Bugs In California’s K-12 System

Imagine if one of Apple’s products had a software bug. Do you think Apple’s management would act immediately to fix it? Of course it would. Now ask the same question about California’s K-12 school system, which operates under rules established by the state legislature and governor. Would they act immediately to fix a bug in that system? They should — but they don’t. Nowhere is that failure more apparent presently than in the school district in the state’s capital city, Sacramento.

K-12 and Community College Funding

Despite surging state funding for schools that’s up 60 percent this decade, the Sacramento City Unified School District has a $35 million deficit and is projected to run out of cash by November unless steep cuts are enacted. Proposed cuts include layoffs of teachers. Under a rule written by the state legislature and governor referred to as “LIFO,” which means “last in, first out,” school districts in California are required to lay off teachers in reverse seniority and regardless of performance.

If Apple laid off employees on a LIFO basis without regard to performance it would risk losing customers. That’s because Apple’s customers can vote with their feet. But most California parents can’t change schools. That’s why they depend on the legislature and governor to ensure high quality K-12 employees serve in their kids’ schools. But because the legislature and governor have abdicated that responsibility, SacCity’s customers — more than 40,000 kids — are stuck.

The failures don’t end there. 60 percent of SacCity’s deficit is the result of the district being permitted by the state to unnecessarily subsidize the health insurance costs of retired employees. Even retirees on Medicare or entitled to Affordable Care Act subsidies get the subsidies, and regardless of their pension and other income. Those subsidies — which not every school district offers — are costing SacCity $22 million this year (see “OPEB” in the attached screenshot). Means-testing that subsidy and requiring retirees to make full use of Covered California, Medicare and the ACA before accessing district funds as the City of Glendale does could potentially save SacCity 90 percent of that cost and erase 50 percent of its deficit.

There’s more. Even though SacCity’s student population is 30 percent smaller than the student population of nearby Elk Grove Unified School District, SacCity’s spending on health benefits (see “Health and Welfare Benefits”) is >15 percent greater. Expressed more starkly, SacCity’s spending on employee health benefits is 70 percent more per student than Elk Grove’s health benefits spending. Aligning SacCity’s spending with Elk Grove’s spending would save $30 million per year, or 85 percent of its deficit.

SacCity is also spending $57 million this year on pensions (see “STRS” and “PERS”), 2.5 times more than it spent on pensions just five years ago. While most of that growth is due to past failures to provide full funding of pension promises, some is due to automatic benefit increases for retirees that the district should be allowed to suspend until pension funds and the district are on firmer financial footing.

Together these actions could not only wipe out SacCity’s deficit but generate extra cash to add staff and better compensate teachers.

In private, not a single California legislator tells us LIFO is a good idea, but they’re afraid to say anything in public out of fear that government employee unions who favor LIFO would take action against them. Likewise, not a single knowledgeable legislator believes that settlements of recent strikes in Los Angeles and Oakland solved any problems. Neither settlement addressed the bugs at the core of school district fiscal problems, including unnecessary retiree health care subsidies, poorly structured health care plans and rising pension spending. But even though K-12 is the General Fund’s largest expenditure and legislators and the governor have all the power they need to make K-12 better, they have been too gripped by fear to act.

Fear has dominated California’s State Capitol for long enough. Schools should be fully staffed with the highest quality teachers. Neither SacCity nor any other school district should be permitted to balance budgets on the backs of teachers and students when the legislature and governor have the power to force common sense fiscal improvements. State legislators and the governor should (i) end the discriminatory practice of LIFO, (ii) require any school district that elects to provide retirees with health insurance subsidies to means-test those subsidies and to make full use of Covered California, Medicare and ACA subsidies before permitting district funds to be accessed, (iii) allow school districts to suspend automatic pension benefit increases, and (iv) require school districts to adopt rational health benefit plans.

Let there be no misunderstanding that state legislators and governors in California are in charge of K-12 and have the power to fix bugs in that system. They have no greater responsibility. It’s time to step up.