By ANDRU VOLINSKY
Here are two suggestions that can save schools millions and make school funding more understandable to the average taxpayer.
First, the NH DOE should stop offering technical advice only in secret to financially failing schools and organize a public seminar for school board members, superintendents, business administrators, and taxpayers to explain the details of how school budgeting really works. Second, the governor should cut school health insurance costs by immediately convening a working group to tackle skyrocketing health insurance premiums.
The Problem
NH school districts are failing financially even though NH has among the highest per pupil costs in the nation. The often cited per pupil spending figure, however, is misleading. NH’s spending is fourth among the six New England states, which suggests the regional costs of operating schools drive a lot of New Hampshire’s public education expense. What Alabama and Idaho spend on their schools is fairly irrelevant.
What causes our school funding failures?
Is it incompetence?
At times, superintendents who oversee school district operations and the business managers who organize school district revenues and expenditures don’t do their jobs properly. A recent example is the district that failed to timely apply for federal reimbursements for expenses that the district fronted as part of a grant program.
School board members who are elected to oversee superintendents are not fluent in district finances but they shouldn’t ignore their common sense. One might ask: Is it sensible for a school board member to believe that a chronically under-funded district suddenly had million dollar surpluses two years in a row as was the case in Claremont? What confirming data should have been requested before lowering taxes? What should a board member do when answers aren’t forthcoming from administrators? Should a board wait months to design a cost-cutting plan after first getting notice of a problem?
The NH Department of Education reviews the financial reports filed by school districts each year. They are called DOE-25s. The review is both hands-on and algorithmic. Should there be more careful review of filings with unexplained changes in revenue?
Some districts do not use outside auditors to determine if their financial reports are accurate. Outside audits are currently optional. We should require audits as a bill sponsored by Rep. Hope Damon (D-Croydon) does.
Is there criminal activity afoot?
Embezzlement may occur, but it is likely a very, very rare occurrence.
What’s the real problem?
School funding problems are structural. School districts reliant on local property taxes to fund schools can only generate the revenues that the local property values support. They can’t recover from mistakes or unanticipated events. Districts like Claremont that have had low property values for more than 50 years can never reliably generate sufficient funds for their schools. State funding programs are like a band aid for a serious wound.
State funding policies also don’t make sense.
The state’s under-funding of education is one problem. This problem is made worse by some policy choices that are just plain dumb. Take NH’s Special Education Aid program (RSA 186-C:18) for example. First, funding is too limited, which means most costs are downshifted to local taxpayers. More costs shifted to the poorest communities means less affordability. Special Education Aid does not kick-in until a school district has spent $70,000 on a child’s individual education program (IEP). By statute, the state then should contribute 80 percent of the district’s cost for this single child until that cost exceeds $160,000. After $160,000, the state picks up 100 percent of the tab. That’s the under-funding part of the problem.
The just plain dumb part is that districts don’t know which children will attend their schools and have trouble planning for these expenses. The state doesn’t reimburse as expenses are incurred, they wait until the following school year. Worse yet, the state pro-rates the reimbursement depending on the state’s overall budget. At times, the state has cut its reimbursements by 30 percent. That’s robbing Peter to pay Paul.
Here’s how it works.
A school district has a population of kids that attend its schools and qualify for special ed services. Those services are specified in IEPs. A district official, usually the Special Ed Director, costs out the IEPs and recommends a cost figure to be included in the next year’s budget. The costing out is difficult but an experienced professional can provide a reasonable estimate.
Then this happens.
Johnny, who has complex medical problems and physical and learning disabilities, moves to town in August, right before school starts and long after the budget is set. He brings with him an IEP from his prior school district that costs $150,000 a year to implement. The school district must front this cost even though it couldn’t possibly plan for it. The state should reimburse $64,000 of this expense through Special Education Aid (80% of $80,000) but doesn’t do so until the following year. The legislature then takes a 30 percent discount resulting in the district receiving only $44,800, a year after the fact.
Taxpayers in NH should know how this works. A better understanding may lead to other ways of funding special ed costs. The state could agree to directly pay for certain expensive programs as the expenses are incurred. That way a last minute expense doesn’t become a problem to a district. As well, if Johnny had his IEP in one district and moved to a second district, the cost to the state would be unchanged if we budgeted for special ed on a statewide basis.
The NH DOE has technical people who answer questions like those I have posed (at least until all their federal funding is cut). They provide insights to school districts when asked. The problem is that the public is not privy to the process of providing technical advice. A public seminar about how funding works would help school boards, administrators and voters decide how to fund schools, who to elect to school boards and how to better exercise local oversight.
Health insurance costs skyrocket.
Two-thirds of school district budgets are made up of personnel costs. A large chunk of this relates to the high cost of health insurance. Health insurance costs are skyrocketing.
The Concord School District, where I live, is facing an unexpected $5 million budget shortfall. Part of the shortfall relates to unanticipated special education expenses. After draining reserves, Concord remains $1 million short in funding these special ed expenses. Another two million dollars of the shortfall is the result of unanticipated health insurance premium increases from the risk pool that insures Concord. The risk pool is called SchoolCare. Concord is not alone. SchoolCare boosted premiums for 60 other school districts after budgets were set to the tune of $28 million in unanticipated expenses.
Municipalities, including school districts, self-insure for their employees’ healthcare expenses as a way to save money. This means the municipality hires a regular insurance company to manage their insurance payments and they hire outside actuaries to help them set premiums and maintain the reserves used to pay claims. All of the risk of how much is paid out, however, is borne by the municipality. The trick is how well (or poorly) the cost of claims is predicted.
In NH and many other states, municipalities band together to form self-insurance pools. There’s a whole industry about insurance pools. See e.g., AGRIP. SchoolCare is one of these pools.
The self-insurance pools were formed in the late 1980s and, due to aggressive lobbying, the NH Secretary of State, not the NH Insurance Department was assigned to supervise the risk pools. The Secretary’s office is where you register corporations and does not have insurance expertise. This means the regulation of these entities was intended to be ineffective. I know this because I represented Secretary of State Bill Gardner a dozen years ago in his attempt to wrangle the pools into some semblance of fair practices. One of the pools, formerly called the Local Government Center and now re-branded as HealthTrust, diverted resources from its health insurance clients to underprice its workers comp coverage in order to drive another self-insurance pool out of business. It was dirty business. Eventually, through litigation and settlements, Secretary Gardner recouped a total of $80 million in overpaid premiums from the three pools that existed at the time.
Although there are good lawyers and administrators who now work for the Secretary, the office doesn’t maintain a robust team of actuaries and policy experts to oversee insurance risk pools. The NH Insurance Department maintains these resources and the two agencies don’t exactly cooperate.
As important as beefing up oversight, predicting the amount of claims a health insurer will incur is far from a science. The more people who are insured, the better the actuaries are in predicting costs. If a pool insures only one person, that person may not incur a major medical expense. The actuary who predicts a high cost medical event will either be 100 percent right or 100 percent wrong in any given year. If a pool insures 10,000 people, it is easier for actuaries to mathematically project claims and expenses. Larger pools make the math more reliable.
Are there too many pools?
Municipalities self-insure through SchoolCare or HealthTrust. A third pool, InterLocal was just declared insolvent. Manchester and Nashua each self-insures on its own. The state maintains a self-insurance plan for state workers. The University of New Hampshire system has its own self-insurance plan. That’s at least six different self-insurance plans run either as non-profits or government agencies. Each redundantly pays their own administrators and actuaries. None share their data with each other. None take advantage of growing the number of people they insure to better predict risk.
Why don’t the self-insurance plans combine and cooperate?
Why isn’t a state agency with the necessary expertise responsible for supervising the self-insurance pools?
Why isn’t the governor doing all she can to bring down healthcare costs for public schools, state workers, and our public colleges and universities?
The health insurance costs, after all, are paid by–wait for it–taxpayers.
Who knows; if we get on top of the cost of health insurance for public entities, maybe we can offer similar services to attract private businesses? That would be a true NH advantage.