TESD 2013/14 budget discussions underway; including outsourcing of services

Ray Clarke attended last night’s TESD Finance Committee meeting and provided his notes from the meeting.

Reading over Ray’s notes, it appears that members of TENIG (Tredyffrin Easttown Non-Instructional Group) are once again going to find themselves front and center for the 2013/14 budget discussion.  In prior years, it often looked like the TENIG custodians were the target in the school district’s budget woes.  Privatization through outsourcing was seen by some as a way to preserve the classroom and its programming, but at what cost?

Outsourcing services that historically have been in-house functions with long-time employees is a major shift in institutional culture.  How does the possible cost savings of outsourcing compare to the quality of job performance and productivity?  How does one measure the safety factor that comes with the connection that current custodians have developed with the schools and the students?  It is difficult to measure the ‘safety’ intangible to in-house custodial services, plus many of the employees live in T/E and their families are part of the community.

For the 2012/13 school year, the custodial workers offered a 10% reduction in their salaries and they did not take the 4.5% increase, which were contained in their existing contracts.  In real dollars, the cost savings to the District was $197K in salary reduction, plus the additional percentage contractual savings for a total savings of approximately $285K.  By giving back, TENIG’s custodial workers helped the 2012/13 budget and the additional bonus of saving local jobs.

Beyond the custodial workers, it looks like all of TENIG will be under the microscope for possible outsourcing in the 2013/14 budget. The plan is for separate RFPs for each of the various TENIG job functions – security, kitchen, clerical, etc. in addition to the custodial workers. The possible outsourcing of TENIG workers is still in the early stages of the budget process,

The following are Ray Clarke’s notes, along with his thoughts from the Finance Committee Meeting, 12/10/12:

The main topic of Monday’s Finance Committee meeting was the 2013/14 budget, in preparation for the January 7th Board vote on whether to apply for Exceptions.

The basic discussion framework is the projection model we’ve seen before, based off an estimate for the actual current year results.  Since this 2012/13 estimate drives every out-year, its accuracy is critical – yet the numbers do not inspire confidence.

Total 2012/13 expenses are estimated at $107.8 million, $2.5 million less than the budget.  The difference is driven by $1.5 million lower benefits cost (estimated by our benefits consultant), $0.4 million from the new TEEA contract plans, and $0.5 million net salary savings from “breakage” offset by 3 additional FTEs.  So the year’s imbalance turns from negative to positive, which is the good news.

However, expenses are still $6.1 million (6%) higher than the year just completed.  No-one at the meeting was able to provide a breakdown of this increase.  I think that the PSERS increase is about $2 million of the number.  Where’s the other $4 million going?

One clue might be that the total healthcare and benefits expense for the following year is projected in the model to be flat (0% increase), based again on the consultant advice.  Could it be that this year’s expense is overstated in the model?  I don’t think this can explain the whole $4 million, though.

So, it’s hard to put much faith in the projected 2013/14 imbalance of $2.8 million as a basis for discussion of next year’s tax rates.  Moreover, this number also includes the one time TEEA bonus ($1.1 million?), which should not be built into the tax base.

It hardly seems worth spending much time on the model for the years beyond 2013/14, except to note that refinements in the current version include:

  • Total healthcare costs increasing at 9% per year (previously 10%, 15%)
  • Special Education costs split from “other”, and projected to grow at 7-10%, vs 2-3% for other
  • PSERS expense will increase by $1.4 million next year, then $1.1 million, then $1.2 million, and then level off.
  • An additional 6.2 teachers are projected to be needed next year to meet enrollment growth

A number of “budget impact items” were listed but not quantified.  On the saving side, these include outsourcing not only TENIG functions, but also aides and para-educators.  Each TENIG job function would be bid separately in an RFP which would, for example, allow discretion to select a supplier that met standards for benefits.  I didn’t catch how the educational staff “out-sourcing” would work, but I gathered that it would allow the district to avoid the PSERS expense.  On the increase side, the topic of adjustments (in base salary or one time) for non-contract employees is on the table.

Bottom line: we are clearly going into the next budget cycle with a smaller problem than in previous years (no contracted near double digit compensation increases).  At the same time, though, we seem to have been lulled into being much less prepared and thence likely to vote for an Exception application with information even more imperfect than it needs to be.  (Yes, Exceptions don’t have to be levied if approved ……) .

Separately, at the beginning of the meeting, Chair Fadem asked for the financials to be presented as more of a “vanilla” summary.  Not sure that’s the direction the district should be going in.

27 Comments

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  1. Here we go again!! Right on time for the holidays!! How much more blood are they gonna extract from the proverbial stone this time?? How about using some of that 4 million your spending so frivolously to balance your budget.

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    Berwyn Resident Reply:

    I couldn’t agree more! Didn’t the custodial workers take a 10% pay cut to keep their jobs.

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  2. There are two themes mentioned in Pattye’s article above – outsourcing and budgeting. Volumes could be written about both. A few comments about outsourcing:
    .
    By exploring the pros and cons of outsourcing, the board is just doing their job of providing a “thorough and efficient education” as mandated by the state constitution.
    .
    Here is the outsourcing situation confronting the Board and employees. Let’s compare the compensation of a factitious worker employed by TE and a similar worker employed in the private sector. Both are paid $15 per hour and earn the same $30K per year salary.
    .
    Both have employer sponsored health care, but the health care for the TE worker costs $12K per year while the health care for the private sector worker $6K (high deductible with higher employee cost sharing).
    .
    The TE employee pension is the standard PSERS plan at 17% of salary ($5.1K) and rising over the next few years to 30%. ($9K). The private sector worker has a 401k plan with a 3% employer match costing $900 per year.
    .
    Add this all up and the TE worker costs the taxpayer $47K per year going to $51K in a few years. The private sector worker costs $37K plus whatever profit the private company charges the district. The school board is exploring outsourcing and I imagine they will weigh the cost savings (if any) of outsourcing vs. the intangible advantages of the current workforce mentioned by Pattye above.
    .
    The school board may find that outsourcing is not a good option and stay with the current situation. On the other hand, the board may find that the outsourcing option is more attractive. If so, a possible response is for the current employees to “give back” on health care and/or salary to become competitive. However, “giving back” is very difficult for anyone to accept.

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    Berwyn Resident Reply:

    Now that the school board is looking at outsourcing the clerical staff, I’d like to know how other school districts have handled it and how successful. There’s an inherent risk that once the district lets someone else handle part of the district’s operation, a degree of control is lost. I wonder how the parents would feel.

    Outsourcing transportation services is one thing, outsourcing people is something entirely different, whether its clerical or the janitorial staff.

    Outsourcing the kitchen workers, does that mean that the entire cafeteria function would be outsourced? That could be quite an interesting concept.

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    Anonymous Reply:

    Last year the custodial workers represented themselves in bargaining — as a result, they were able to help the District financially and save jobs. However, I had a sense from attending school board meetings, taking outsourcing off the table, should be viewed as a ‘reprieve’ for a year. It comes as no surprise that the school board directors are starting off the budget discussions with the custodians at the top of the list.

    Last year I think the school board suggested that nearly $1 million could be saved by outsourcing the custodial services. Keith, what does UCF do about their custodial services — is it outsourced? Could you share that information.

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    Keith Knauss Reply:

    Anonymous,
    .
    UCF is one of the few districts where all support services (including transportation) are done with in-house personnel. During 2011 the district examined outsourcing of transportation, food services and custodial services.
    .
    We found no advantage to outsourcing custodial or food services. However, quotes from several transportation companies revealed a possible savings. Subsequently, the transportation staff identified several cost saving opportunities that made the in-house service competitive with the private company. Most were satisfied with the outcome.
    Here are the minutes and the financial analysis.
    http://www.ucfsd.org/~boarddocs/FOV1-00037F90/FOV1-00044395/FOV1-00040E25/3A-4%20-%20Board%20Minutes%20-%205-31-11%20Special%20Mtg.docx.pdf?FCItemID=S0350BEDC&Plugin=Loft

    I skimmed the TENIG contract and my impression is that salary and benefits are higher at TE as compared to UCF.

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    Andrea Reply:

    The school district employee has a state mandated pension. The school district has a state limited budget.

    The school district has an annual contribution to the pension program so there are no unfunded liabilities building up….

    “Biased against the workers” is a nonsense term. Requirement to balance the budget is a duty.

    If the board wanted only to control costs, they could cut all sorts of programs. Like virtually every unionized industry in the US, outsourcing has cost jobs. Even non unions have faced it. Outsourcing to other countries to reduce costs, or outsourcing for specific skills.

    It stinks. Any suggestion that it requires more than counting beans reflects an arrogance that you believe none of us understands these problems but you. And you are wrong that the board has no vested interest. The new President has 3 kids in the system. The VP has 3 kids in the system. They started a fund where people who don’t want to see cuts but want to pay their “fair share” (which is restricted by the tax law) are welcome to.

    Interesting statistic:
    The top 10 US-based employers requesting H-1B visas for highly skilled foreign workers include Microsoft (MSFT), Deloitte, and Cognizant Technology (CTSH), according to analysis by the Brookings Institute. Microsoft requested more than 4,100 visas per year for foreign workers on average. The majority of the visas are for Indian and Chinese nationals.

    Outsourcing by bringing people here….

    So, please again tell us how to put emphasis on the kids, comply with Act 1, negotiate CBAs and put out a product worthy of our community expectations. Maybe you could try not to stay too many obvious things too.

    Keith — I very much appreciate your trying to bring some clarity to why outsourcing is ever on the table. I have told the story here — the bus drivers were outsourced because TENIG would not allow us to negotiate with them. No, school boards are not JUST about the bottom line. THAT would be easy. But let’s not bog down with anything but opinion. And we all know who has the last word on EVERYTHING. Sigh.

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    Keith Knauss Reply:

    Andrea,
    .
    You reminded me of another challenge all school boards will have when negotiating a new contract with employees. All employees will be getting an automatic, but largely invisible, compensation increase of about 4% next year. It’s in the form of deferred compensation; not salary – the PSERS retirement contribution rate is going from 12% to 16%. Thus, while the employee is getting the benefit of a 4% compensation increase, it is hidden and untouchable since it doesn’t show up in a paycheck. This situation will repeat again and again as the PSERS rate goes from 16% to 21% to 25% to 29% over the next few years.
    .
    Conversely, private employers offering a 401K plan can give the employee a very visible 4% salary bump. The employee then has a choice of whether they want to spend the money now or defer their compensation by making an additional contribution to their 401K retirement plan.
    .
    Some employees need the money now; some will want their compensation deferred into the future. The school district is mandated by law to give the 4% increase as deferred compensation. The private employer is not so constrained.

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  3. John I agree with you about the technology issues. So what is your feeling about the union driven denial of on line classes insofar as this is a benefit of technology and might help the kids learn?

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    Andrea Reply:

    FF
    The online learning is a statewide issue…it’s the same as “outsourcing” ….so the claim was that it is a working condition that needs to be bargained. PSEA is hard and fast opposed. How do you think it might work? The grievance was not about the use of technology, but that the union doesn’t want to be replaced by an online provider. Any ideas? Kids do still have access in some cases, just not in lieu of a classroom teacher.

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  4. T/E will actually pay more in the end for contractors. When you look at that at least on the Custodial end, they do more than just clean, I know Our custodians are required to Know how to and plow snow, line sports fields, minor repairs and working on the heating/cooling system. Oh wait they have to also have good communication skills with outside vendors and us parents and Teachers too !!! Oh and let’s not forget about knowing the the functions of the place… That takes years… You think an outside vendors gonna do all that? If they do its gonna be extra… Much extra,

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  5. Keith
    Your point was not lost on the teachers. I made a statement at the TE board meeting where I read the annual contribution to PSERS each of the next 5 years on behalf of the TEEA president if she had a wage freeze., approximately $3-4k each year. I heard from many, many people that teachers were astonished at the magnitude and understood it, in some cases for the first time.

    Wonder what LWJ–Last Word John — says about that. In his world, no statement goes unchallenged.

    Centerville–I really believe the district totally agrees with you. Instead of presuming they are “penny wise and pound foolish” as some have said here, I think some workable options need to be considered. Do you think this community would support a referendum to enact an EIT? Do you think a cogent argument should/could be made to increase taxes? Does everyone think so little of the voters that they only read yellow signs? If John calls the residents of this community “morons” enough times, does that make them irrelevant? He was once the REPUBLICAN endorsed candidate and lost to a Democrat…(first time that ever happened???), so doesn’t that mean voters do make choices.

    LWJ told me he posts here for sport…taking a nano second to do it, and mocked me that I take it seriously. I find all this to be worthy of discussion and appreciate this forum for us to discuss. So, I hope others will offer ideas and not just take shots. This community does evolve. I believe good people can disagree and still be good people.

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  6. We are all focused on pension issues…maybe we should consider the idea of how you fund a pension in an economy where banks offer less than 1% on CDs?. The unfunded liabilities are for pensions that were designed for a time when they used 5-10% returns to grow the fund. Now the pensions offered will require 3-4 times the capital to fund them. $100 savings used to provide $5+ a year in interest. Now it provides 50 cents. So is it irresponsible to have the pensions unfunded, or is it unreasonable to even try to catch up in the funding? The school district budget problems are that the state requires “catch up” funding….with up to 29% of salaries going towards those pension funds. The townships apparently have no actuarial requirements to escrow for the funds, so they do what almost every government does — let the current deductions pay for the current payouts…and hope it will grow.
    . Just today a retired friend that worked for Bell Telephone told me his pension has been turned over to an insurance company which is proposing annuities…of course the amount you can pay out is far less than any pension someone might have received. 401Ks are not protected from market fluctuations, but pensions are…however the money funding those pensions is not immune to the economic fluctuations. So things are changing. The US borrows from social security….and the system is not funded into the future, but politics prevent anyone from stepping up and admitting that we can no longer afford to pay retirees starting at age 62 / 65when they live about 25 years.

    So — how do you solve this problem? Does a teacher or police officer with an $80,000 pension understand it takes about $4 million dollars to fund that (and that’s at 2%). Since compounding is almost negligible in this current economy, that $4M is the equivalent of $125,000 a year for 30 years. NPVs nowadays…wouldn’t even know what number to use. But the state still uses 8%….so do we really think that’s a good number?

    I’m asking. I dont know the answer.

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  7. I hate to say I agree with EIT, i would hate paying it but it might solve a lot of these issues. It stinks all around right now. But I’d hate to see a foreign outfits come in here and jeopardize the safety and security issues as well as all of the other crap that would degrade our schools. Again this is not the corporation it’s a school district and we have to treat it like one. What did we see today in Conneticut, not to say Thayer have outsiders working for them, but that is just one more reason to have your own people who have there eyes on things.

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  8. There are some good comments here, getting at the fundamental observation that our local economic problem is just the national (indeed all developed countries’) problem, writ small. We are setting up obligations for future generations to pay.

    The advantage the US has over Tredyffrin is that it can control monetary policy: the financial repression of non-existent interest rates is one way to get asset holders to contribute to those liabilities.

    But that, as noted above, in turn compounds our local problem, since investments have no reasonable medium term expectation of growing at rates need to fund our liabilities. And while the long run likelihood of higher inflation may raise those nominal rates of return, many liabilities grow with inflation also.

    So what are we to do? My own view is that the first step comes with recognizing the full liability incurred today. With the police, it’s all in our control, and we can calculate the expected total cost (assuming realistic returns and inflation) of an employee serving today. Then we can have a discussion about the level of services we can afford, given efficient staffing levels and competitive current and retiree compensation levels. The question of the liability that was incurred for previous employees, or for previous service of current employees, is a separate one: whether to fund it, pay as it comes due, or somewhere in between. If all that results in a need for higher taxes, then I’ve argued here before that an EIT makes much sense.

    The school district calculus begins in the same way, although PSERS is outside our control. But the notion of “out-sourcing” aides and para-educators results from exactly this process – recognizing the full cost (more or less) of the current and future compensation, and considering eliminating that future portion. Also, the reason that the various TENIG services are above market is in some part due to that deferred compensation package that is way above market. Employees need to be treated fairly by the district, but in turn they need to consider how sustainable their position is. The custodians have undertaken this calculation in previous years to the benefit of all, I think. Will the other providers do the same?

    All this requires our representatives asking hard questions and being open about the answers. My own sense is that the township supervisors are taking steps in the right direction, but I’m really concerned that school board factions are moving to mislead and obfuscate. More to come on that.

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  9. So, what’s up at the School Board?

    We have a $6 million growth in expense this year that no-one at the Finance Committee could or would explain.

    The chair of the Finance Committee is taking steps to make the financial statements “more vanilla”.

    Then today, the chair of the Facilities Committee moved to bury authorization for a $2 million plus IT infrastructure expenditure in the Consent Agenda for the upcoming Board meeting, giving no consideration to questions raised by Mrs Crowley about:
    1. Statements by our consultants that without the hire of two additional IT professionals, the investment could cause the district network to “go backwards”.
    2. Explicit inclusion of the $165,000 additional cost for mechanical and electrical infrastructure to support the new equipment
    3. Explicit estimates of the cost of additional staff training

    The total compensation for those two IT professionals alone could reasonably be guessed at $200,000 a year – in ten years equal to the capital cost!

    And the Director of Technology reported on a plan to survey the teachers on how they plan to use the new technology next year – after the money is authorized! I understand build it, and they will come, but really…..

    (FWIW: Between publication of the Agenda materials on the website and today, the cost for the low bidder for the network upgrade portion increased by $340,348 (27%), for the high bidder by $69,500 (4%). This was ascribed to the complexity of the bid and its option structure.)

    Other than both phases of the oft-deferred maintenance and storage facility, this is the largest capital item on the 7 year plan. The lifetime commitment for the district is at least double the capital cost. The project vastly increases the speed and capability of the district network and brings wireless capability to every building in the district, including K-5. Every student, teacher and administrator will feel this. Something to be proud of, rather than bury?

    So, what’s up at the School Board?

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    Ray Clarke Reply:

    An interesting development on this.

    Far from inclusion on the Consent Agenda for the 1/7/13 Board meeting, the bids for the network and phone system upgrade have now been REJECTED:

    “The bids received did not technically comply with the requirements of the bidding documents and applicable law; therefore, the District Solicitor has recommended that the District not proceed with an award based upon the bids. Given the nature of the services and to enhance the likelihood of receiving a viable proposal, the Solicitor recommends that the Board reject the bids received and authorize the Administration to solicit proposals for the Telephone System Upgrade Project and the Network Upgrade Project.”

    Cold feet at the prospect of the network going backwards without the big increase in operating expenses?

    Regardless of the real reason, it’s way beyond time for the district to have qualified professional administration of its technology infrastructure.

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    TR Reply:

    Ray,

    Are you suggesting that that the School Board is making up a reason to not undertake these projects to cover up their own incompetence? Why wouldn’t the board just say the projects are cancelled because it is something that cannot be afforded now?

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    Ray Clarke Reply:

    Perhaps actually the Board is showing some competence in asking for new bids.

    At the Facilities Committee just a few weeks ago, this project was full steam ahead, notwithstanding cost projections that changed materially just prior to the meeting and the revelation that substantial operating additional expense would be required.

    The Solicitor argument looks like a way to reject the bids without a public discussion and vote. So likely we will never know the details because this item continues to be buried in the consent agenda.

    Cowardly Anon Reply:

    “Regardless of the real reason, it’s way beyond time for the district to have qualified professional administration of its technology infrastructure.”

    Are you saying the tech people there now are not qualified, not professional or what? Don’t they have an EIT department?

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    Cowardly Anon Reply:

    IT dept? (talk about freudian)

    Ray Clarke Reply:

    I have never been impressed by the quality of the IT discussions at either the Facilities Committee or the Board. We seem to be dependent on layers of consultants for leadership in an area of high expense and of high and increasing leverage. Sometimes a team can benefit from the boost in insights, expertise and energy that come from a coaching change ….

  10. An EIT is just a boost in revenue. It is not revenue neutral. For the people paying it, it’s all good. For the people not paying it, it doesn’t promise them any control over property taxes.
    In fact, why woudn’t the BOS and TESD want one? They would get this bonus every year, and would still have to predict it and raise property taxes to cover expenses. The EIT is nothing more right now than a substitute for what the transfer tax used to be….revenue they get “because”….

    Let’s have a referendum. Make the case. See if people want to pay it and get a handle on the expenses. If $3M is leaving the township, that comes back. If only 30% are paying it, that means there’s another $7M that comes in from the pockets of people not currently paying it. Property taxes are not likely to come down. (There was a referendum once where that was the option — revenue neutral — crashed and burned)

    This is why the Tea Party got legs….everyone cringes at cutting programs and costs….so we look for more revenue. And those TP extremists want everything to be about cost cutting instead of revenue increases. While we all sit here debating this, the death tax is quietly going to go from sheltering $5M to only $1M. “Rich people?” Think again. If you don’t have $1M in assets, you better have a big pension.

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  11. Outsourcing transportation services is one thing, outsourcing people is something entirely different, whether its clerical or the janitorial staff.
    **

    Actually, that hasn’t worked out that well. We had one bus driver who was constantly talking on her cell phone. Took forever to get that person ousted. Would have been far easier had the person been a direct district employee.”

    In fact, that is not accurate. I have no information about the person you wanted to be rid of, but terminating a union employee is practically unthinkable. If the driver you reference was in fact a contract driver, removing her is as simple as a phone call to her employer. He might not be able to fire her, but he can remove her from our routes at our request.

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  12. In house district employees including custodial staff are trained in lock down drills. There should be no outsourcing due to safety alone..

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  13. No one wants to outsource, but no one wants to forget the mission: educating students. If you have a fixed amount of revenue, you need to keep expenses within that boundary. The state does not let local districts fund at will. Custodians with a pension are expensive. Maybe worth it, but nonetheless, expensive compared to the alternatives. There are NO easy answers. But this point about training is timely and a good one.

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