The Empire Page

Background:  This is part two of our interview with Timothy G. Kremer, executive director of the NYS School Boards Association (NYSSBA).  We asked him about his association's recent report (pdf download) and its 55 recommendations to help school districts control costs. 

Q:  Charter Schools drain funds from local districts but they also remove students from the system.  Why isn't this a wash in terms of costs?  What is NYSSBA's recommendation to address this issue?

A:  Charter schools can have a significant impact on a school district's finances.  Contrary to popular belief, districts rarely realize savings when students transfer to charter schools.  This is because charter schools typically draw students from several grade levels and schools.  District utilities, transportation costs, debt service, insurance and teacher salaries remain constant.  Of the charter schools now in operation, most are located in high-need districts that can least afford to lose revenue.  The cumulative affect of multiple charter schools in even more deleterious.  Albany, for example, has more charter schools per capita than any other city in the state.  In 2009-10, the district's payment to charter schools will approach nearly 20% of the district's budget.  Moreover, the current formula fails to recognize that it costs less to educate elementary grade school students than a high school student.  Many charter schools only educate students in elementary grades, yet the per-pupil average expenditure that is the basis for their payment from the public school district is calculated on the costs to educate all students.  Furthermore, most charter schools serve fewer students with disabilities than the surrounding districts.
 
NYSSBA supports boards of education that choose to create their own charter schools, provided that there is sufficient local interest and oversight.  To address funding issues, specifically, NYSSBA offers the following suggestions:

1. Provide transitional funding to help school districts that wish to charter schools to defray their fiscal impact.
2. Revise the formula used to calculate the per-pupil approved operating expense (AOE) to reflect the grade levels of the children being educated and the cost differences between elementary and secondary students.
3. Hold districts harmless for fixed costs, such as utilities, which do not decline as students leave to attend charter schools.
4. Make a portion of district payments to charter schools a state-aidable expense.
5. Create a mechanism for districts to recoup funds for students who return to district schools from charter schools during the school year.
6. Exempt payments made by districts to charter schools from the list of expenditures capped under a contingency budget.

 
Q: Health Insurance costs seem to be one of the major problems facing school districts.  How can the state help districts control costs?

A:  Health care spending has risen in large part because of health care inflation due to the proliferation of health care technology, an aging population, higher usage rates, and expanded coverage options.  In fact, average school district health care premiums rose by double digits every year between 2002 and 2006 -- sometimes as much as 15%.  The cost of health care shows no signs of slowing down, either.  According to one national estimate, health insurance premiums nationwide rose more than 10% from 2006 to 2007 and another 10% between 2007 and 2008, while prescription drug costs rose even faster.
 
Health care costs borne by school districts continue to rise even as teachers pay more toward their health insurance premiums as a result of collective bargaining agreements.  However, the percentage of the premium paid by school district employees remains, on average, significantly less than other industries.  While NYSSBA typically supports decisions made locally, in this instance, we recommend the following:
 
1. Require all school district employees to pay a minimum premium contribution, such as 10% for individual coverage and 25% for family coverage.
2. Cap employer health care costs such as the state does for county Medicaid costs.
3. Create a workable, low-cost statewide health insurance pool for all school employees.
4. Ease provisions for school districts to form cooperative employees health benefit trusts.
5. Clear obstacles to self-insured single-payer health plans.
6. Lift restrictions to changing retiree health care benefits without making similar changes for current employees.
7. Increase incentives for employees to opt for health insurance buy-outs.

 
Q: Have costs for Special Education been going up or down relative to other costs?  If up, given the trend towards inclusion of Special Ed kids in regular problems, why are costs increasing and what does NYSSBA recommend?
 
A:  The cost of providing special education services has risen greatly in recent years.  School district budgets can fluctuate wildly with the addition of unanticipated and non-discretionary costs.  Between 2001 and 2006 school years, special education costs rose 31% for salaries, equipment, materials, supplies, contractual agreements, textbooks, and tuition paid to other schools or BOCES for special education services.  School districts are very conscious of these costs and have taken extraordinary steps to mitigate them.  The proportion of students with disabilities in less-restrictive environments, which are cost effective and often beneficial to students, has edged upward over time.
 
Districts receive basic operating aid for each student (including those with disabilities) as well as Excess Cost Aid for expenses that are above and beyond the costs of non-disabled student.  Excess Cost Aid varies with the differences in school district wealth and requires a substantial local contribution.  It is based on the average spending on all students in the district but provides more aid for higher levels of service to students with disabilities, and therefore could be labeled a "spend to get" aid category.
 
Districts also receive federal funds for every special education student.  However, despite a 1975 requirement that the federal government pay 40% of the average per student cost, the most recent estimate is that the feds have contributed only 17% per year, on average, in New York State.
 
These services are the result of federal and state mandates over which school districts have little, if any, control. Schools themselves do not determine necessary services and have very little authority to alter determinations made by the committee on special education (which is independent of the school district). These non-discretionary costs should be capped and the state must accept more financial responsibility for this state-mandated program, which would allow a significant decrease in local school spending.


Q: A number of organizations looking at the state's overall financial situation argue that New York has too many school districts and that consolidating districts would save taxpayers money without a decline in the quality of education.  What are the roadblocks that are preventing local districts from moving in this direction?
 
Answer:  Merging or consolidating schools and/or school districts is not as easy as one might think.  Even when the financial data would seem to make the case, politics, emotions and traditions often surface to stymie progress.   The state's 699 school districts range in size from New York City to districts with fewer than eight teachers. More than 200 districts have fewer than 1,000 students. Smaller districts are not limited to rural areas. On Long Island, where there are almost a half-million pupils, more than one-fifth of the more than 120 school districts have fewer than 1,500 students, with an average district size of fewer than 800 students. That said, the ultimate decision to consolidate districts should be left to the local communities involved in the merger.  NYSSBA supports the need for districts to consider merger and annexation possibilities, the expansion of state incentives, consolidation of district business functions and expansion of regional BOCES services.
 
A more effective approach is the consolidation of back-office school district operations like payroll, purchasing, human resources, employee benefits administration, staff development, banking services, printing and transportation services.  Using BOCES, for example, back-office services can be packaged in a cost-effective way for school districts to perform operational, management, and other non-educational functions. Indeed, many districts are already using them to do so including non-core services such as healthcare consortia, workers compensation consortia, regional information programs, regional lunch programs, centralized technology, building and grounds maintenance, and shared bus facilities.

One area in which BOCES-wide services may be able to reduce expenditures significantly is in school transportation.  School districts that provide transportation to public school students must also provide it to their residents attending private schools, whether those schools are within their boundaries or not. As a result, school district buses going to nonpublic schools often cross district lines, and multiple school districts separately plan and provide transportation to the same non-public schools. One estimate showed that a BOCES could save 5 percent or more in transportation costs by coordinating transportation and having a single contract for multiple districts.  Current transportation routes by many school districts within a BOCES area are not coordinated, largely the result of school schedules that are not coordinated. Coordinating schedules would allow districts within a BOCES to share transportation services and save money.
 

Q: Even where consolidation is rejected the concept of shared services is making gains in local government across the state.  To what extent are school districts considering shared services and are there any major impediments to success?

A:  Local governments in New York enjoy broad authority to enter into cooperative, inter-governmental agreements. Simply stated, governments may perform any function or service jointly which they both may perform individually. This gives government officials wide latitude to develop joint activities and enter into contractual agreements. However, local governments could greatly expand the use of shared services thorough inter-municipal agreements if they would be allowed to undertake a service, function, activity, or project addressed in the agreement so long as at least one local government has such power.

The State Education Department should encourage BOCES to offer cooperative services beyond school districts to other governments. Where it can save taxpayer dollars, BOCES should be providing services to towns, villages, cities, counties, colleges and universities, charter schools, libraries, museums and not-for-profit organizations with educational purposes.

In addition, school districts should be allowed to consider "best value" when awarding contracts for services, and to "piggy-back" on United States General Service Administration information technology procurement contracts, as well as certain approved contracts by other states and local governments

 

Q: Although we've only skimmed the surface of the potential topics, I'll ask you one final question for now, which is this.  We've read a number of news stories about the declining physical condition of our schools.   How serious a problem is this and given the state's financial predicament, what does NYSSBA recommend to address the problem?

A:  School district expenditures for general operations and maintenance, including heating, increased 21.5% between 2001 through 2006.  Energy expenditures pose an annual problem for school district budgets, especially if their physical plants are aged and deteriorating.   Currently, there are no targeted state aid incentives to build "green," although the New York Power Authority can help pay for the up-front costs of energy efficiency measures employed during construction that meet certain payback time limits. Such measures can range from heating and cooling systems (geothermal, solar, high efficiency boilers, co-generation, etc.) to building materials. Absent supplemental state aid, progress on the green front will likely be slow due to immediate cost concerns rather than a lack of motivation to do the right thing.

The state needs also to reform the current building aid formula to allow for the timely acquisition of land.  The state can help by devising a new land acquisition system that enables districts to prudently acquire land with state assistance for a reasonable period in advance of likely use. If after a limited period of time the land is not required for school purposes, then the state and district can sell the asset and share in the gains according to their respective investments. The state could facilitate this by setting up a revolving school lands acquisition fund.

For many years, NYSSBA has called for the repeal of the Wicks Law or, in the absence of that, a dramatic increase in its threshold -- say $10 million per project statewide. The Wicks Law, enacted in 1912 to promote fair bidding on construction projects, requires state and local governments to issue multiple prime construction contracts for all public works over a monetary threshold. The project threshold, $50,000, established in the early 1960s, was not increased until just recently. In this year's enacted state budget the thresholds were increased to $3 million for New York City, $1.5 million for projects in Nassau, Suffolk and Westchester counties, and $500,000 in all other counties. According to many school officials, nearly all construction projects now cost more than $500,000. Therefore, most districts outside of the New York metropolitan region will continue to require multiple contracting. New York City had estimated, before the recent threshold changes, that it would save $3.7 billion over its 10-year capital plan with full repeal of Wicks.

Furthermore, on a Wicks project, all of the "primes" (usually sub-contractors on private projects) need to be individually bonded. Bonding is proving increasingly difficult for them to obtain. By comparison, the general contractor is required to be bonded on a private project.

Finally, State incentives for school building projects, such as RESCUE and EXCEL, ironically, perhaps, can actually raise construction costs. For example, as the result of a large infusion of state funds for school construction projects, experienced construction professionals become scarce and the cost of their services are bid up. When everyone wants to build at the same time, the result can also be project delays as districts unable to find appropriate construction professionals must defer their projects. The extra burden placed on the State Education Department's Facilities Planning Office also leads to a project review and approval slow-down as the regulatory review pipeline becomes jammed. It can also lead to other problems when districts simply cannot afford to wait and push ahead with a less experienced team.