A Collaborative Approach to Collective Bargaining

Mark Van Clay

Two School Districts Find a Way to Put Boards and Unions on the Same Fiscal Page

What if a board of education could cap labor costs to fit within a balanced annual budget and available revenues?

What if a school district’s labor union could manage its own financial affairs without exposing the board to debt?

What if both labor and management had common fiscal goals such that discussions about money consistently were collaborative rather than adversarial?

Pie in the sky? Perhaps not.

Two modestly sized school districts in Illinois–one with a strong property tax base and one heavily dependent upon state aid–have implemented a comprehensive shared-revenue model as part of collectively bargained labor agreements.

The model is adjusted to the specific fiscal circumstances of each district and segregates all direct and indirect labor expenses from the rest of the budget in order to dedicate a set amount of dollars to fund those expenses. One is in its second year of shared revenue while the other is in its sixth year.

Lake Bluff, Ill., has a K-8 school district of about 1,040 students located among a line of wealthy suburban communities stretching north from Chicago along Lake Michigan. It is funded primarily through local property taxes (94 percent), which enjoy a steady and healthy annual growth.

However, due to a state-imposed property tax cap implemented in 1992, Lake Bluff can collect only 5 percent or the percentage of the previous December’s Consumer Price Index–whichever is less–above its total tax collection from the previous tax year. The only exception to the cap is a tax collection based upon new construction. Lake Bluff spends over $6,831 per pupil, well above the state average of $5,705 per pupil.

Dolton, Ill., has a K-8 school district of about 2,850 students. It derives 52.5 percent of its revenues from state aid and spends about $1,400 less per student than the state average. Property taxes, which comprise about 46 percent of its revenue base, are stagnant in terms of annual value growth. There is no significant new construction collection. State aid increases are driven by student enrollment and the amount of new dollars allocated annually by the Illinois state legislature. Any new dollars come essentially from state aid.

A Basic Structure

How does a shared revenue model work? Structurally, the steps are relatively simple:

* No. 1: Establish labor costs within the context of a balanced budget.

This involves two tasks: first, creating a list of expenses dedicated to labor and second, determining the historic costs of those expenses as a percentage of the budget.

Labor expenses are costs that directly or indirectly benefit a specific labor group, such as teachers. Typically, they include obvious costs such as salaries, health care benefits, extra-duty pay, travel pay, and coursework reimbursement. Less typically, they also include early retirement payouts, workshop costs (if workshops are the choice of the teacher), and costs of substitutes. They do not include costs like classroom supplies or workshops assigned by the administration. These and all remaining costs are funded at the discretion of the board of education.

Once a list of labor costs is compiled, those costs are viewed over past fiscal years as a percentage of a budgetary fund. This percentage will be collectively bargained to establish the first, or base, year in a shared-revenue collective bargaining agreement.

Boards will want this percentage to be based upon balanced budget years or modified accordingly to replicate a balanced budget. Labor will want to ensure that the agreed-upon base year percentage is at least equal to percentages allocated to similar costs in previous years and will want the base year percentage tied to a specific number of labor employees. This is to guarantee that additional employees’ costs are not added to labor’s pool of dollars without additional dollars to offset those costs.

This labor percentage cost will vary from district to district. For Dolton, the percentage was 70.9 percent of the education fund. This fund supports all expenses directly attributable to educational efforts (as opposed to expenses related to business operations, transportation, bonding, etc.). For Lake Bluff, the labor cost percentage was 61 percent. The percentages in both districts were determined through the collective bargaining process and based on previous years’ expenses as percentages of past education fund audits.

* No. 2: Determine the revenue sources that will pay for the labor costs.

Such revenue sources should be pre-defined and stable in nature. Since labor costs are generally annual and long-term, they should be fueled by revenue sources that are annual and long-term. As these sources increase year to year, the increases are divided among the board and labor on the basis of a collectively bargained formula. This represents the annual outside revenue increase available to labor’s pool.

Of equal importance in defining shared-revenue sources is defining revenue sources that are not shared. One-time or unstable revenue sources should remain under the sole discretion of the board, as should revenues from any other fund other than those (such as the education fund) that already fuel labor costs. This is because one-time or unstable revenue sources cannot permanently fund annual, long-term expenses such as salaries or employee benefits.

In the cases of Lake Bluff and Dolton, for example, tax revenues based upon new construction were not dedicated to fuel labor expenses because such revenues were not predictable from year to year. General tax levy collections, however, would represent a predictable annual revenue source.

Complex Aspect

* No. 3: Define how dollars will flow back and forth between the board and labor as the number of employees expands or contracts.

This is the most complicated aspect of a shared-revenue approach. Boards require annual revenue sources not previously committed to labor by which to fund necessary expanded services, such as increasing the number of teachers employed as student enrollment increases.

For school districts enjoying steady annual property growth such as Lake Bluff, dollars collected each year due to new construction can serve as a board’s expansion reserve to fund the hiring of additional teachers. For districts such as Dolton that do not enjoy this annual property growth, primary revenue sources such as general tax levy collections or state aid should be divided between board, labor, and expansion reserve costs. This allows boards, through the expansion reserve, to have the fiscal resources available to fund additional employee costs.

Even though teachers’ costs are managed by labor, additional teacher hiring costs come from expansion reserve dollars that flow to labor’s pool, thereby neutralizing a negative fiscal effect on that pool. Likewise, should teaching positions be cut back, the dollars covering the costs of those positions flow back to the board. A basic balancing concept is at work. Labor should neither profit by keeping dollars assigned to personnel costs that were eliminated nor absorb the additional costs of new hires without additional dollars to offset those costs.

This balancing concept can express itself in a variety of ways. Dolton chose to have labor’s pool absorb the costs of up to two new teachers per year. However, teachers would keep the revenues dedicated to any reduction in teachers for up to two per year. Lake Bluff took a more conservative approach. Labor chose to absorb no new teacher costs. In return, the board would receive labor pool dollars representing the costs of any teacher reduction below the previous year’s total.

* No. 4: Establish incentives that reward balanced pools and penalties that apply to unbalanced pools.

In traditional collective bargaining agreements, no incentives exist for labor to save dollars. They control no expenditures and are responsible for no fiscal outcomes. They derive no benefits for thrift because any savings revert back to the board. Typically, they bargain for as many dollars as a board will allow, and frequently labor’s bargaining battle cry is, “Let the board worry about where the money will come from.”

In an increasingly revenue-tight fiscal and political era, everyone will have to worry about where the dollars come from. Revenue sharing makes labor and boards partners in thrifty fiscal management through a judicious use of incentives and penalties. Incentives for labor include the ability to roll over a pool balance from one fiscal year into the next; the ability to share in the distribution of education-fund interest should the labor pool show a year ending fiscal balance; and the ability to escrow certain revenues into interest-bearing accounts that will produce additional revenue for labor’s pool.

Likewise, penalties for labor include the requirement that any debts acquired over the previous fiscal year be paid off with new “outside revenue dollars before such new dollars can be spent in any other way and the loss of sharing education fund interest should the year-end labor pool balance be negative.

Once more, the balancing concept is applied. There are now tangible benefits for labor to practice careful and thrifty fiscal management and penalties if it does not. For the teachers in Lake Bluff and Dolton, the ability to roll dollars over from a previous fiscal year was a major shared-revenue selling point. For both boards, leverage to ensure balanced pool budgets was an incentive to convince them to try a shared-revenue approach. Lake Bluff teachers completed their first shared-revenue year with a healthy positive balance while Dolton teachers have had positive pool balances for five consecutive years.

Protective Measures

* No. 5: Determine some necessary safeguards to ensure the proper balancing between board and labor needs are maintained.

Such safeguards balance differing board/labor desires for certain types of expenditures. From my experience in two revenue-sharing districts, three safeguards are recommended.

The first centers upon the teachers’ salary schedule. Traditionally, boards want to raise the beginning levels of a salary schedule in order to remain competitive in the new teacher marketplace. Labor, on the other hand, is more concerned with placing new dollars toward present members at the middle and top of a salary schedule and less concerned with placing new dollars toward people who are not yet a part of their labor group. The safeguard is to let labor design the salary schedule but give the board veto power over its implementation if beginning salaries are not competitive.

The second safeguard deals with hiring new employees. Boards often need to hire qualified employees at other than entry-level salaries. Labor now has a desire to spend as little on new salaries as possible so labor’s pool can capture the difference, or “spread,” between a higher-salaried teacher who leaves the district’s employ and a lower-salaried replacement. The spread becomes a significant inside revenue source for labor’s pool. The safeguard is to bargain a certain discretionary latitude for boards to hire (e.g., up to step 6 of any lane on the salary schedule) without needing hiring approval from labor.

The third safeguard has to do with the idea of “cannibalization” i.e., the temptation to cannibalize one expense in order to direct additional dollars to a more favored expense. Two measures address this concern. First, no cost that is not a direct labor benefit–for example, classroom supplies–should be a part of labor’s pool unless it is separated from other pool costs. For example, the dollar value of classroom supplies, if assigned to labor’s pool, would have to be guaranteed from year to year.

Second, any cost assigned to labor’s pool must remain the responsibility of labor, even if the cost is assigned a zero dollar value. For instance, if labor determined that it wished to take dollars originally allocated to travel pay and shift it to salaries, it could not then go to the board and expect additional funding for travel pay.

Benefits and Challenges

To many, shared-revenue sounds like a risky proposition. Even the term “shared-revenue” may sound suspicious. After all, school boards will have to give up considerable fiscal authority. Labor will have to accept a cap on its expenditure desires that is tied firmly to available revenues.

Each side may well ask, “What’s in it for us?” In fact, both boards and labor can enjoy tangible benefits from this shared-revenue model. For boards, the likelihood of a balanced budget has increased dramatically because labor costs, a significant portion of any school district’s costs, are now contractually tied to available revenues rather than to fixed expenses.

In addition, boards can remove themselves from many traditional bargaining headaches over a variety of labor cost demands. Now labor itself will determine the value of these demands and be financially responsible for them. For labor, a real incentive exists to manage its fiscal resources because it can keep what it saves. It has far greater fiscal authority than in traditional collective bargaining models and it has tangible resources, such as the salary spread between veteran teachers and new teachers, by which to create new dollars for its members. For both groups, a real incentive exists to collaborate together on ways to be fiscally responsible. Now the best interests of both groups are served when the other group succeeds.

A shared-revenue approach is not without challenges. Some challenges are real. Others come from misconceptions brought about by traditional collective bargaining mindsets. A real challenge centers around an assumption of some type of annual revenue increase. The model is in jeopardy if, for example, property values drop instead of grow, or if state aid is significantly reduced. But under traditional board/labor agreements, that risk is also present. Both Dolton and Lake Bluff have a “precipitous economic circumstances” clause in their collective bargaining agreements that re-institutes collective bargaining should such an economic shortfall occur.

Misconceptions may be deeply held by both board and labor, which can greatly complicate considerations of a shared-revenue approach. Typically, boards are concerned over a loss of some of their fiscal authority and a belief that teachers are incapable of responsibly managing district dollars. In fact, the board’s original need for tight fiscal control is to ensure a balanced budget, something that labor now contractually guarantees. Likewise, teachers in both Dolton and Lake Bluff have proven to be skilled budgeters when given the opportunity.

Labor also has concerns that center around a distrust of board financial summaries and an unwillingness to risk penalizing itself if its pool falls into a deficit position. With shared revenue, however, it is as much in the best interests of boards to give labor an accurate financial view as it might have been to cloud that view under more traditional collective bargaining circumstances. As for potentially penalizing itself, astute labor leaders realize that such a risk is more than offset by realizing what labor always has sought from management-direct control over labor’s expenditures. To those in authority comes the responsibility.

Worth Risking?

If you don’t collectively bargain, don’t have labor issues, and your revenue stream is plentiful now and into the future, don’t bother with shared revenue. You have reached a state of fiscal Nirvana and don’t need it or, for that matter, anything else.

But if Nirvana is not your address or home page, a shared-revenue approach has much to offer. Aside from the financial benefits previously discussed, shared revenue in two districts has made the collective bargaining process a much more collaborative experience, allowing for an atmosphere of mutual problem-solving rather than mutual distrust. Fiscal concerns in each district have not disappeared, but battles over fiscal resources no longer occur.

Is the change worth the risk? After implementing shared revenue in two districts, I am convinced that what is not worth risking is a traditional adversarial collective-bargaining model or a fiscally irresponsible collaborative agreement. Shared revenue takes money off a table of board/labor contention and lets both sides focus on their true common ground: children.

Turning Old Issues Upside Down

In Dolton, Ill., teachers slashed their travel budget by 90 percent to put more dollars into health benefits. In Lake Bluff, Ill., teachers crafted an incentive plan to not use sick days and personal days and passed out checks on the first day of school for high attendance that ranged from $35 to $500.

In both cases, teachers were managing their own resources under a shared- revenue model. In both cases, they asked administrators for consultative, how-to advice. Both boards were informed of butwere not required to approve the changes.

Life with shared revenue has caused some paradigm shifts, particularly concerning board/administration/labor relationships. In both Lake Bluff and Dolton, teacher financial oversight committees meet regularly with district superintendents and chief business officials to craft and manage the teachers’ pool budgets. The administrators serve as financial consultants to the teachers, sharing tips on. budgeting, bookkeeping, policy, and investment options.

In Lake Bluff, the superintendent is regularly consulted on teacher bargaining-agreement changes proposed by the Teachers Financial Oversight Committee, and even has himself proposed changes advantageous to the teachers. In both districts, the business offices track and process labor pool transactions.

This collaboration was not born of philosophy. Practicality–the need for both board and labor to financially succeed–has caused each group to seek out and assist the other.

Long-standing labor issues are now being viewed in a totally different light. The 90 percent cutback of travel benefits in Dolton was a teacher-initiated solution to two problems: an inequitable distribution of travel pay and a need to increase dollars for health insurance without generating those dollars from salaries. Likewise, the Lake Bluff attendance incentive attempted to reduce costs of substitute teachers–a cost under shared-revenue funded by the teachers’ pool. The dollars saved in substitute costs were turned into attendance bonuses. In both districts, the class size issue has been turned inside out. Increased class size is now a teacher as well as a board concern because the resulting staff increases may be funded from the teachers’ pool.

A side effect of shared revenue in both districts has been a far greater ease in resolving collective bargaining language issues. When dollars are not an area of contention, such language issues greatly diminish in both quantity and intensity. At least in Dolton and Lake Bluff, if money is not the root of all evil, it does seem to be the root of most, if not all, board/labor controversies.

A Superintendent’s Delight, A Business Officer’s Headache

Shared revenue can indeed be a superintendent’s delight if one keeps a “balancing” concept at the forefront of one’s thinking.

The balancing concept is centered around the tenet that neither the board nor labor should profit or lose due to a fiscal decision made by the other group. This concept is essential to modifying or creating any details in a shared-revenue approach (“If I want it, I pay for it and manage it.”).

It probably will fall to the superintendent to keep this balancing tenet in mind as he or she likely will be responsible for its consistent application to fiscal proposals of both board and labor. This is a true facilitation role in that the balancing tenet should never be applied to the detriment of either side.

On the other hand, if the balancing tenet is not consistently applied, a shared-revenue approach will become one-sided and ultimately fail. This places a high premium on the superintendent as an honest and ethical broker who wants to see neither board nor labor gain a fiscal advantage at the expense of the other.

For example, if the school board believes a class size of 30 requires an aide to assist the teacher, the board should pay for the aide. If, however, the board does not believe the aide is necessary, labor can choose to pay for the aide if it considers such assistance a fiscal priority. Of course, both sides could agree to split the difference and each pay for half of the aide. In any of the above options, the superintendent as facilitator has to point out such options and help both board and labor decide if such an expenditure is or is not a priority for either or both groups.

To enjoy the position of facilitator, the superintendent will need the support of a hard-working, adaptable business official. Shared revenue requires an additional set of tracking and bookkeeping entries because the teacher pool becomes, in effect, another fund that must be managed. This has bookkeeping, expense coding, and auditing implications.

The business official must have a firm grasp of the balancing concept because it often will be this person, especially in the formative early years of a shared-revenue agreement, who will spot expenditures inconsistent with a shared-revenue approach. Shared revenue also limits a business official’s budgetary maneuverability. The business official no longer has teacher salary spread, for example, to cover other budgetary shortfalls. The spreads now belong to labor.

Experience in the Illinois school districts of Lake Bluff and Dolton suggests that business officials can overcome these disadvantages, especially if the superintendent can apply the balancing concept fairly and equitably for both board and labor. If such balancing consistently occurs, the delights will far outweigh the headaches.

COPYRIGHT 1997 American Association of School Administrators

COPYRIGHT 2004 Gale Group

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