With the sunset of Chapter 78, boards of education and local employee unions are free to bargain over changes to employee contributions towards medical insurance premiums (Chapter 78 contributions). It is no surprise, then, that the union’s opening salvo in nearly every negotiation for a contract starting with the 2018-2019 academic year has been a demand to reduce employees’ Chapter 78 contributions. Were this their only request, negotiations might be less complicated. Sadly, it is not. Other proposals include increases sufficient to pay out increments and increase the value of each step on the guide, reductions in time on task, improvements in other economic terms, language changes and, sometimes, improvements to benefits.

Typical board proposals reduce the level of benefits and provide salary increases consistent with a 2 percent tax levy cap and uncertainties regarding state aid. Other board proposals often address additional work days or time for instruction, other forms of student supervision or in-service training that enable the administration to manage its resources more effectively. There is no need to propose maintaining Chapter 78’s Tier IV contributions because even though it has ‘sunset,’ the law mandates that the contributions remain in effect until a change is negotiated.

Much negotiating time will likely be spent discussing the need to address the contributions. The association will talk about ‘negative net’ pay and how hard the last four to six years have been. The members love their jobs, but despite receiving annual raises, many of them are taking home less than they were seven years ago. Some may talk about leaving the profession, or how hard it is to attract and retain new teachers when they have to pay so much for benefits. Those at the top of the guide will surely point out that they are paying as much as $10,000 for their insurance. While this position may soften as the negotiations continue, the association may insist that there will be no agreement without some relief from Chapter 78.

Fiscal Pressure on Boards There is no denying the impact of Chapter 78 on employees’ take-home pay. There is also no denying the fiscal pressure boards and administration face when constructing a budget that maintains programs and facilities and provides negotiated salary increases while not exceeding the tax levy cap. In addition, health insurance premiums continue to increase at 8 to 12 percent or more annually, and the contributions do not offset these increases.

One would think that with the advent of premium sharing, both sides would benefit from a frank discussion of insurance options and potential cost savings. Prior to Chapter 78, most negotiations involved at least some discussion about medical benefits and cost-containment. Board proposals to change benefits were initially rejected, but ultimately, if it was important enough to the board, at least some changes were made and the cost savings were used to help offset the salary increases for the unit. Post-Chapter 78, negotiations still involve a discussion about medical benefits, and board proposals are still routinely rejected; even those that will reduce the very contributions the union believes are too high. Rejecting a proposal that will result in a reduction in contributions for individual members, and generate savings that can be used to fund increases appears counterintuitive. Now that they are paying for their benefits, individual teachers measure the impact of a benefits change on their own paycheck. From that perspective, the reduced contributions are often insufficient to justify the higher out-of-pocket costs associated with the change. This analysis appears to take place independent of any thought of a salary increase.

Maintaining Chapter 78 Contributions When faced with a proposed reduction in Chapter 78 contributions, the board could, and perhaps should, respond with a resounding “no.” There is nothing illegal or inappropriate about rejecting a proposal. Maintaining Chapter 78 contributions should be a “die on the sword” issue for the board. That said, the board should at least listen politely to the proposal.

If after politely listening, the board wants to entertain a proposal to change Chapter 78 contributions, it should evaluate the quid pro quo for Chapter 78 relief. There has to be some giveback or concession regarding health insurance or something else of value to the board. Thus, the board must consider its priorities. What are the most important gains it seeks in this process? Is it willing to make a monetary concession to achieve more expansive management rights? Is keeping costs, either in salary or benefits, as low as possible the goal? While ‘time is money’, is an additional work day worth the anticipated cost of Chapter 78 relief?

If the board decides that change is possible, it must determine the nature of the change. A brief review of the NJSBA’s recent report reveals that at the time of this writing 16 percent of districts in the state have made some Chapter 78 concession. (The NJEA reports a higher number, as it counts contracts including a change. If a district has separate bargaining units for certificated staff, custodians and secretaries, and all negotiated changes, the NJEA reports that as three changes. Of course, the NJSBA relies on accurate reporting by its member districts.)

The NJSBA report also reveals that there is no limit to the parties’ creativity. Local unions and boards have rolled back to Tier III or some other percentage of Tier IV, fixed contributions at the percentage or the dollars contributed on a certain date, calculated the average contribution and applied it to all employees regardless of salary, modified the contribution tables and lowered the maximum contribution. Some districts have agreed to lower contributions for employees that select plans with lesser coverage and have agreed to ‘rebates’ of contributions in varying amounts based on plan selected, salary or step on the salary guide.

Boards have achieved gains in exchange for these concessions. Among other changes, districts have bargained for additional instructional, meeting or in-service time, more conferences, new base insurance plans, changes to the design of existing medical or prescription plans, eliminated or reduced waiver payments (non-SEHBP participants must bargain this; SEHBP participants need not), limited or eliminated tuition reimbursement or eliminated longevity. In this sense, negotiations in a post Chapter 78 world remain unchanged. The parties do the best they can to reach a settlement that provides each of them with some of what they want without giving up too much of what they have.

Local Comparisons Because local associations and, where present, mediators and fact-finders look to what neighboring districts have done as they try to find paths to settlement, boards must be aware of what is going on around them. To the extent that neighboring communities have negotiated Chapter 78 changes, it is more likely that you will be pressured to do so. Local unions in some counties have had greater success than others. For example, there are 16 districts in Bergen County and 15 in Monmouth that have made Chapter 78 concessions, yet there are no reported settlements with those concessions in Atlantic and Warren counties and only one district each in Mercer and Cape May counties that include concessions.

No negotiation is complete without an agreement on salary increases. One would think that since boards have a limited amount of money to spend, a salary settlement with Chapter 78 relief would be lower than one without it. Reported settlements do not bear this out. Districts reporting Chapter 78 changes granted average salary increases of 2.87 percent, 2.95 percent and 3.06 percent in 2017-2018, 2018-2019 and 2019-2020. Statewide averages for districts which have maintained Chapter 78 for the same three years are 2.85 percent, 2.91 percent and 2.93 percent. Since a dollar spent on salaries has the same budgetary impact as a dollar returned to employees as Chapter 78 relief, one has to wonder how this happens.

Resolving these issues requires access to information which may be obtained from your administrators, the NJSBA, your other professionals and sometimes even the NJEA.

Armed with this information, the knowledge of the community and with the assistance of your administration and your negotiations professional, a board committee can review the options and determine which, if any, of them is best for your district, its students, employees and taxpayers.

Keep in mind though, that any agreement that reduces the contribution means your revenue is reduced and the board must spend more money. Any agreement that creates new limits on contributions will require the board to negotiate a change to that limit. A 26 percent cap on contributions, no matter how reasonable today, will have to be bargained to 27 percent. A flat dollar cap on contributions will require the board to negotiate over increases to the cap. When determining if the union proposal to change Chapter 78 now is appropriate, consider if it is likely that your local would ever agree to changes in the future.

In the end, there is one certainty – every contract settles; though some with more discomfort than others. Negotiations is not for the faint of heart. No one can make you agree to a deal you do not want. Each settlement reflects the parties’ needs, which may change over time.

Andrew Brown is an attorney with Adams Gutierrez and Lattiboudere.