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 2013-14

Medicaid ($12.6B)

=16%

School Aid ($25.1B)

=32%

Debt Service ($4.5B)

Other ($2.1B)

Contracts, Supplies and Other Non-

Personal Services ($4.9B)

Local Aid for Health, Mental Health,

Social Services, Higher Education

and Transportation($14.1B)

State Employee Salaries, Wages

and Benefits ($14.7B)

=19%

New York State Operating Spending by Major Category $78.2 B Fiscal Year 2008-09 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: http://www.osc.state.ny.us/localgov/datanstat/findata/index_choice.htm

Share of School Spending By Object Fiscal Year 2009Total Operating Expenditures = $33.31B

Personal Services, $17.26 ,

52%

Fringe Benefits, $6.43 , 19%

Other Than Personal

Services, $7.54 , 23%

Debt Service, $2.08 , 6%

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

Ten-Year Growth In School Operating Spending by CategoryFiscal Years 1999 to 2009

71.9%52.1%

142.2%

73.7%100.4%

0.0%20.0%40.0%60.0%80.0%

100.0%120.0%140.0%160.0%

Operating Expenditures

Personal Services

Fringe Benefits

Other than Personal Services

Debt Service

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

How “Steps and Lanes” Work and Interact with Collective Bargaining 2000-01 2006-07

Basic Salary Schedule Set by Contract Basic Salary Schedule, Reflecting the Impact of Collective Bargaining

Experience Bachelors Masters Doctorate Bachelors Masters Doctorate

1 Year $31,910 $36,045 $40,180 $41,172 $45,586 $51,834 2 Years $32,549 $36,684 $40,819 $43,799 $49,130 $54,461 3 Years $33,187 $37,322 $41,457 $44,161 $49,492 $54,823 4 Years $33,825 $37,960 $42,095 $44,802 $50,133 $55,464 5 Years $34,463 $38,823 $43,016 $44,802 $50,683 $56,610 6 Years $34,742 $39,890 $45,336 $45,352 $51,279 $58,473 7 Years $35,755 $41,749 $49,760 $45,948 $51,279 $63,808 8 Years $36,178 $43,329 $52,287 $46,791 $52,245 $67,637 9 Years $35,480 $43,828 $52,287 $48,044 $53,375 $67,637 10 Years $35,929 $45,344 $52,287 $45,948 $53,375 $67,637 11-15 Years $37,118 $48,152 $55,155 $50,974 $55,180 $72,305 16-20 Years $43,924 $52,290 $59,743 $56,975 $61,888 $77,249 21-25 Years $50,795 $57,661 $70,000 $62,606 $66,909 $86,089 26-30 Years $57,199 $64,000 $70,000 $70,681 $71,830 $90,472

Source: New York State Education Department

Example: If a teacher started in 2000-01 at a salary of $31,910, earned a masters degree while teaching continuously until 2006-07, 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

Number of

Regions Teachers 5th Median 25th Median 50th Median 75th Median 95th Median

Mid-Hudson 26,020 54,307$ 68,065$ 81,944$ 98,825$ 111,522$ Mohawk 4,540 37,682$ 43,896$ 50,812$ 66,001$ 75,429$ Long Island 33,681 54,033$ 70,263$ 85,927$ 102,627$ 116,142$ Southern Tier 8,679 37,962$ 42,467$ 48,611$ 56,158$ 68,784$ Western NY 14,042 36,644$ 43,336$ 50,213$ 62,875$ 78,504$ North Country 4,940 39,266$ 44,734$ 49,465$ 60,903$ 72,171$ Central NY 8,491 43,163$ 48,150$ 51,959$ 59,500$ 72,687$ Capital 11,682 40,420$ 45,258$ 51,765$ 65,835$ 81,946$ Finger Lakes 13,924 36,782$ 41,453$ 47,561$ 58,086$ 75,480$

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, 2008-09

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

5th Salary 50th Salary 95th SalaryPercentile Percentile Percentile

Mid-Hudson Lowest $40,832 $46,853 $79,250Highest 77,041 118,636 134,829

Mohawk Lowest $32,624 $39,733 $63,203Highest 45,364 80,190 94,403

Long Island Lowest $35,000 $59,996 $98,487Highest 69,890 109,071 135,539

Southern Tier Lowest $30,150 $35,389 $56,969Highest 49,992 59,420 82,653

Western NY Lowest $30,170 $41,366 $62,876Highest 43,697 81,000 92,756

North CountryLowest $32,370 $43,262 $61,358Highest 44,432 72,490 86,179

Central NY Lowest $31,817 $41,366 $64,536Highest 50,938 81,000 89,539

Capital Lowest $32,476 $39,630 $69,578Highest 59,297 80,102 95,806

Finger Lakes Lowest $32,383 $43,262 $61,210

Highest 42,186 72,490 88,511

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, 2008-09

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

2010%Increase

Mid-Hudson Lowest 1.5%Highest 4.5%

Mohawk Lowest 1.3%Highest 4.8%

Long Island Lowest 1.0%Highest 4.8%

Southern Tier Lowest 2.2%Highest 5.8%

Western NY Lowest 1.3%Highest 4.7%

North CountryLowest 0.0%Highest 4.8%

Central NY Lowest 3.6%Highest 4.5%

Capital Lowest 2.3%Highest 5.7%

Finger Lakes Lowest 3.5%Highest 5.0%

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 contractsNotes: 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.

Average Employee Contribution Rates, 2009, by Type of Coverage and Economic Region12

.02%

8.16

% 10.2

7%

8.27

%

6.44

%

9.33

% 11.2

6%

10.2

2% 12.8

6%

13.5

3%

8.92

%

13.3

6% 15.9

0%

7.49

% 9.58

% 11.5

7%

15.0

4%

14.3

7%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

Capita

l Reg

ion

Wester

n New

York

Souther

n Tier

Centra

l New

York

North C

ountry

Mid-Hud

son R

egion

Finger L

akes

Mohaw

k Vall

ey

Long I

sland

Individual Family

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

Employer Contribution Rate History

0%

5%

10%

15%

20%

25%

1978

-79

1979

-80

1980

-81

1981

-82

1982

-83

1983

-84

1984

-85

1985

-86

1986

-87

1987

-88

1988

-89

1989

-90

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11*

2011

-12*

Salary Year

Sh

are

of

Pay

roll

Sources: New York State Teachers' Retirement System, Administrative Bulletins 2010-2, 2010-7, 2009-1, and 2009-5. Note: *Figures for 2011-12 are for planning purposes. Bulletin 2010-7 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