From Harold J. Breaux, Aberdeen:
The following letter was sent to Harford County Executive Barry Glassman, Harford County Council President Richard Slutzky, Harford County Public Schoos Superintendent Barbara Canavan, members of the County Council, and members of the Board of Education. A copy was provided to The Dagger for publication.
Purpose of This Email
a.) To examine the proposed Budget request of $16.1 million increase for wages for the Harford County Public School(HCPS) system and the methodology/mathematics upon which the proposed increase is based.
b.) To show how this $16.1 million figure arises from a flawed methodology which has led to a severe consequence in HCPS retention of staff. To see this consequence google the topic “Harford county teachers leaving”.
c.) To propose a methodology that fixes the problem for this and future years.
The annual discussion over pay issues involving the HCPS, the County Executive, the County Council, and employee representatives and related press commentary is upon us as described by the Aegis lead Editorial titled “Day of Reckoning” , April 8, 2016. The editorial suggested that the issue will revolve largely upon the funds that would be needed to pay for a 2% COLA and two steps for all eligible employees. The Aegis noted that all but the teacher’s union had agreed to terms for the next fiscal year – terms for the other groups include the above described wage adjustments. The Aegis editorial goes on to state “there have been many times in the past eight years where steps could not be funded. The Superintendent has described failing to pay the steps as having occurred in five of the last seven years. It is instructive here to observe the historic role of the Aegis as this annual discussion goes on. In 1979 the Aegis exhibited its total lack of understanding the bottom line cost issue of required new money for steps by publishing an editorial titled “The Percentage Game” (copy attached) in which it stated:
“perhaps it is time to give consideration to other ways to accomplish this. Abolition of the increment system would allow pay raises to be straight across the board boosts. Then neither the teachers nor the taxpayers would be deceived by percentage figures that do not tell the story.”
An explanation of this lack of understanding will be described.
The bottom line number requested by HCPS in the 2017 HCPS proposed budget is a figure of $16. 1 million for salary “increases” [my emphasis] with no stipulation as to the breakdown of costs between COLA and steps. Since the HCPS proposed budget is cast before the annual collective bargaining with employees one would not expect such a breakout. Nevertheless, as will be shown herein, it is logical to presume that the proposed $16.1 million of new additional money (above prior fiscal year) is the proposed amount intended to fund a 2% COLA and two steps. Because of precedent and so called “me to” agreements the HCPS settlements usually apply to the entire 5000 or so HCPS staff. The two steps presumably are designed to partly catch up with the above described missed five steps. This paper will dissect how this figure of $16.1 million arises and in turn how it is a fallacious number. Supporting calculations with the HCPS stated methodology will be exhibited herein.
The narrative and understanding of the issue is furthered by looking at the history of the described long ongoing kerfuffle. First one should observe that Education can and should be a linchpin of wisdom and that a key component of Education is mathematics and the logic arrived therefrom. It is thus disconcerting that this writer must observe that the HCPS itself (the center of the County’s Education system) is largely to blame for its predicament of having a salary structure so out of line with its neighboring counties that staff has been leaving in droves, in particular newly hired staff and staff in key areas such as STEM and Special Needs. Is it because the HCPS does not understand mathematics? Why has this happened?
In April 2014 I made a presentation to the Board of Education titled “Increment Cost Misperception”. In that presentation, and subsequent detailed papers available on the WEB at www.complexpolitics.wordpress.com I traced the history of the so called “Single Salary System” (somewhat of a misnomer), that dates back to the WW I era. The system was designed to overcome the widespread “spoils” system where pay for teachers and other government workers was based on who one knew, frequently on gender, rather than educational experience and qualifications. The system, then devised , provided a means for career growth through the step and lane system such that it would attract students to enter the profession through the “promised” system which allowed generally a nominal doubling of salaries (in uninflated dollars) over a career This was intended to be an attraction to the teaching profession by rewarding for increasing experience and professional certification. So much for the promise in Harford County. Why has it failed in five of the last seven years.? I propose an explanation is as follows:
How Did HCPS get so far behind in providing progressive pay (steps)?
The HCPS annually proposes to the County Executive and the County Council a requested budget for the ensuing fiscal year that specifically lists a figure for wage increases (new money) over that expended in the prior fiscal year The figure may or may not be significantly effected by a change in the number of FTEs. As noted above the current proposal is for a $16.1 million increase for HCPS wages. This writer has chronicled how HCPS, County officials (and the press description) has in the past used a rule of thumb of 3% to describe the likely cost for a proposed step increase for the entire HCPS staff of 5000 plus. This writer has described how (in the press) former county executive Mr. David Craig, in 2013 described the projected 1% COLA and increment cost as follows:
“The proposed 1 percent pay raise , plus step and longevity pay will cost the Board of Education approximately $10 million. Although our teachers undoubtedly deserve a fair pay raise this proposal comes with a cost-the loss of both administrative and teaching positions.”
The rule of thumb suggested by the Executive was thus based on 4%, one percent for the COLA and 3% for the steps . (4% of $250 million equals the $10 million described). This cost figure was way overblown and (in the next year) in a private communication with this writer, an HCPS staffer, described the HCPS methodology for estimating the COLA and step increase costs for the following 2014 year as follows:
Seemingly, here the HCPS was recognizing that since not all staff members were eligible for steps the figure should be reduced from the commonly described 3%. Effectively the new estimate was 1.77 % before the added 20% for related fixed charges (social security, pensions etc.) leading to steps allegedly costing a total of 2% in new money.
Using this algorithm the Superintendents requested $16. 1 million increase for wages can be explained as follows: The unrestricted operating budget for wages and salaries for fiscal year 2016 from HCPS budget documents was $252.3 million. Using the above Bilodeaux described algorithm the superintendent’s proposed $16.1 million likely arises as follows:
The problem with the $16.1 million figure is as follows. The authors writings, mathematical model and parametric studies, backed by data and analysis from a Kentucky correspondent. and Education Finance Professor Hartman of Penn State, shows that the above method grossly overstates the new money costs of a step increment. The author has shown definitively that the problem with this method of estimating costs is that it focuses on the totality of all individuals in a prior year moving to the step that they would be entitled to if they remained on the payroll. However, for a large relatively stable staff, turnover, as experienced by retirements, drop outs and leaves of absence , (generally replaced by lesser paid, less experienced staff) leads to a situation of near zero change in cost. For a simple micro analogy see the author’s Appendix B, page 76 of how the pay related to the position of one staffer when retiring and replaced by a new hire, entering at the same step as the retiree initially entered, offsets the sum of the entire set of progressive pay changes (steps and lane changes) received over the retiree’s career (in current dollars).
The Jefferson County, Kentucky Experience
Correspondence with Mr. Brint Mckim, Jefferson County Kentucky, (details contained in the author’s web site) indicates that his School District’s Chief Financial Officer (CFO) (like HCPS) indicates that 1.8% new money is needed in a given year to fund steps. Mr. Mckim examines this claim through use of a thought experiment. He conjectures a ten year period when no COLA was granted but the increment was provided in each of the ten years. Using the CFO’s logic, according to Mckim, after ten years, the payroll would increase by 18%. Using the HCPS method of tacking on 20% for fixed charges and with actual compounding the ten year rise in payroll would be equal to (1 + .02)10 leading to an increase in payroll of 21.6 %. However , the logic of examining positions (and pay for each position), as opposed to tracking individuals , indicates that given the same number of FTES and little change in position distribution (due to retirements, dropouts etc.) the payroll after ten years would be essentially unchanged. This conclusion is verified at the author’s web site by both the mathematics and by examining actual payroll data from both the HCPS and the state of Kentucky.
Projected Numbers for HCPS in Fiscal Year 2017 (2% COLA and Two Steps)
This writer has shown that the payroll variation, year to year due to offset by turnover, leads to the need for a change in payroll costs ranging within the interval of plus or minus ½ of one percent depending on the experience and turnover distribution. It should be noted that if this actual change is x, the related fixed charges should multiply this actual x change (whether it be plus or minus) by a factor of 1.2, and accordingly could be negative., The HCPS erroneously adds a 20% fixed charge to the erroneous 1.77 % leading to the erroneous 2% for alleged “new money” needed to pay the increment.
Based on the author’s proven analysis the HCPS can provide a 2% COLA and two increments for FY 2017 by the estimate of $11.1 million rather than the allegedly needed $16.1 million. This is shown by the calculations depicted in Table 3 below.
The first step in the Table 3 calculation above has a zero cost due to tracking positions rather than individuals which incorporates the reality of turnover.
The mathematical modeling shows that In years when the step is not granted the actual payroll drops by a nominal 1.7 % to 1.9 % due to turnover and that in fact since the payroll dropped, the related fixed charges should drop the figure further by the usually estimated 20% leading to a nominal drop in payroll of 2%. [Reduced payroll leads to reduced employer cost (fixed charges) for social security and pension costs.] However, the HCPS savings in payroll (for those years the increment was not granted) has been spent on other budget components and is thus not available to offset the now badly needed catch up steps/increments.
So where did the reduced payroll dollars from the above process go? In its proposed budget documents, the HCPS annually refers to Cost Savings Measures or Efficiency measures associated with a conservative and underestimated level of turnover. Effectively, payroll adjustments that would reflect the reality “of no new money needed” to pay for steps was used to cover other components in the budget. Simultaneously the County Executive has been routinely asked to provide a fictitious level of required new money to fund the increment or steps while the reality is that there is no mention in HCPS budget documents that the payroll needs “no” increase to cover steps. This is, as the author previously described, “most egregiously” exemplified by the 2014-2015 Negotiated Agreement between the HCEA and the HCPS. The contract language reads as follows addressing the new money cost issue with a paragraph as follows:
“Each teacher shall be afforded a step increment, as appropriate. The Board of Education will provide $2,000 additional salary per year to teachers who have achieved National Board certification.
FY-2015. The Board and the Association agree to the following salary enhancements subject to the County funding authorities providing $8.5 million in the budget categories from which salaries and benefits for teachers are paid, which $8.5 million shall be in excess of the total funding received by the Board from the County funding authorities for FY14.
a) Cost of Living – All teachers shall receive a 1% salary increase on July 1, 2014.)
b) Step Increment: All eligible teachers shall receive a step increment beginning July 1, 2014
c) Longevity Increases- all eligible teachers shall receive a longevity increase beginning July 1, 2014.
The problem with the above language is that the “excess” as estimated by HCPS was composed of two components, a.) a 1% COLA with 20% added (for a roughly $ 250 million budget) accounting for $3.0 million and b.) $5 million for the alleged cost of the steps/increment. The bottom line is that the HCPS held the increment hostage to the fictitious need for $8.5 million in new money (which included the unneeded $5 million for steps). The $8.5 million was not provided and thus neither the COLA or the increment were funded. Any wonder how the increment/steps were withheld for five of the last seven years.
One can only wonder whether this egregious provision was made knowing the underlying mathematics described by the author or whether it was the basis of what this writer has called “a logical mind trap misperception” . Whichever the reason, the County now has the problem of catching up in order to avert the annual, continuing, departure of staff in droves as reported in the press reports available through googling “ Harford County Teachers Leaving”.
One can suggest that the Board of Education should have separated the increment from the remaining cost by removing the fictitious sum projected for the increment cost , estimated the remaining new money needed for the COLA and made the stipulation that the corrected figure for the COLA alone was subject to the provision “shall be in be in excess of the total funding received by the Board from the County funding authorities for FY14.”
In the April 6, 2016 issue of the Aegis, the writer Alan Vought, indicates that a similar provision , to that described above, is likely in this years HCEA agreement by stating:
“ “All agreements are subject to necessary fiscal support” which in effect means the money to fund the salary and/or benefit increases must be available in the 2016-17 budget”.
Again, the Aegis, as so many others, shows no indication that it has an understanding that steps can be funded without budgeting “new money”.
Situation With Other County Employees on the With Holding of Progressive Pay
While not gaining as much press as that for the HCPS employees, it is apparent that other Harford County employees have suffered the same fate as have school system employees- namely the withholding of progressive pay for many recent years. The logic of this letter and the author’s writings apply equally to those employees and needs attention by County Government officials .
Recommendation: Casting of proposed budgets for wages should actually reflect projected next year increased costs based on tracking positions as described by the author’s writings. For the HCPS the method of claiming “Cost Savings Measures ” or “efficiencies” by an estimated turnover component (to cover projected shortfalls elsewhere) would be stopped. Then no one would be deceived by alleged, erroneous, new money costs needed for providing progressive pay. The habit of then blaming the County Executive for not funding steps (for lack of needed new money) would not occur. Discussion of the need for funding all other budget components on their own merits could thus occur without the sham of budget gimmickry (using routine turnover as a cost savings measure) as described. This also suggests that progressive pay should routinely be granted and not be part of annual collective bargaining. Since the suggested procedure essentially does not represent the need for new money it can be described as the “status quo”. Such a position is easily supported by researching the history and national experience on progressive pay. An excellent reference on the topic is by Stephen J. Scott, “The Status Quo Doctrine: An Application to Salary Step Increases for Teachers” Cornell Law Review, Vol. 83:194, which can be found on the internet at http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=2715&context=clr
This article is a thorough discussion of legislative and judicial issues occurring over decades, nationwide on the topic. However, in reading the article, readers should observe that some of the decisions rendered were based on the concern for raising taxes with absolutely no understanding suggested (in the legal opinions) on the concept documented by this writer that “no new money” is needed to provide the status quo- namely the routine provision of step or progressive pay.
This writer’s position that no new money is needed to fund progressive pay is validated by the Federal Office of Personnel Management in its annual publication of OPM Circular A-11. See page 40 of the author’s paper titled “The Mathematics of Budgeting for Experience Increments, Longevity and Lane Changes in a Teaching system or Other Workforce [The Fallacy of Required “New Money”] at the web site:
Harold J. Breaux