Monday, October 23, 2006

K16 Proposal 5 is Bad Legislation

I initially supported the K16 initiative (prior to any formulation of ballot language) because it put a spotlight on poor school funding - over the last 4 years Michigan has had no increase in state support (in two of those years we had mid-year funding cuts). But the K16 Proposal is BAD LEGISLATION and I DO NOT support it; it does nothing (as Phil Power points out) to control the cost side of the equation; just for that reason it's poorly constructed legislation - not to mention that it's a monumentally bad idea to enshrine a spending mandate in the Michigan Constitution.

That said, two things need to be addressed: 1) We need legislative help on healthcare - the MEA (state teachers union) owns the largest third party healthcare provider serving teachers and they are able to keep cost data (experiential claims data) away from school districts; a practice that essentially forestalls competitive bidding. Several bills have been sent to the legislature but they never get support. Why? This explanation comes from my Republican representative - "Because the MEA supports us too." So for a $2,000 campaign contribution our legislators stick tax payers with nearly $500 million in unnecessarily expensive healthcare costs. Just for the record, MESSA (the union owned provider) buys its coverage from BCBS, marks it up and then passes it to its members - show me an economics text that postulates the addition of a middleman reduces cost (well, maybe an old Russian text book, but not one authored in America). 2) The pension balloon is bursting but we are locked into it by state law. Although not over the top in terms of pension benefits (except for the fact teachers are eligible for full retirement after 35 years of service regardless of age - something that is changing everywhere else), the inclusion of FULL MEDICAL benefits at the same time (after 35 years of service regardless of age) is killing the system. As of the last audit the pension system is $23 BILLION under-funded - and we (all local school districts and state colleges) have to make up the difference. The biggest part of the deficit is in the healthcare benefit side at nearly $16 billion. And the funding ratio is dropping even as we are required to contribute more to the fund (nearly $0.18 on every dollar of salary next year). That's why the most recent "increase" in funding will never see the classroom - it's all going to healthcare and pension costs (PENSION FUNDING REQUIREMENTS COME FROM THE STATE WHICH ALSO HAPPENS TO CONTROL THE FUND). Now here's the interesting part - the State of Michigan got out of the defined benefit business in 1997 - every state employee hired since that time is in a 403b plan. The State did that because they saw the freight train running down the track. Why no action on schools? See my Representative's comment above.

Here are local facts you can share: From the 2003-04 to the 2006-07 school years my aggregate salary costs increased $616,779; that’s only 0.99% on a $62.9 million salary budget. During that same period my Healthcare costs increased $2.69 million (an increase of 22.48% or 4.37 times faster than salaries) and my Defined Benefit contribution (mandated by the State) increased $2.98 million (an increase of 36.83% or 4.83 times faster than salary). We have controlled salary costs as good as any business but the average change in healthcare and pension costs put everything we do in peril. So as we cut over $12 million of costs in all areas (including personnel) over the last four years, we are relentlessly crushed by these two cost items. At the board level we continue to look for improved efficiencies, cuts in costs, and innovative delivery models - we have a great school system and we can keep it that way if we get help on the run away healthcare and pension costs. Proposal 5 does NOTHING to really address those cost problems. Phil Power is correct in that respect; I believe the real issue is a rudderless leadership in State government that is happy to see our hands tied behind our backs. It allows partisan politics to flourish while we suffer.

Keep two things in mind – I want our teachers to have the best benefits we can afford, I just don’t want to be forced to pay more than necessary to benefit a third party. Second, no one should have to worry about their pension – but the State continues to stick its head in the sand over this issue. No one benefits when problems are ignored.

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