September 5, 2006
JOINT COMMITTEE ON PUBLIC SCHOOL FUNDING REFORM
By Michael A. Vrancik, Director, Governmental Relations
New Jersey School Boards Association
Cutting Costs in Public School Districts
Good afternoon. My name is Michael Vrancik, and I am here today on behalf of the New Jersey School Boards Association (NJSBA), a non-partisan federation representing all New Jersey’s school boards. NJSBA is grateful to have the opportunity to testify before you today regarding ways cutting costs in public school districts.
My comments today will address two areas: what school boards are doing across the State on a basis to operate more efficiently and what the Legislature can do to help us become even more cost effective.
A critical area for local school boards is negotiations.
Public education is a labor-intensive operation, with an estimated 75 percent of the costs directly related to items negotiated in the collective bargaining process. In particular, health benefits costs are a significant driver of local district operating costs. In the mid 1980’s approximately 80% of local districts participated in the State Health Benefits Plan (SHBP). Since then, the number has steadily declined to the point where less than 40% of local districts now participate. Local districts have reported that their decision to leave the SHBP is due to the plan’s inflexible structure. This structure prohibits negotiations over the most basic cost-containment measures that are available through private carriers. Specific examples include:
- Payment of employees premiums
- Method of paying for dependent coverage
- Employee eligibility for coverage
- Prohibition against duplicate/multiple coverage
- Choice of coverage
- Level of deductibles and co-pays
- Incentives for non-enrollment
School boards have been frustrated even further by the fact that other public entities have been given a certain degree of flexibility under the state plan. Yet, that same potential for cost savings has not been provided to school districts. For example, the state government has the authority to negotiate different levels of benefits for its employees; local boards do not. Municipalities and county colleges have the right to institute waivers of duplicate coverage; this opportunity is not available to local boards of education.
School boards that have left the SHBP have had impressive success in containing health benefit costs. One district negotiated waiver of coverage for staff members with health coverage under their spouses’ plans. This district reported $2 million in savings within one year, and an additional $800,000 in savings the following year.
For another school district, negotiating a managed-care option as its basic coverage resulted in saving nearly 1% of their total salary base.
Reports of boards’ successes in this most difficult area have increased each year.
The Legislature can help promote more savings by implementing reforms that would permit greater flexibility to negotiate within the SHBP. Reducing the impact of uncontrollable and unpredictable increases in health insurance premiums would go a long way in addressing the cost of school operations and the concurrent effect on local taxpayers.
Sharing services is another key area which deserves focus.
New Jersey has yet to realize the full cost-saving potential of shared services in areas such as transportation, special education, administration, maintenance and recreation. The New Jersey School Boards Association believes that the Legislature should consider expanding and funding a state grant program that encourages school districts and local governments to developed shared-service arrangements.
NJSBA supports the establishment of collaborative purchasing agreements and the voluntary sharing of “back office” operations especially in smaller districts where economies of scale can be realized to the advantage of local taxpayers. To this end we have begun a study of local district shared service programs across the state to determine what works and recommend their expansion to other districts who could realize savings.
New Jersey’s local boards of education have a long history of working collaboratively to share services and reduce the costs borne by local taxpayers.
In Bergen County, for example, the Northern Valley school district shares special education services, staff training and curriculum development with seven independent elementary school districts whose students attend its two high schools. The result: the seven communities are able to control costs and ensure continuity of curriculum and educational quality for their students through high school. At the same time, they retain governance over their independent elementary school programs, costs and staffing. In addition, Northern Valley operates a program for autistic children from 30 school districts. Northern Valley officials say the initiative saves significant costs over the only other alternative – private school placement.
These types of cost-saving efforts can be implemented through current school district configurations without the forced cookie-cutter consolidation favored by some state officials, but which makes little sense locally. Examples of shared service initiatives can be found throughout the state. Last year, the Somerset County Business partnership estimated that shared services among school districts, municipalities and county agencies saved county taxpayers $13.6 million.
Local school districts have responded enthusiastically to the Alliance for Competitive Energy Services (ACES), a large energy-buying cooperative for the public schools, coordinated by the New Jersey School Boards Association, the Association of School Administrators, and the Association of School Business Officials. In previous years, ACES districts (over 400) have saved an average of 13.75%, a cumulative total of $5.9 million off of their entire electric bills—almost triple the savings of the average consumer. Last January, the ACES program was expanded to include natural gas purchasing. Thus far 225 school districts have signed on as members of the ACES natural gas procurement program.
This is just one example of an instance where the State Legislature paved the way for local school boards to operate more efficiently and reduce the burden on local taxpayers. In February 2004, the Education Mandate Review Study Commission identified State statutory and regulatory requirements imposed upon local districts and made recommendations regarding ways in which those mandates could be altered or eliminated to provide additional opportunities for costs savings to local boards of education. The Commission’s report outlined a series of proposals to streamline district operations, improve service delivery and reduce costs.
Proposals ranged from the elimination of specific mandated programs and activities which involve the directed use of class time, the elimination of circulars and other printed items to be replaced by websites, libraries and or media centers to more general proposals in the areas of business services and data collection. We urge the legislature to revisit these recommendations which could save districts millions in operating costs.
Special Education mandates received special mention from the Commission. In fact, while noting that care needs to be taken to guarantee no weakening of important services, the commission recommended careful study of the “myriad of federal, State and judicially imposed and interrelated requirements,” which could to yield significant local savings. It should be noted that legislation enacted to address extraordinary costs of special education at the local district level has never been completely funded. NJSBA has commissioned a study of special education programs in each school district to identify cost drivers and make systematic recommendations to improve the delivery of these services and reduce operational costs.
There has been much discussion lately about school district consolidation. At face value, the idea of consolidating school districts seems like a logical progression of the shared services approach. Although many communities have considered expanding educational and extra curricular offerings by merging with their neighbors the deal breaker has always been property taxes. New tax rates resulting from adjustments to each town’s contribution to the newly formed regional school system based on varying levels of property wealth have been the deal breakers when it comes to school district regionalization. When one of the towns discovers that the merger would result in an increase in their property taxes, the measure fails to win approval.
If the legislature is serious about encouraging consolidation of school districts, it needs to address this financial obstacle. Otherwise, a tax reform initiative could turn into a tax-increase nightmare for many New Jersey communities.
The NJSBA would welcome additional opportunities to appear before this committee with local board members who can share their direct experience and make recommendations to improve the delivery of public education across our great state.
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