Friday, February 25, 2011

Another Look at the Ballantrae Question

As I've continued to ponder this question about whether Ballantrae is truly in jeopardy of being "taken over" by Columbus City Schools, I thought it would be a good idea to reread the language of the Win-Win Agreement. My thinking has changed somewhat as a result.

The Win-Win Agreement defines some terms which need to be put in the context of this discussion:
Annexed Territory means all areas of land which have been annexed to a city or village for municipal purposes, but on the effective date of this Agreement, have not been transferred to the school district of which the city or village is a part.
I believe this definition was created to deal with neighborhoods like The Glen or Golfview Woods, which at the time of the Agreement had already been annexed into Columbus, but remained in the Hilliard School District.

This doesn't seem to apply to Ballantrae, because those parcels of land had not yet been annexed to Dublin when the Win-Win Agreement became effective.
Future Annexed Territory means any area of land that is annexed to a city or village for municipal purposes after the effective date of this Joint Agreement
This would seem to be the definition that applies to Ballantrae. In other words, for the scope of the Win-Win Agreement, Ballantrae is a "Future Annexed Territory."
Municipal School District means the school district of the city in which the Annexed Territory or Future Annexed Territory is located.
If Ballantrae is a Future Annexed Territory, then "the school district of the city in which the... Future Annexed Territory is located" would seem to mean Dublin City Schools if you evaluate the Agreement as though it were written today. But at the time the Win-Win Agreement was signed, the parcels which now make up Ballantrae were in the Hilliard City School District, making Hilliard Schools the Municipal School District for the purposes of the Win-Win Agreement.

I think the challenge of interpreting this definition has to do with the fact that at the time the Win-Win Agreement was written, the focus was the relationship between Columbus Public Schools and the suburbs. It wasn't written with much thought given to cases where the two parties are both suburbs.

Section 4 of the agreement implements the first of my assertions, which is that any parcels in the City of Columbus but a suburban school district at the time the Win-Win Agreement was signed - e.g. The Glen and Golfview Woods - would remain in the suburban school district. It says:
Unless otherwise provided herein, Annexed Territory shall not hereafter be transferred to the Municipal School District for school purposes.
Section 5 of the agreement deals with all future annexations. I'll take the liberty of reordering the phrases to help make it more understandable:
Future Annexed Territory [e.g. the parcels which now make up Ballantrae] shall be automatically transferred for school purposes to the Municipal School District [e.g. Hilliard City Schools], except Future Annexed Territory from such other school districts as are identified and set forth in Exhibit A1 through A7..."  unless:
  • otherwise provided within, OR;
  • otherwise provided in a valid agreement entered into between two or more Boards of Education [ie - an annexation/transfer agreement already in force between two or more school districts], OR;
  • provided in an agreement between two or more Boards of Education, reached not later than ninety (90) days after the effective date of an Annexation [ie - an annexation/transfer agreement can still be worked out for 90 days following an annexation].
So what of all that language applies to the Ballantrae situation?

The exhibits referred to in the first paragraph of this section are descriptions, in words, of various areas of undeveloped land which Columbus City Schools agreed could be left in the suburban school district without fear that Columbus City Schools would later lay claims, even after it is developed, houses built, and there are kids attending the suburban school district.  The areas described in the exhibits closely mirror the areas described in the water/sewer service agreements each suburb has with the City of Columbus.

While this implements the second of my assertions - that undeveloped land annexed into a suburb under the water/sewer service agreements would remain in whatever school district it was in prior to the annexation - it still doesn't seem to address Ballantrae, because those parcels are not included in Exhibit A4, the one which applies to Hilliard City Schools. Nor are they addressed in Exhibit A6 regarding Dublin City Schools, which seems much more concerned about the parts of the Dublin school district on the east side of the Scioto River. So how then does Ballantrae fit into this Agreement?

The Win-Win Agreement contains a clause which isn't often seen in a civil contract:
Section 8: This Agreement shall become effective only upon the effective date of legislation enacted by the Ohio General Assembly fully authorizing and enabling the provisions of this Agreement... In the absence of such legislation, this Agreement shall be deemed as never having been entered into by any of the Boards of Education.
In other words, this agreement is governed not only by what is "within the four corners of the contract," as the lawyers like to say, but also by that which is written into the Ohio Revised Code, in particular Section 3311.06, which I referred to in the previous article. This law contains its own set of definitions, one of which uses the same name as the Win-Win Agreement, but with a slightly different meaning (text from the ORC is shown in blue to help distinguish it from the language of the Win-Win Agreement):
Annexed territory means territory that has been annexed for municipal purposes to a city served by an urban school district, but on September 24, 1986, has not been transferred to the urban school district.
Compare that to the definition of "Annexed Territory in the Win-Win Agreement:
Annexed Territory means all areas of land which have been annexed to a city or village for municipal purposes, but on the effective date of this Agreement, have not been transferred to the school district of which the city or village is a part.
Notice the introduction of the term "urban school district" in ORC 3311.06, which defines this term this way:
Urban school district means a city school district with an average daily membership for the 1985-1986 school year in excess of twenty thousand that is the school district of a city that contains annexed territory.
In the context of central Ohio, the only school district which meets this criterion is Columbus City Schools. 

It is also ORC 3311.06 which addresses contiguous territory:
The territory included within the boundaries of a city, local, exempted village, or joint vocational school district shall be contiguous except where a natural island forms an integral part of the district, [or] where the state board of education authorizes a noncontiguous school district, as provided in division (E)(1) of this section
... and (E)(1) says:
If territory annexed after September 24, 1986, is part of a school district that is a party to an annexation agreement with the urban school district serving the annexing city [This is true, the Ballantrae parcels are part of the Hilliard School District, which is a party to such an Agreement], the transfer of such territory shall be governed by the agreement [But the Agreement is silent in regard to this situation!]
If the agreement does not specify how the territory is to be dealt with [Which seems to be the case here], the boards of education of the district in which the territory is located and the urban school district shall negotiate with regard to the transfer of the territory which shall be transferred to the urban school district unless, not later than ninety days after the effective date of municipal annexation, the boards of education of both districts, by resolution adopted by a majority of the members of each board, agree that the territory will not be transferred and so inform the state board of education.
Uh-oh.  This seems to say that Columbus Public Schools and Hilliard City Schools should have negotiated a side agreement when the Ballantrae parcels were annexed into Dublin. Or should the negotiation have been between Columbus Public Schools and Dublin City Schools, implying that Ballantrae should have been transferred to Dublin City Schools before the first homes were ever built and occupied?

This is where I need to again remind you that I am not an attorney. I can read the law and agreements as a lay person, and try to interpret what I read based on what I see in black and white before me, using the skills I learned studying logic, computer science and one course in Business Law. But the law is much more complicated than that, as it is augmented and clarified over time through the case law developed from trials and the decisions of judges.

So it seems that the situation with Ballantrae is not clear. Perhaps there is some case law which solves the ambiguity, or perhaps there are some side agreements between the Columbus, Hilliard, and Dublin which clear things up, although I doubt this is the case as it seems like such an agreement would have become public knowledge at some point.

I also suspect that this is an issue which didn't have to be raised right now, just to solve what seems to be a legal and contractual ambiguity. It is not at all clear that the City of Columbus will continue to enforce its long-standing policy of requiring annexation before water/sewer services are extended. One of the principals of the Big Darby Accord is that Columbus will extend water/sewer service into the Accord area while allowing it to remain in the townships. While the land immediately adjacent to Ballantrae is not included in the Big Darby Accord territory, the same motivation for Columbus applies - that the City simply isn't all that interested in taking on the fiscal and operational burden of continuing to extend the frontiers of the City - unless it results in more tax revenue for the City than it will have to expend to serve the newly annexed territory. Residential developments don't meet that criterion - only commercial developments do. 

Note that the development along Hayden Run Rd which was annexed into Columbus also includes a new substantial commercial development at its westernmost reaches, where the Giant Eagle and other businesses now sit. I don't know this to be the case, but I can surmise developers working deals with the City of Columbus where they promise to build a commercial component along with the residential component, as an incentive for the City to accept the annexation and extend the water/sewer service. 

The developer just needs to be willing to make the bet that new housing in the Columbus School District will sell, albeit at a reduced price compared to housing in a suburban school district. So far, that seems to be paying off for the Hayden Run Rd developers, perhaps because that area is served by Centennial High School and its feeders, which have demographics not that different from the suburban districts. If Columbus City Schools reassigned that area to Linden-McKinley High School, I suspect the demand for more houses would evaporate.

Whatever all these dynamics might be, I still feel there is some other motivation for initiating this conversation right now. The people of Ballantrae should ask the instigators exactly what that is.

Tuesday, February 22, 2011

Secession from the District: The Ballantrae Question

I've been asked twice this week about the conversation going on in Ballantrae in regard to leaving the Hilliard School District, supposedly to become part of Dublin City Schools.

Much of what I've heard seems to based on information I believe to be incorrect. Nor am I clear what the motivations are for pursuing this action, although my experience is that they are rarely matters of abstract philosophy. In other words, I suspect that there are a few folks who feel they have much to gain for personal reasons they have not fully disclosed, and are attempting to invoke other arguments to futher their private goals - even when those arguments have no merit.

For example, the main assertion seems to be that because of the annexation of a large tract of land roughly bounded by Cosgray, Hayden Run and Avery Rds into the City of Columbus, and the simultaneous transfer of that same land into Columbus City Schools, a situation has been created that somehow puts Ballantrae into jeopardy of being 'taken over' by Columbus City School as well.

This is hogwash.

The reason given for this supposed exposure is, as I understand it, that it is against Ohio law for school districts to have 'islands' (non-contiguous) parcels of land included their territories. Indeed ORC 3311.06 states precisely that, but with some exceptions. Those exceptions were written into the law specifically to deal with a unique situation that exists in Franklin County - the so-called "Win-Win Agreement."

A review of history is required.

Many decades ago, the City of Columbus was given exclusive control of the regional water/sewer system. In that role, the City of Columbus has negotiated water/sewer service agreements with the surrounding incorporated municipalities. Those agreements include clear descriptions of the extent to which a suburb can annex land and be allowed to extend water/sewer service. It also prohibits the extension of the water/sewer service into unincorporated parcels. In other words, a developer is required to have his land annexed into whichever city has the rights to extend the water/sewer system to that particular parcel. This will come back into play later in the story.

Columbus was very shrewd in the way it drew up this contract, for it preserves "growth corridors" between each suburb that allow the City of Columbus to expand to areas beyond the suburbs. For example, the western limit of the expansion area defined for the City of Hilliard is along a line which runs roughly due north from Bradley High School. Therefore, any land west of this line can be annexed only into the City of Columbus.

Now let's talk about the "Win-Win Agreement."  Its history goes like this:
  • In 1977, in the case of Penick v. Columbus Board of Educationthe Federal Court ruled that busing be implemented in Columbus City Schools in order to racially integrate the schools. That led to a wave of "White Flight" to the suburbs.
  • This "White Flight" created a demand for suburban housing that could be satisfied only by the construction of thousands upon thousands of new homes. It launched a boom for developers and home builders unlike any ever before seen in our region.
  • Because all these new developments would have to be served by the regional water/sewer system, which is controlled by the City of Columbus, the fastest and most economical way to extend the water/sewer service system was to find pockets of land at the frontier of the existing water/sewer line network, but within suburban school district boundaries. In our community, among the first of these developments were The Glen and Golfview Woods. Both were outside the expansion zone assigned to the City of Hilliard, but were adjacent to the City of Columbus, and so were annexed by the developers into the City of Columbus, while remaining in the Hilliard School District.
  • The Columbus School Board decided that the "White Flight" was a bad thing for Columbus City Schools, and it sought to have the State Board of Education - the state agency which sets school district boundaries - declare that municipal and school district boundaries should be made the same. The Columbus School Board had compelling arguments: a) the whole reason for the Penick ruling - desegregation - was being circumvented; and, b) Columbus school buildings were emptying out (e.g. Central High School, which is now COSI), while the suburbs were building schools like crazy, costing the taxpayers a ton of money.
  • A time of great angst followed. Residents of neighborhoods like Golfview Woods (where my wife and I lived at the time) feared that they would be reassigned to Columbus Schools and their kids bused to schools far away because of the desegregation ruling. The demand for suburban housing dropped dramatically as potential homebuyers stood on the sidelines waiting to see how this situation would work out. This greatly concerned the developers, who have always carried a great deal of political weight in our region.
After a period of fighting spanning several years in both the courts and the Statehouse, the Win-Win Agreement was developed. Its key points are these:
  • Any developed land in the City of Columbus but a suburban school district would be allowed to remain in the suburban school district as long as the suburban school district continues to make annual 'revenue sharing' payments to Columbus City Schools. I prefer to call these ransom payments, and ours is now $1 million/yr.
  • Any undeveloped land annexed into a suburb under the terms of the water/services agreement would remain in the school district in which it was part prior to the annexation. This is the one that applies to Ballantrae.
  • Any undeveloped land which is thereafter annexed into the City of Columbus is automatically shifted to Columbus City Schools.  This is the clause which causes all those islands in the Columbus School District to develop, such as the big Dominion development along Hayden Run Rd between Cosgray and Avery.
Because of the existence of the Win-Win Agreement, certain exceptions were written into ORC 3311.06, the law governing the transfer of school district territory:
(C)(2) When the territory so annexed to a city or village comprises part but not all of the territory of a school district, the said territory becomes part of the city school district or the school district of which the village is a part only upon approval by the state board of education, unless the district in which the territory is located is a party to an annexation agreement with the city school district.
The Win-Win Agreement is an example (perhaps the only example) of such an annexation agreement. ORC 3311.06 goes on to say:
(F) An urban school district may enter into a comprehensive agreement with one or more school districts under which transfers of territory annexed by the city served by the urban school district after September 24, 1986, shall be governed by the agreement.
So, as long as the Win-Win Agreement stays in force, it supersedes the Ohio law in regard to school district boundaries and annexations.  What is the risk of the Win-Win Agreement not remaining in force?

The risk isn't zero. But the situation is much more complicated than it was in the 1980s, when most of the land outside I-270 was undeveloped and unincorporated. Since then, the City of Columbus has indicated that it's not all that eager to expand its frontiers for residential development, which requires it to take on the attendant responsibilities of providing police, fire, garbage collection, street repair, and all the other expected city services.

But that's not exactly the question regarding Ballantrae, which was annexed into the City of Dublin before the first house was built. I think the question is whether, in the absence of an "annexation agreement" such as the Win-Win Agreement, Columbus City Schools - a wholly separate political entity than the City of Columbus - would be likely to make a push to have Ballantrae transferred to Columbus City Schools?

I don't think that's at all likely. The law seems to be written to favor having school districts aligned with municipalities, and so if the Win-Win Agreement terminates and Ballantrae has been made an island of the Hilliard school district because of annexations by the City of Columbus, the outcome would surely be to cure the problem by transferring Ballantrae to Dublin City Schools.

So what's the rush?  Again, as a layman, I think the arguments asserting that the residents of Ballantrae must immediately take matters into their own hands before something bad happens - like an involuntary transfer to Columbus City Schools - are extremely weak. 

I suspect there is some other underlying motivation which is driving the instigators of this conversation. I would encourage the residents of Ballantrae to ferret that out before heading down the complex (ie expensive) process of initiating a transfer to another school district.

NOTE: please continue your reading to the followup article on this subject, found here.

Friday, February 11, 2011

The Pendulum Swings: Proposed New Labor Laws

This is the first of a series of articles about the changes to collective bargaining being debated in the General Assembly.  The next article can be found here.

In its Friday February 11, 2011 issue, The Columbus Dispatch published a story about a bill introduced to the Insurance, Commerce and Labor Committee of the Ohio Senate by Shannon Jones (R-Springboro) which would radically alter the rules governing unionized public sector workers. As you may know, the online version of the Dispatch allows readers to post comments. As I write this article, over 300 comments have been posted, and the number is going up quickly as I type.

Because these comments are not moderated and can be posted anonymously, it is common for the threads to devolve into idiotic and vile language, and it took only about dozen comments to get there with this one. While I often make comments on Dispatch stories dealing with public school economics - using my own name - I have no intention to do so on this one. There is simply no chance for reasoned discourse on the Dispatch forum at this point, and any attempt will be quickly buried in more lunacy.

That's the problem. We seem utterly incapable as a society of having a respectful and well-informed debate about such important things. We quickly go to our corners, get jazzed up by some partial truths and outright lies, and come out fighting.

The consequence is that our political landscape has become increasingly polarized, resulting in legislative agendas which seem to be intent as much on revenge as resolution. When we say that we want to "get even," that doesn't mean that we want an equitable outcome, but rather than we want to inflict as much harm on "the other side" as we perceive they inflicted on us when they had the power.

I fear that's the road we're going down on this discussion about unions in the public sector.

The perception, deserved or not, is that the public sector unions have lorded it over their communities for too long, with the aid and tacit approval of the politicians the unions work so hard to get elected, and as a result have driven those communities perilously close to fiscal ruin because of their excessive compensation demands, coupled with employment rules that handcuff the management.

I think the truth is that we have a problem with inertia. Inertia, as you know, is described in Newton's First Law of Motion this way: "Every object in a state rest or uniform motion tends to remain in that state unless an external force is applied to it."

We all have a painful understanding that our economy cycles between boom and bust. My parents were born in the Roaring Twenties, and therefore also witnessed the devastation of the Great Depression. They paid the price necessary to win World War II, and went on to build the great industrial success of the last half of the 20th century. That's not to say there weren't good days and bad after WWII, but our country had been lifted to a new level of economic performance, and we were protected by the laws and regulation developed as a result of the hard-learned lessons of the Depression - laws such as the Glass-Steagall Act.

Unfortunately many of those protections were undone during the past couple of decades, by both Democrats and Republicans, leading - in my opinion - directly to the financial shenanigans that have us teetering on the edge of another depression. We're driving on the cliff side of a mountain road with no guardrails, and we've dropped one wheel off onto the berm. I've been on such roads in the Rockies many times, and believe me, there's a high pucker factor associated with driving on them. That's a bit how I feel about the state of our economy.

Wages and benefits in the private sector tend to react pretty quickly to the general state of the economy. Some sector of business leads us into a new growth spurt, and while the companies in that industry scramble to hire the workers they need, compensation is driven up by the competition for those workers. As those workers spend their new-found money, the communities they live in thrive. We can all conjure up examples: aerospace engineers as NASA scaled up for the mission to land a person on the Moon; computer scientists as the Internet took off; investment bankers and lawyers when greed took the place of substance at the end of the 20th century.

Public sector workers are often left behind at the beginning of these booms, especially the unionized workers. Because they work under collective bargaining agreements, compensation matters are usually negotiated once every few years. If the economy takes off, union workers often see their friends and neighbors enjoy raises and bonuses while the union workers are stuck with a deal they negotiated in tougher times. In other words, the property of inertia which says that an object at rest will stay at rest comes into play.

Gradually, the benefits of an improving economy are negotiated into the union agreements, sometimes even with some components to help the union workers "catch up" to the private sector.

It is also often the case that about the time the public sector union agreements catch up with the private sector, the private sector goes sour, and private sector compensation takes a hit. Meanwhile, the union agreements are still firing on all cylinders, and will likely zoom past the private sector. This is the other side of inertia - that once an object is put into motion, it will keep going in the same direction, at the same velocity, until some outside force is applied.

This is where we are right now, in my opinion.

When private sector and public sector compensation numbers are close to each other, we don't hear many complaints from either group (by the way, I include wages, salaries and all other benefits such as pensions in this notion of "compensation").  I think it's also true that when private sector compensation starts getting well ahead of the public sector, the process of bringing the public sector workers back into alignment happens without a lot of angst. It's easy to be generous when your wallet is full.

But when the folks in the private sector perceive that the folks in the public sector are getting the better deal, it's a different story.

Much of the public sector is funded by income taxes, sales taxes and other taxes which are extremely sensitive to the state of the economy. When the economy booms, tax revenues boom with it, and our government agencies find themselves flush with cash. Much of that growth in revenue is invested in hiring more people, and paying the people they already have better.

However, when the economy takes a hit, income-related tax revenues fall off quickly, while the expenses of government entities tend to chug along as though nothing had changed (inertia again). Any cash reserves which might have been built up are quickly depleted, and the entity is faced with asking the taxpayers for more money and/or cutting expenses, which usually means laying off employees.

We've already seen this in municipalities, which derive nearly all of their funding from income-sensitive taxes. Even though much of their income comes from property taxes, which are not so sensitive to income, Ohio's school districts will join the party this year because a good chunk of school funding also comes from the State of Ohio, which has an $8-10 billion budget shortfall to cover, again largely because the state tax revenue stream is income sensitive.

Frankly, the public sector unions haven't always been very sympathetic to this situation. Perhaps it comes from remembering what it was like being left behind at the beginning of an economic boom, and having to fight to catch up. Perhaps it's a lack of empathy for the pain being felt by private sector workers at times like these, when folks are not only losing their jobs, but also chewing through their retirement savings trying to make mortgage payments, pay property taxes bills, and keep food on the table.

Of all the kinds of government entities out there, one that plays a special role in our society is the public school system. Yes, we respect and honor the folks in uniform, from the troops in battle overseas, to the cops and firefighters in our community. We appreciate the services provided by the folks who plow the snow and pick up our garbage. But our relationship with all of them is still not like the one we have with the teachers, to whom we entrust our children for half the days of the year.

We pick a community to live in because that's where we want to raise our kids, and where we want them to go to school. We choose (by the slimmest of margins) to tax ourselves to the extent necessary to fund our schools, which is substantially the same as saying to pay our teachers and staff, as nearly 90% of our budget is spent on compensation and benefits. In other words, we have a built-in bias to support our schools and our teachers.

But that relationship sometimes gets strained when it comes time to negotiate a new collective bargaining agreement. Such was the case last time, in 2008. The previous contract with the teachers expired on December 31, 2007, but negotiations stretched into following year, primarily because agreement could not be reached on how to apportion the cost of health insurance premiums (the employees contributed nothing to health insurance costs beforehand). Agreement was reached in May, but a 9.5 mill operating levy on the March ballot was soundly trounced.

Part of that may have been due to the tactics employed by the teachers' union when they felt the negotiations weren't going their way.  One was a "work to the rule" action that left a bad taste for many parents. As I recall, the teachers also authorized their union leaders to call a strike, although it never got that far.

The notion that "we're all in it for the kids" breaks down pretty quickly when our kids are used as pawns in what should ethically be a conversation between the teachers and the taxpayers, and not impact the kids at all.

So I see this Senate Bill 5 as being the retribution for the failure of the public employee unions to figure out how to advance their agendas in a way that keeps them in economic sync with the private sector, and - in the particular case of the teachers' unions - for bringing our kids into the argument. They misused the power granted to them under the current law,  and this new law means to take most of that power away.

I fear that this Bill is so vindictive that it will bring the system to a stop and initiate a time of chaos in our schools.

For example, the entirely of Section 3317.13 of the Ohio Revised Code, which describes much of the way teachers are paid, including the minimum pay schedule (which some believe also defines "steps" as law), is reduced to a two sentences reading: "(A) As used in this section, 'teacher' means all teachers employed by the board of education of any school district, including any cooperative education or joint vocational school district and all teachers employed by any educational service center governing board; (B) Each teacher shall be paid a salary based upon merit." (see lines 7276-7378).

Even if you are supportive of the notion of merit pay - and I am - there are some substantial operational obstacles to implementing such a program. Perhaps the greatest of these is determining the criteria for defining "merit." This proposed Bill is silent on this, which I think means that we'll replace the arguments over base pay increases, step increase and contributions to insurance premiums with ones having to do with crafting a definition of "merit." It's not as easy as one might think.  Do you simply use the standardized test scores?  If you do, how can you apportion the responsibility for the ability of a student to a current teacher versus prior teachers?  If  you try to use some kind of value-added measure, how do you compare the performance of a teacher who has many struggling students versus one who has a room full of gifted kids?

Having been a manager in the private sector for thirty years, I'm deeply worried about whether our administrators are prepared for this. After all, each and every teacher will have to be individually evaluated every year, and that evaluation will have to be used as the sole basis for determining how much the teacher is paid the following year. And we're not just talking teachers, but also the secretaries, bus drivers, custodians, IT specialists, groundskeepers and everyone else who is an employee of the District.

This is a brand new burden on our administrators, and they aren't trained for it. They do indeed perform evaluations, but not every year for every employee, and frankly the stakes aren't that high. As long as an employee is rated high enough to not warrant termination, that employee will be granted a raise according to whatever employment contract he/she works under.

Under this new system, should it become law, an administrator will be required to look an employee in the eye and explain why a certain raise amount was chosen for that employee.  Weak leaders will be tempted to just give the same raise to every employee and avoid the controversy. But the whole idea of a merit system is to reward according to performance.

If you've made it this far ... thanks for hanging in there. There is much more than can and will be written about the effort of the current Governor and General Assembly to rewrite public labor law. Even if the law is enacted as written, you can be sure that it will be followed by months if not years of litigation and acrimony.

I ask only two things:

  1. Let's find a way to debate and compromise so that when it's all over, we don't have a 'scorched Earth' outcome, and;

  2. Let's leave the kids out of it this time.

Monday, February 7, 2011

Insurance Pools for Public Schools

After the cost of salaries paid to the teachers, administrators and staff, the next largest cost for any school district is that of providing health insurance. Today's Columbus Dispatch ran a story about a concept which is again getting some attention in the Statehouse - insurance pooling.  This is because there is a belief by some that Ohio's public school districts can - in aggregate - save money with this approach.

So what is "insurance pooling" anyway?

I'm far from being an expert into the nuances of health insurance, but I think we all understand the general concept:  we pay someone else to assume some of the risk associated with an aspect of our lives.

Take car insurance for example. We spend a fair amount of money on our cars, and we would be pretty annoyed to wake up one morning and find our car gone. In other words, once you buy a car and park it in your driveway, you run the risk of it being stolen and you being out all the money you've paid for it. However, you can reduce that risk by paying an insurer to assume some of it. So let's say you buy a $20,000 car, and the insurance company offers to give you $20,000 in cash if someone steals your car and it isn't recovered. You'd make your decision on that offer based on how much the insurance company wanted to charge you to take the risk. Let's say they charged $100/yr.

Would you buy that insurance?  Probably.  That $100 premium seems like a reasonable amount to pay for the peace of mind you would get knowing that if your car were stolen, you'd get sufficient money to replace your car.

Why is it a good deal for the insurance company?  Because they know that not every car gets stolen. In fact, a very small percentage of cars get stolen. So if they can sell an auto theft policy to thousands of customers, but have to pay out loss claims to only a small fraction, they win the bet. The cost of auto theft insurance premiums are kept in check by competition between auto theft insurance companies (everyone knows the Gecko, and that Nationwide is on your side).

Health insurance starts with the same concept: we pay the premiums for health insurance in order to have someone else assume part of the cost of our health care, should we need it. It's quite a bit more complicated than auto theft insurance, but the general idea is the same: insurance companies need to have the bets in general come out in their favor in order to stay in business. They need to be able to charge enough in premiums so that they can pay out claims and still make a profit. And unlike the case with auto theft - everyone is going to make claims against their health insurance.

Another way in which health insurance differs from auto theft insurance is that it has become a custom in this country that health insurance is, in nearly all cases, paid for by the employer, not the individual. From the perspective of the employer, the cost of an employee includes the full gamut of salary, benefits and taxes. Benefits can be defined as money an employer spends on behalf of an employee but not reported on his/her W-2.

For example, the contract with the teachers' union says each member receives life insurance coverage in the amount of $40,000 at no cost to the employee. The school district isn't assuming that risk - it buys a master life insurance policy that covers all the employees. But if an employee dies, the death benefits is paid to whomever the employee names as his/her beneficiary, not the school district. Therefore the cost of this life insurance policy is a component of the compensation package for the employee, not protection for the school district.

Until the signing of the 2008 contract with the teachers' union, health insurance coverage was handled the same way. The school district bought a master insurance policy from an insurer, and paid 100% of the premium. However, to reduce the premium, the employees share in some of the costs, by way of co-pays and deductibles. Starting with the 2008 contract, the district's employee began paying a share of the basic premium as well, stepping up to 10% (capped at $136/mo for family coverage) effective Jan 1, 2010.

In 2010, the School Board, on the advice of the Treasurer, decided that it would no longer buy health insurance covering 100% of the risk, but would instead build its own fund from which to pay claims. This is called self-insurance. The idea goes to the basic principle of insurance: in exchange for having the school district - that is the taxpayers - assume the risk for paying claims, we would not have to pay an insurance company to put its own profits at risk. In other words, it should save us money. So far, it seems to have done just that, but only time will tell - after we have a few more years of claims history to examine.

That doesn't mean we can just tell the insurance company to take a hike.  It is enormously complex and expensive to handle health insurance claims. Every time an employee goes to a doctor, is rushed to the emergency room, or is issued a prescription, someone has to go through the process of deciding whether the claim is valid and appropriate to pay. It would be stupid for the school district to scale up and staff an operation internally to do that. So we contract with a "Third Party Administrator" (TPA) to take on that function.

In essence, it means we continue to pay the insurance company for all the administrative services they performed as our insurer, but we don't have to compensate them for assuming any risk.

We can do this because we're one of the largest school districts in Ohio, and have the resources necessary to build a fund large enough from which to pay claims (the fund gets it money from the part of our budget which formerly went to pay the insurance premiums, including the employee contribution). But Ohio has tons of small school districts which could not afford the risk - a single large claim could wipe out their cash reserves. So they are forced to buy insurance and bear the cost of transferring the risk to the insurance company.

The General Assembly is therefore once again looking into health insurance pooling - the idea that all school districts in Ohio should band together in regional groups to buy health insurance.

I try to keep partisan politics out of this blog, but I don't think this conversation about insurance costs is really a cost conversation at all. It's about winners and losers. If we made a huge insurance pool out of all the school districts in the state, there would be no net change in insurance claims or the cost of insurance. The only difference is that some districts would pay more in premiums, and some would pay less.

Obviously, the winners of a pooling program will be the districts with high per-employee claims costs. The demographics of a district's employee will have a lot to do with that. If the staff is young, there will be lots of claims associated with pregnancy and child rearing. If the staff is older, there will be all the claims that come with aging, such as diabetes and heart disease. For example, Hilliard Schools and Olentangy Schools are nearly identical in size, but our employee population is older. That's because we had our big growth spurt in the 90s, and hired tons of young teachers then - teachers who are 20 years older now. Olentangy has been growing for the past decade, and is still growing. So they have a preponderance of young teachers now.

The losers will be the districts which have a healthier employee teams, whether through effective wellness programs, demographics, or just the luck of the draw. Such districts should be enjoying lower per-employee health insurance costs, and will see their costs go up if forced into pools with districts with higher claims histories.

The losers might also be districts like ours, who have the wherewithal to be self-insured. If we are forced to join an insurance pool, we would again be paying premiums, and those premiums will likely be more than our claims cost plus the cost of the TPA contract. The only way for that to not be true would be for us to join a significant pool of districts with claims costs lower than ours. In other words, becoming a winner by making others become losers.

The Republicans have again won control of our state government, and are going to use that power to execute their agenda. I have no problem with that, any more than I have problems with the way the Democrats have pushed their agenda at the national level the past two years. Parties are put in power by the will of the voters. As long as we have political parties - and it's too bad that we do - that's the way it will be.

But while the common image is that Democrats stand for big tax-and-spend government and do so with the support of labor, and that Republicans stand for minimalist government with the support of big business, neither stereotype is any longer true. Both major parties are now of the tax-and-spend variety, and while they may each have a reliable base of supporters, the big money in this country places bets on both Red and Blue. Big business backs Democrats when the Democrats promise to send tax dollars their way, and big labor backs Republicans when Republicans have influence over labor issues (e.g. when John McCain sat on Senate committees that influenced education spending).

In the case of health insurance pooling, the Kasich administration seems to want to replace the free market with a government-mandated solution. That seems like something we'd expect from a Democrat. As always, there's the claim that by getting the government involved, money will be saved.

Do any of us really believe that?