Experts Warn Board To Tackle $13 Billion Unfunded Benefits Crisis

Teachers and other LAUSD employees were greatly concerned when LAUSD in August put forth a variety of ideas to reduce the district’s health care costs by tinkering with the benefits package offered to employees. United Teachers Los Angeles described this as an attempt to gut employees’ health care coverage.

The reality, however, is that LAUSD has the most generous benefits package in the nation – lifetime benefits for senior employees and dependents with no monthly contribution. LAUSD is one of the only districts in the nation that has no form of cost sharing for its retirees or their spouses.

The promises made to these employees are false and empty promises, though, because LAUSD has not put aside money to pay for its benefits promises and simply cannot afford to pay them without the district either going bankrupt or drastically raising class sizes, laying off teachers and being unable to function in the future. 

In fact, LAUSD is the only school district in the country on a list of top 10 government agencies that cannot afford its retiree health benefits. An Independent Financial Review Panel has called for immediate action to stave off this impending financial crisis, and the LAUSD Board will hear a second report Tuesday from the Independent Analysis Unit calling on the Board to make the necessary changes to help pay its future benefits promises. The IAU report is clear that the district simply cannot afford to "pay as you go" for these promises that are increasingly coming due. 

Despite dire warnings from financial experts, LAUSD so far has not demonstrated the political will to take serious action, and the district just seems to be hoping the state will bail it out so it doesn’t have to make the hard choices itself. Hope, however, is not a plan. And relying on others to fix your problems is not leadership.

In August, the district’s finance department made a health benefits presentation to the LAUSD Board of Education and proposed a variety of reasonable changes that would prevent financial catastrophe. Speak UP has reviewed these and the current health care benefits proposal. We have also done some additional research to help parents better understand the related issues and what is at stake for our kids, LAUSD employees, and the district as a whole. We would like to provide a refresher to parents on these issues before we report on the additional proposals being presented to the Board Tuesday by the IAU.

Overview

In their August presentation to the LAUSD Board, the district’s finance professionals detailed the history and current conditions that are leading LAUSD towards a precarious reality: By 2031 LAUSD will be spending half of its general fund on health care and pensions for retirees (28% just for health care benefits):

Other details from the district presentation, proposal, and our research include:

·   The district currently has a $13.6 billion unfunded liability for health care benefits.

·   On its current course, LAUSD will face a $422 million budget deficit in 2019-20. LAUSD is not legally entitled to continue operating at a deficit. In fact, the law requires a budget reserve. Without cuts to balance the budget, state takeover of LAUSD would be the result.

·   In 2017, LAUSD’s annual health care cost per active employee was $14,013. The cost per retired employee was $20,449 (pre-Medicare) and $7,111 (Medicare-eligible).

·  LAUSD’s benefit payments are 9.4% higher than the statewide average.

·  LAUSD has no control over the benefits packages its employees receive. Instead, labor unions control the process. The LAUSD-UTLA contract designates a Health Benefits Committee that gives employee unions the right to design their own medical benefits packages. The total health care benefits budget is contractually negotiated and deposited by the district into a fund overseen by the HBC.  

·  The district has been overpaying for benefits such that the HBC fund now has more than a $250 million reserve.

Current Status

As shown in the chart below, approximately 56,000 of LAUSD’s current employees and 36,000 retired employees receive LAUSD medical benefits. Over 14,000 retiree dependents also receive these benefits.

Over the years, LAUSD and its union partners have extended the vesting period for retiree health care benefits, but the unfunded liability has continued to grow. During this time, a growing portion of district funds has been redirected toward individuals who no longer provide services to our schools and in many cases, have moved out of state. This will continue to cut deeply into the funds available to pay current employees, maintain our school facilities, and support important educational programs and services.

The situation is unsustainable, and if urgent action isn’t taken now, the district acknowledges that the fiscal cliff is fast approaching.

Cost Saving Proposals

To try and stem the tide, the district proposed and outlined a variety of cost saving plans to UTLA:

The pushback from UTLA was immediate and strong. With that, LAUSD negotiators abandoned the above recommendations and tentatively proposed to hold its health care contribution to the 2017 level (estimated $1.1 billion) for each of the next three years. Any increases in healthcare costs would be covered by the HBC reserve.

If that happens, it would be the first time in LAUSD history that the healthcare costs have been frozen, and we commend both sides for taking this first step. Nevertheless, none of the expected savings would be put toward paying down the $13 billion liability. Instead, the district is expected to earmark it for teacher salary raises. We at Speak UP know that this proposal does nothing to stave off the imminent financial disaster that will severely impact our kids and our city.

There is still time for LAUSD to act to ward off impending disaster. The Board should reject LAUSD's bad bargain for a three-year healthcare deal that does nothing to attack the unfunded liability crisis. So far, parents have been totally shut out of this process, even though our kids will be affected through class size increases and seniority-based layoffs potentially forcing out our kids’ favorite teachers. That, too, must change. 

Additional Concerns

It’s not just retiree health care benefit costs that are skyrocketing. Because the State of California has also overpromised on its pension commitments, it is now pushing more of those costs to local school districts. KPCC reported last spring that for the 2016-2017 school year, LAUSD expected to pay $675 million of its general fund toward employee pensions. For this school year, the cost is expected to jump to $738 million (+9%). LAUSD’s portion of pension expenses will continue to climb until at least 2020.

And yet another huge threat looms. An opinion piece in The Washington Post points out that if the currently proposed federal tax plan passes, states with higher state and local tax rates (like California) will have a much tougher time raising revenues. Taxpayers will be less likely to approve tax increases for schools if those taxes are not federally deductible. An already tough state budget situation could become much worse, directly impacting our already strapped public schools.

Both these circumstances, as well as the inevitable future economic downturn, could force LAUSD into bankruptcy far sooner than expected.

Next Steps

This is a tough issue for parents. We know how important health care is for our own families and want to ensure it for our children’s teachers and those who support their educations. We also know that we, and most of working America, contribute at least some portion of our own income to health care coverage, and the generous retiree health care package provided to LAUSD employees is unimaginable for most.

We don’t want to ask district employees to do or sacrifice more than we are willing to ourselves, and we certainly understand that district employees forgo higher salaries in other fields to educate our children. Further, we don’t envy the current LAUSD Board of Education. The Board didn’t create this crisis, but Board members willingly accepted responsibility for the district’s solvency and our kids’ future.

This can has been kicked as far as it will go. LAUSD can no longer wait to act. Parents can and should be part of the solution. In the coming weeks and months, Speak UP will be looking to you to help us in the following ways:

·  Tell LAUSD and UTLA that freezing health care costs is not enough. LAUSD needs to further reduce costs before this contract is signed. Consider eliminating the Health Benefits Committee so LAUSD can retake control over its employee benefits package to protect students as well as employees from false promises, class size increases, program cuts, layoffs and bankruptcy.

·  Give parents a seat at the negotiating table, and increase parent representation on the Sunshine Committee.

·  Allow parents to ratify the union contract before the Board votes. 

Speak UP is not the first to sound this alarm, but we are determined that parents be heard. You have taken a valuable first step in staying informed. Now it's time to take action.  Please sign our petition to give parents a seat at the table when crucial decisions are made affecting our kids.