reaganstan took the hardline approach years ago and required its teachers to pay half of the pension costs.
Clintonville took the middle road and required its employees to pay a quarter of the pension costs.
Johnsonburg picks up the entire cost for its teachers.

School District
Total Deferred Compensation
Current Pension Costs Paid by District
Current Teacher Pension Contribution
Savings Realized by 6% Contribution
Reaganstan
$300,000
$150,000
$150,000
$0
Clintonville
$300,000
$225,000
$75,000
$75,000
Johnsonburg
$300,000
$300,000
$0
$150,000

So let's turn to the total savings. (Note, this analysis reveals the fallacy of Walker's argument that adopting his budget repair bill will more than make up for the cuts in school aid and save school districts from making any layoffs, but I'll skip over that fact for now.) Because personnel are the biggest expenditure for school districts, it is essentially the only place where cuts are feasible. Thus, cutting teachers is the only practical option for school districts facing budget holes that Walker's budget will create. Therefore, to determine how many teachers must be cut it will be necessary to calculate what each teacher costs the district. This which works out to be $62,840, broken down as follows: teacher's salary ($50,000) + health care premiums paid by the district with the teacher paying 12% of premiums ($9,840) + deferred compensation paid by the district with the district contributing 6% of salary ($3,000).

School District
Total Savings by Adopting "Budget Repair" Bill
Budget Deficit
Average Cost Per Teacher
Number of Teachers that Must be Cut
Reaganstan
$0
$550,000
$62,840
8.75
Clintonville
$110,000
$444,000
$62,840
7.07
Johnsonburg
$220,000
$333,000
$62,840
5.30

Even though Reaganstan did exactly what Republicans would like and made teachers pay more towards their health care and retirement costs, it is hit the hardest out of these three hypothetical districts. Reganstan, the Republican model, will be forced to cut nearly 18% of its teachers whereas Johnsonburg, the district that Republicans would condemn as being in the stranglehold of unions, has to cut only about 10%.

Of course another option is to demand higher health insurance contributions and deferred compensation cuts among teachers in Reaganstan but again, this would be ironically hurting those who behaved as Republicans wanted and were early to concede on the point of paying more for their benefits.

One can assume that the citizens of Reaganstan enjoyed lower taxes as a result of requiring greater benefit contributions from its teachers. However, because the budget bars districts from raising taxes to make up for the cuts in state aid, it is no longer an option for Reaganstan to reverse course and place its tax burden on par with its peers.

Because Walker's budget does not cut school aid in proportion to the school's ability to absorb those cuts through demanding that teachers pay more for their health insurance and accept cuts in their deferred compensation, the school districts that will suffer the most will ironically be those who did precisely all the things Walker and state Republicans are now expecting. These districts might enjoy lower taxes, but by not being able to adjust its financing to place them on par with their peers, they are condemned to suffer most. Walker and state Republicans are inflicting disproportionate harm upon these districts precisely because of their foresight and fiscal discipline while those districts and teachers who held to the conduct now condemned by Republicans are in the best position to deal with these cuts.

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