CREDIT: Alison Yin / EdSource

California’s school districts have recently seen large increases in revenue and have gained substantial flexibility over how they spend their money. At the same time, widespread disagreements about how districts should spend their money have culminated in teacher strikes in some of the largest districts in the state, including Los Angeles, Oakland, and Sacramento. If the policy news is so good, why are tensions in districts so high?

Headshot of Paul Bruno

Paul Bruno

The short answer is that big financial challenges remain for school districts. Among the most important of these is the cost of health and welfare benefits for districts’ employees. Like many employers, school districts in California typically offer health benefits — such as medical, dental, or vision coverage — to their workers. But these benefits are much more expensive than they used to be. For example, in 2004, the cost of providing medical benefits for a teacher in California was about $9,700 (in 2018 dollars). By 2018, that had increased to $14,600.

Many employers across the country saw similar increases. However, the increases are especially hard for California districts because they pay about 85 percent of teachers’ medical benefit costs, while the teachers pay the rest. For comparison, other employers typically pay 62-82 percent of the costs of their workers’ medical benefits. This means that when the costs of medical coverage increase, they’re not responsible for as much of the additional cost.

In addition to providing benefits for current workers, most districts also offer health benefits to at least some of their workers after they retire. These retiree benefits are often very similar to what current employees receive, and in some cases retirees receive them for the rest of their lives.

These retiree benefits represent an additional challenge because many districts have promised these benefits to their employees but have not set aside money to pay for them, resulting in an unfunded liability. Statewide, districts have about $4,700 in such unfunded liabilities per student and the liabilities in some districts are much larger. Districts already use about 1 percent of all spending for retiree health benefits, but that number might grow quickly in the near future as more workers retire.

When districts spend more money on health benefits, there’s less money for them to spend on other priorities, like teacher salaries. This is likely contributing to tensions among stakeholders in at least some districts. For example, the recent strike in the Los Angeles Unified School District resulted from disagreements between teachers and district administrators about salaries and class sizes, among other things. Those disagreements were probably harder to resolve because the district currently holds more than $15 billion in unfunded liabilities for retiree health benefits, or more than $30,000 per student.

The Sacramento City Unified School District, where the recent teacher strike related directly to health care costs, has more than $15,000 per student in these liabilities for retiree benefits, and spends more than $2,000 per student on health benefits for its current employees. That’s well above the statewide average of $1,100 per student.

Of course, as highlighted by researchers in the recent Getting Down to Facts II project, California’s school districts face a number of other financial challenges besides the costs of health benefits. For example, California schools are still funded at levels below the national average, and likely at levels well below what would be necessary to provide an adequate education for every child. More specifically, districts face difficulties paying for building construction, special education, and pension programs. These challenges mean that many districts are feeling financially strained despite their higher revenues.

These other financial pressures also make it all the more important that districts do more to manage their health benefit costs now and to make sure they are sustainable. While some districts may want to maintain their current benefit packages, others may need to consider making employee health benefits less generous or requiring their employees to pay for a larger portion of their annual benefit costs. Districts may also want to scale back their benefits for retirees and can save money in the long term by setting aside money for those benefits well before workers retire.

While these solutions are relatively straightforward, that does not mean that they are easy. After all, districts need to offer strong compensation plans to attract high-quality staff. Nevertheless, money saved on health benefits can be spent on other things to improve working conditions for teachers and outcomes for students. And the longer we wait to make these choices, the harder they become.

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Paul Bruno is a former middle school science teacher and the author of a brief on school district finances for the Getting Down to Facts II research project. 

The opinions expressed in this commentary represent those of the author. EdSource welcomes commentaries representing diverse points of view. If you would like to submit a commentary, please review our guidelines and contact us.

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  1. el 2 months ago2 months ago

    This article is a great illustration of how our out-of-control health care costs reverberate through every aspect of our economy and every dollar we spend. Bringing down the cost and improving the reach of healthcare would be a huge benefit for schools as well as every citizen and every employer. The United States spends twice as much in total per capita to cover only a portion of its population as some countries that provide universal … Read More

    This article is a great illustration of how our out-of-control health care costs reverberate through every aspect of our economy and every dollar we spend. Bringing down the cost and improving the reach of healthcare would be a huge benefit for schools as well as every citizen and every employer. The United States spends twice as much in total per capita to cover only a portion of its population as some countries that provide universal healthcare for all citizens. It’s a tremendous waste, and education bears a great deal of the brunt of it. Next time someone tells you that some other country does education for less money, take a moment to figure out if that nation’s system accounts health care costs to education, as we do.

    Now. The prescription, however, fails to do an appropriate economic analysis. Given a fixed health-care cost, in our existing system there are significant financial advantages to having the employer pay it rather than the employee. When the employer pays, the money is pre-tax for the employee, and the portion of compensation paid as health insurance premiums is not subject to the CalSTRS and CalPERS pension assessments. Thus, transferring money from health care to salary may actually decrease the employee’s net cash as well as increasing the cost to the district.

    Note also that different regions of the state may have quite different health care premiums, which again is not reflected in any school funding formula. Rural areas typically have very high costs, and in some rural counties there is only a single insurance company offering coverage. “Shopping around” is not always an option.

    One reason why districts have paid retiree health care as part of retirement incentives (which can only be legally offered if they are a net savings to the district) has been because of the availability, or lack thereof, of health insurance to individuals, especially individuals with preexisting conditions in the 55-65 age group. Individuals who were ready to retire often could not without this insurance safety net for themselves or a spouse, especially pre-ACA. It was sometimes not available at any price without the group plan. A rational national health care policy would relieve this burden from local school districts.

  2. Paul 2 months ago2 months ago

    You really believe that cutting teachers' health insurance ("making ... benefits less generous", "requiring ... employees to pay for a larger portion", "may want to scale back ... benefits", etc.) will "improve working conditions for teachers and outcomes for students"? I taught for a district that completely eliminated retiree health benefits: San Leandro Unified. We had to sign an acknowledgment when we joined. Anyone would be a fool to stay long, when nearby districts continue to … Read More

    You really believe that cutting teachers’ health insurance (“making … benefits less generous”, “requiring … employees to pay for a larger portion”, “may want to scale back … benefits”, etc.) will “improve working conditions for teachers and outcomes for students”?

    I taught for a district that completely eliminated retiree health benefits: San Leandro Unified. We had to sign an acknowledgment when we joined. Anyone would be a fool to stay long, when nearby districts continue to offer retiree health benefits (albeit with less generous coverage, and in return for more years of service, than in the past).

    Retirees’ medical insurance does not continue “for the rest of their lives”; it ends when the people become eligible for Medicare, or it devolves to low-cost supplemental coverage, with Medicare primary. Dental and vision coverage may continue, but at $60-80/person/month and $15/person/month, respectively, in typical premiums, the amounts are not substantial, and those premiums do not grow nearly as fast as medical insurance premiums.

    Yes, due to new accounting rules, employers now have to report the cost of post-employment benefits. Someday, all may be forced to set aside money in advance. Recognizing the full cost of recruiting, compensating and retaining teachers is a good thing, but the adjustment cannot happen overnight.

    For active employees, it is hard to see how further reducing health insurance benefits and further reducing employers’ percentage share of premiums would make things better. If anything, reducing workers’ financial stability leaves them less able to focus on doing a good job. Remember Maslow’s hierarchy of needs?

    Most readers probably don’t realize that every little school district (we have far too many, here in the Bay Area) contracts independently for teacher health insurance. (There is no STRS health insurance program, whereas PERS does offer a standardized health insurance program backed by incredible negotiating leverage, given that PERS is one of the largest health insurance buyers in the state.) Teacher health insurance costs would grow more slowly if school districts pooled their resources and bought jointly. That’s not a common practice in our state.

    In the end, the need for health insurance is universal, and the problem will have to be solved (or not solved) for all Americans. Yes, it is always cheaper to let people die on the street when then get sick – and in an employment context, to replace them with younger, healthier models.

  3. SD Parent 2 months ago2 months ago

    Nicely explained. Finally a teacher (albeit former) is willing to admit the factual evidence. In general, far too many people in the position to make financial decisions make promises for which they don't have any clear understanding of--or perhaps interest in--the long term consequences, which is presumably why decisions have been made that now hold school districts hostage to unsustainable pension and healthcare benefits. It's worth pointing out that today's … Read More

    Nicely explained. Finally a teacher (albeit former) is willing to admit the factual evidence.
    In general, far too many people in the position to make financial decisions make promises for which they don’t have any clear understanding of–or perhaps interest in–the long term consequences, which is presumably why decisions have been made that now hold school districts hostage to unsustainable pension and healthcare benefits.
    It’s worth pointing out that today’s school district employees are paying the price of decisions made before they became a teacher or worked in a school. With so much of a school district’s budget paying the cost of the employees they replaced, they are not given higher salaries and are stuck with larger class sizes and perhaps less generous benefits. Perhaps today’s education employees are willing to make that sacrifice, believing that they, too, will be made whole by the next generation of employees behind them.
    But the children of today and the future will be paying those costs with no restitution. Today’s and tomorrow’s children have only one chance to be made whole by their education. Today’s school children are sitting in crowded classrooms, have had “luxuries” like visual and performing arts stripped from their education, have lost non-mandated busing, etc. all in an effort to pay the pension and healthcare debts for employees that haven’t been on a school campus since before they were born. With the current trajectory, what hope is there for tomorrow’s school children?
    The deck is stacked in favor of adults: they vote, and the businesses and professional lobbying interests (all adults) endorse and fund political campaigns get ample access to give their opinion. But in the politicking and collective bargaining of deciding the education funding priority at the state and local school district level, who actually stands up for the interests of school children today and in the future to protect them from fiscal decisions that will hurt them?

  4. Kristin Bitler 2 months ago2 months ago

    Wouldn’t single payer healthcare be a great solution to this?