MI Report Chronicles Success of Wisconsin Budget Reforms

How Wisconsin’s School Districts are Saving Money as a Result
of 2011’s Act 10 Legislation

For your convenience and printability, the .PDF of this study can be found here.

Appendix A is attached here.

Appendix B is attached here.

Executive Summary

In 2011, Wisconsin found itself at the epicenter of a growing national debate over the role of collective bargaining in the public sector. The state faced a significant financial shortfall for the 2011-2013 budget. Dramatic steps needed to be taken to rectify the situation and, indeed, no one can argue that the actions of new Governor Scott Walker were nothing if not bold.

Amidst massive public protests, the Governor mandated contributions from public sector employees to offset the budgetary cuts that were needed to pull the state out of debt. Public employees, including public school teachers and administrators, were required to contribute 5.8 percent of their salaries towards their pensions.

That wasn’t all. The state would match another 5.8 percent for an 11.6 percent monthly payment. These employees were also mandated to contribute at least 12.6 percent of their health insurance premium costs.

The new law removed collective bargaining considerations for all public workers for any matter other than salary negotiations and even those were capped at the rate of inflation. While this curtailed union strength, it also gave local school boards the power to make executive decisions to further offset reduced state funding for the 2011-2012 school year.

This study examines the steps that local school districts have taken in the face of budget reductions and the savings that have been produced as a result. As of September 1, 2011, 108 Wisconsin districts have reported approving contracts with educational staff that incorporate the measures of the 2011-2013 budget. Seventy-four districts have reported the estimated savings from these policy changes.

In districts that include over 319,000 of the state’s public school students there have been savings of over $162 million dollars. That comes out to $507.92 per student. If this estimate were applied to all 881,886 students in the state, this would create a fiscal benefit of nearly $448 million.

# of Reported Districts	# of Students Affected	Projected Savings So Far	Savings per Student
74	319,569	$162,314,259	$507.92

Other measures have produced local savings as well. The most significant method that school boards are using to free up funding has been to open their employee health care bidding process to outside companies. So far, 25 districts have reported switching providers or lowering their costs through competitive bids. Amongst these districts, the average savings have been $730,634.99. That comes out to $211.45 per student.

School District	2011 Student Count	Estimated Savings
Totals: 23 districts reporting estimated savings	79,475	$16,804,605
Per-student savings:		$211.45
Per-district savings:		$730,634.99

Though controversial, Act 10’s budget repair tools have been able to provide the fiscal breathing room many districts needed in the face of spending cuts. In places like Kaukauna, the school board was able to turn a deficit into a $1.5 million dollar surplus. In other places like La Crosse, previously existing savings measures are making it more difficult for these changes to have their intended effect. However, all districts in Wisconsin have found fiscal relief as a result of the budget’s changes.

While larger districts like Milwaukee and Kenosha continue to fight the changes by refusing to reopen their contracts to include employee contributions, several districts have been able to avoid layoffs and keep their public schools running smoothly. This paper summarizes some of the key developments in Wisconsin public education since the passage of the 2011-2013 state budget.

Introduction

The 2011-2013 Wisconsin State Budget was possibly the most contentious piece of legislation ever passed in the Badger State. Governor Scott Walker took a bold approach to close revenue gaps that had left the state in a precarious fiscal situation. The most publicized step was to require public employees to contribute towards their benefits – health insurance and pensions – while removing collective bargaining from negotiations in regards to all workplace aspects other than salaries.

This resonated through Wisconsin’s local school districts. A pared-down budget reduced per-student funding and left deficits in public classrooms across the state. However, Act 10, accompanying legislation for the budget, gave school boards in these cities the tools they needed to offset cuts, retain important staff members, and continue to educate children.

Some districts have struggled with the cuts, and others are still having issues even as the 2011-2012 school year begins. However, many have used the tools of Act 10 to create savings and turn potential deficits into surpluses. Twelve of the state’s 15 largest districts have found significant fiscal benefits in the midst of budget cuts, allowing them to save teacher jobs rather than turning to layoffs.

These benefits have come both from employee contributions and aspects of school board negotiations without collective bargaining. Not only are districts saving money through having staff members pay 12.6 percent of their health care, they are also increasing the savings through competitive bidding for insurance. In the past, collective bargaining restrictions made it difficult for a school district to consider other insurance providers. As a result of this new freedom, cities like Kaukauna are transitioning from a debt to a surplus, even in a time of economic strife.

This report highlights some of the reported benefits that Wisconsin districts have seen so far. It touches on how schools are saving money and what we might be able to expect statewide as the school year presses forward. It only touches on school districts and not municipal savings.

Requiring Teachers to Make Modest Contributions to Health and Pension Benefits Can Cut Cost of Education by Over $500 Per Student in Wisconsin, Saving School Districts Hundreds of Millions of Dollars

When Act 10 was passed, the landscape of teacher and staff contracts in Wisconsin’s public schools was significantly altered. In fact, this relationship changed almost immediately after the introduction of the initial 2011-2013 state budget. With the state facing a $3 billion dollar deficit, many districts turned to the tools provided by the budget adjustment bill to stay afloat. This included two major components: teacher contributions to retirement funds and to their health insurance.

In short, teachers and full-time educational staff members were forced to pay portions of their benefit packages. This meant a 5.8 percent salary payment towards teacher pensions (which was matched by the state) and a 12.6 percent payment for health coverage. Many districts also turned to other tools, including wage freezes, switching to higher-deductible health plans, and adjustments in lane change salary bumps to help tighten finances in local schools.

Though the plan is still in its infancy, many school departments have already undergone contract extensions that include these considerations. The results have led to a reported $162 million in savings as of September 1, 2011 that have helped to offset less revenue from the state and keep Wisconsin’s schools running. One shining example we’ve seen so far happened in the Kaukauna School District.

Kaukauna’s changes, which included the aforementioned contributions from employees, has helped turn a projected $400,000 deficit into a potential $1.5 million surplus. As a result, the small town’s gains have been some of the plan’s most publicized. These changes led to the cancellation of proposed layoffs and ensured that schools in the town could operate normally despite large budget cuts. In this case, teachers were able to save their own jobs – and stay in business for students – by giving back.

However, Kaukauna isn’t the only Wisconsin district that has rolled up its sleeves to save jobs. Teachers and staff members at both local districts and technical colleges statewide have adhered to Act 10’s provisions and retained savings that will mean more jobs for teachers and more support in the classroom. Here’s a sample of some of what we’ve seen across the state. A full listing can be found in Appendix A.

Sample Group of Districts With Updated Contracts – Sept. 2011
District	Health Contribution	Pension Contribution	Projected Savings
Green Bay	12.60%	5.80%	$11,000,000
Ripon	12%	5.80%	$600,000
Eau Claire	12.60%	5.80%	$3,500,000
Columbus	12.60%	5.80%	$375,000
Madison	up to 5% in 2011-12, up to 10% in 2012-13	5.80%	$15,500,000
Racine	Switch to high-deductible plan	5.80%	$19,200,000
Sheboygan	12.60%	5.80%	$6,600,000
Wausau	15%	5.80%	$3,354,900
Kaukauna	12.60%	5.80%	$1,900,000

The chart above shows just a few of the school districts that have reported having passed new contracts in 2011. As of September, 108 school districts and technical colleges had approved or are waiting to approve contracts that include the cost saving measures of Act 10. Several more are still in progress. The districts included range from some of the state’s largest cities to some of its smallest towns. This will create a projected savings of over $162 million based on current reports – and that only includes approximately 25 percent of all the state’s educational entities.

Our analysis is a conservative estimate based largely on contract settlements that were agreed upon while Act 10 was being debated, and before the Supreme Court upheld its enactment. One hundred and eight public school districts in Wisconsin have definitively reported savings totaling $162 million. However, 34 of these districts don’t yet have official projections tied to the savings from these new contracts, which suggests that the overall fiscal benefit will be much higher.

We come to an average savings of $2.19 million per reported district. According to 2011 head counts from the Department of Public Instruction, these changes will affect 319,569 students in Wisconsin (over 36 percent of the state’s population) – saving districts an average of $507.92 per student.

# of Reported Districts	# of Students Affected	Projected Savings So Far	Savings per Student
74	319,569	$162,314,259	$507.92

A preliminary estimate based on an analysis of local reports conducted by the MacIver Institute suggests that, if adopted uniformly by every district in Wisconsin, local schools would stand to save a total of $447,927,537.12 through new staff contracts that required the additional contributions to health and retirement benefits. This does not account for additional savings created through other measures provided in Act 10, including enhancing local district power when opening health insurance contracts to competitive bidding.

This is likely a conservative estimate, as many districts have yet to report updated fiscal estimates from reported contracts, and Legislative Fiscal Bureau figures include only measures taken by increasing teacher contributions to pension and health care plans. In many cities, the actual savings will vary from the initial LFB numbers based on local decision making.

Many districts, such as Edgerton, Clinton, and Green Lake are having their teachers contribute less than the stipulated 12.6 percent of their health care costs. Despite smaller cuts, these schools have been able to produce significant savings that will keep their schools intact – a fiscal benefit of over $2.4 million among the towns. These school boards were able to supplement their savings through switching their health care provider, a process made easier by the increased control that local districts have with collective bargaining only for salary considerations for public employees.

In most districts, the changes have been enough to save jobs and keep schools running smoothly. However, administrators in cities like La Crosse suggest that while savings are inherent from the concessions, they aren’t enough to meet their projected deficits in the coming years. La Crosse District Finance Manager Janet Rossiter suggests that the estimated savings of the budget plan won’t be enough to cover the losses from the cuts.

La Crosse’s estimates vary from the state’s. This is partially because of the fact that many teachers in the district already paid 10 percent of their health insurance prior to 2011.

Other districts, like Holmen and Cashton, are finding similar discrepancies when it comes to producing fiscal benefits. While it’s clear that every school board in Wisconsin stands to create savings thanks to the tools of Act 10, some districts face different challenges to meet their original projections. Often times this is attributable to previously existing cost saving measures. Alternative methods to meet budget restraints, such as reducing some post-retirement benefits, eliminating step increase raises for staff members, and reducing sick leave may be pressed into action in these districts.

Still, the program stands to create a net benefit in the midst of tough budgeting. In all, local school districts stand to save over $162 million dollars through these restructured contracts – and that group represents only 18 percent of all the districts in Wisconsin. These school boards have pulled together to maintain the quality of their schools despite significant budget cuts. Many more will follow as well.

Wisconsin School Districts are Switching Health Care Providers/Plans to Create Savings in 2011

Wisconsin’s districts are helping make ends meet for the 2011-2013 school year by reforming state health insurance policies. With lean budgets in place, many school boards have turned to the tools provided in Act 10 to make changes that would prevent layoffs throughout Wisconsin.

A significant number of these schools are finding extra savings by switching from longtime health insurers or to high deductible plans. In some districts, the benefit from simply shopping around for health care reaches into the hundreds of thousands of dollars.

This study covers 108 school districts in Wisconsin that have reported the extension, renewal, or alteration of their local contracts between January and September of 2011. According to these media reports, at least 13 districts that adopted new contract language for contributions also had specific language built in that ensures that they switch health care plans – either to new carriers or to lower-cost plans. This number may be higher than what has been reported so far, but it represents an eighth of all the updated contracts in the state.

When tracked against the Wisconsin Association of School Boards’ listing of health insurance providers, it appears that many of the districts that are taking action to either change their current insurance or plan were under contract with the same company – WEA Trust. Nine of the 12 identified districts (information for Menasha Joint School District was unavailable at the time of publication) were WEA Trust customers as recently at the 2009-10 school year. WPS, Security, and Medica were the other three providers in the group.

In this sample group, WEA Trust insured 75 percent of districts that reported having to switch health care provider as a stipulation in their latest contracts. In 2010, the company insured approximately 60 percent of all reported public school districts in Wisconsin. According to reports, these districts switching away from WEA Trust are doing so in ways that are producing major fiscal benefits for local school boards.

For example, the Baraboo School District saved approximately $660,000 by switching their coverage from WEA Trust to Dean Health Care. Hartford saved over $535,000 by changing carriers. The Kimberly School District saved even more, eliminating $821,000 in costs by dropping WEA Trust. In small districts like Hartford, these savings are impressively large. This trend echoes what we have seen in the past six years, as many local school boards have been able to produce fiscal benefits by switching from longtime carriers.

Other districts, such as Edgerton and Green Lake, stand to reap over half a million dollars just by opening their bidding process to competing companies.

We examined these trends in January in the study Health Care Trends in Wisconsin’s School Districts: A Look at the Expanding Market of Teacher Health Insurance. The report showed that shopping around for health care presented significant savings for the state’s local schools. As a result, many districts were switching away from their traditional WEA Trust coverage for lower-cost alternatives.

This study showed that Wisconsin’s schools stood to save approximately $100 per staff member by shopping around for coverage just once every six years, according to statewide trends between 2004-2010. Statewide, that would produce $10 million annually if every school board changed their health care insurer behind an open bidding process at least once in that time frame.

This continuing reform reflects that shift. WEA Trust’s market share went from 78.87 percent of reported districts in 2004 to 59.95% in 2010. If all nine identified districts facing contract changes in 2011 switch as well, it would represent another three percent drop in enrollment for the insurer.

Of course, WEA Trust is the most likely company to be dropped because it remains the state’s largest insurer for school districts. January’s health care study showed that districts benefit from shopping around for insurance regardless of their provider. For example, Durand’s schools stand to reduce their costs by over $500,000 just by switching from longtime provider WPS.

In short, school boards that stay loyal to health care providers may save some effort and convenience, but they’re better served financially by continually opening the bid process to outside vendors. The examples shown in Baraboo and Kimberly reinforce this.

Health Care Changes are Helping Bolster Savings Thanks to Stronger Control at the School District Level

Trends in health care reform for teachers continued beyond the restructured contracts that we covered in the previous section. Many school boards that have yet to approve new pacts with their employees are proactively changing their carriers in order to maximize fiscal benefits in the face of a tight budget. As the deadline for including Act 10 changes passed and schools across Wisconsin prepared for a new year of challenges, many administrative boards found a significant savings through altering their health care providers or plans.

These additional districts expand the scope of our list beyond the cities found in Appendix A. As of September 1, 2011, at least 25 school districts in the Badger State had reported switching health care providers/plans or opening insurance bidding to outside companies. In 30 cities that have reported their estimated savings, this led to an extra $16.8 million for education. The entirety of this list can be found in Appendix B.

With the summer deadline passed, Act 10’s changes have taken effect in Wisconsin’s school districts. Any district without a ratified contract for the 2011-12 school year has been subject to the bill’s changes since June 30. These policies have created substantial savings across the Badger State, reaching into the hundreds of millions of dollars in the districts that have sealed new contracts since the beginning of the year. Many others will work without an approved contract in place, but will still include employee contributions per state law.

Amongst the state’s 15 largest school districts, 12 have created substantial savings from the budget bill’s tools. The three others, who refused to reopen their contracts to enact employee contributions, appear to be headed towards layoffs as a result. However, they will retain the ability to make job-saving policy changes thanks to the new flexibility that districts have when it comes to regulating human resource decisions in their schools.

The Act’s de-emphasis on collective bargaining has allowed many school boards to prevent layoffs in the face of district costs. This includes measures like reducing sick leave and professional development pay raises, but has had the most significant effect across employee health care. Many school boards are switching their health insurers through open bidding that allows private vendors to compete for contracts. These displays of smart consumerism are saving millions of dollars across Wisconsin.

As several districts proceed into the new school year without ratified contracts, these savings are a strong indicator of how Act 10’s tools are affecting schools. Several school boards are pressing forward with employee handbooks and instituting insurance programs that have created significant savings. In some cases, this fiscal awareness can be the difference between teacher layoffs and retaining essential staff members in classrooms throughout the state.

The steady stream of new contracts has slowed to a trickle while summer fades into the new school year, but reports of health care savings have persisted. Of the 25 districts reporting health insurance adjustments, 22 have posted savings of over $100,000. Seven more stand to save at least $1,000,000 in the coming school year.

As of September 1, 23 districts serving 79,475 students have produced significant reported savings through changing their teacher health insurance. This figure will grow as more reports roll in. This has created an estimated savings of $211.45 per student – a total of over $16.8 million so far in Wisconsin. If this number were to hold steady for all 881,886 of the state’s public school students, it would create a windfall of over $186 million.

School District	2011 Student Count	Estimated Savings
Totals: 23 districts reporting estimated savings	79,475	$16,804,605
Per-student savings:		$211.45
Per-district savings:		$730,634.99

Across these 23 reporting districts, which range in size from 657 to 15,194 students but mostly register as the state’s smaller areas, the average savings were $730,634.99.

These figures show how school boards have been able to bridge gaps in funding by taking charge of their employee health insurance. The savings, through a combination of open bidding and competitive pricing, have helped some districts further offset budget cuts beyond their employee contributions. The emergence of a competitive marketplace in Wisconsin has helped reduce costs while providing a similar level of health care for the state’s public school teachers.

This benefit grows when placed alongside the savings of employee contributions. If you remove the 13 districts that reported health care savings in Appendix A, the end result is per-student savings of $494.95 solely because of insurance and pension payments. When added to the observed $211.45 per student figure observed in the 23 districts that have reported direct cost reductions from changing health care policies, this creates an estimated annual savings of $706.40 for each pupil. If the estimates from these small sample sizes hold true, this could create a total savings of $622,964,270.40 if applied to every public school student in Wisconsin.

However, it’s important to note that we are still in the early stages of reports, that figures included are based on local estimates, and that this sample size affects fewer than 10 percent of the state’s total student body. As a result, this $622 million number is an observational estimate based off the best data available as of September 1, 2011.

These 23 districts aren’t much amongst Wisconsin’s 426 entities, but this number will grow as more school boards tackle their employee handbooks and adjust to the changes of Act 10. The bottom line is simple – when districts shop around for their health insurance, they get the best rates. The savings from smart consumerism can then be redistributed in the classroom, benefitting teachers and students alike. Whether WEA Trust, Dean, Medica, or Security is the company to insure teachers, they stand to save money by opening up their carriers to a regular bidding process in a competitive marketplace.

Milwaukee Union Refuses Modest Concessions, Forces Teacher Layoffs

Earlier, we covered the total savings that school districts stand to save from concessions in their latest employee contracts. We’ve also covered how big a role selective buying plays when it comes to saving money when shopping for teacher health insurance. Here, we examine one outlier in Wisconsin’s education landscape.

Milwaukee Public Schools (MPS) are the most embattled entity throughout the state’s educational system. Currently, the district is facing major layoffs due to the combination of both budget cuts and the expiration of one-time Federal stimulus funding. One recent report suggests that the district is $82 million in debt, and that they’ll have to cut staff just to stay afloat.

However, many of these upcoming layoffs could have been prevented.

Milwaukee’s public school teachers inked a new contract in 2010, ratifying the extension weeks after Scott Walker was elected Governor. The agreement was a four-year pact, which is the only four-year contract in MPS history. It covers the prior 2009-2010 school year and extends into 2012-2013.

This contract included concessions that would save $94 million in funding over the next two schools years. It also included a groundbreaking contribution from the district’s staff – a payment of two percent of each employee’s health care costs. There was no contribution to teacher retirement systems at all included in the extension.

Milwaukee’s wasn’t the only school board to ratify a new contract or extension before the budget bill was passed, but it is one of the few that failed to take any of the cost saving measures into account. After the increased contributions were announced, many Wisconsin school departments rushed to negotiate their own staff contracts before being legally obligated to play by the state’s new rules. These districts included La Crosse, Wausau, Oshkosh, Superior, and several others that approved contracts by the end of March 2011.

However, the key difference between these districts and Milwaukee is that even though their contracts were signed before the budget bill passed, they still included the debated contributions to teacher benefits. A 5.8 percent salary payment towards teacher pensions (which was matched by the state) and a payment of 12.6 percent of their health insurance premiums, along with wage freezes in many cases, were the norm throughout the list of contracts that had been updated between January and March of this year. Almost all districts included pension payments, and all included significant increases in health care contributions.

Milwaukee, having ratified their contract months earlier, did not update their contracts to reflect any additional savings. Throughout the course of the budget debate, the teachers held strong to their commitment to the four-year deal they had signed in November.

Despite MPS Superintendent Gregory Thornton’s request to re-open the contract in order to save jobs, MTEA President Bob Peterson has strongly suggested that the district has no intention of amending the current contract. As a result, 519 layoff notices hung over Milwaukee Public Schools this summer.

There’s still time for the district to reopen negotiations on the already-completed contract. Milwaukee will have until late September to make moves that could retain over 200 teachers for the 2011-2012 school year. If the district can adhere to the staff contributions that have saved hundreds of millions of dollars statewide, they’ll be able to bring back a large part of their young corps of teachers.

MPS Potential Savings
	Wisconsin Per-Student Averages
Milwaukee Students	Employee Contributions	Health Care Bidding
80,934	$494.95	$211.45
Projected Savings:	$40,058,283.30	$17,113,494.30
	Total Estimated Savings:	$57,171,777.60

Based on our earlier estimate of a savings of $494.95 per student from contributions alone, Milwaukee would be able to save at least $40 million through payments towards health care and retirement. If the district were able to see health insurance savings ($211.45 per student) through competitive bidding that are comparable to the rest of the state, this could create another $17 million in fiscal benefits. These savings, which are a conservative estimate, still would be unlikely to close the budget gap entirely, but they would spare the jobs of hundreds of teachers.

A local solution exists that would save hundreds of jobs and keep teachers in MPS classrooms. Unfortunately, it appears that the union’s decision regarding the final two years of Milwaukee’s teaching contract is set in stone.

Only a Few, Large School Districts Will Resort to Layoffs; Most Take Advantage of New Law to Leverage Concessions from Teachers

While the state’s largest city, Milwaukee, won’t be found on the list of school boards that are drafting contracts based on the savings tools of Act 10, many of Wisconsin’s biggest districts have adhered to concessions in order to keep money in their classrooms. Places like Madison, Green Bay, Oshkosh, and Racine have all approved new contracts that will save millions of dollars in 2011-2012 alone. In all, at least 10 districts that serve 8,000 students or more have made the switch to employee contributions in their upcoming pacts.