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The Duluth school district has a fiscal problem no one talks about. The rising expense of employee compensation has been stressing the budget.

The biggest cost spike is in the benefit package, especially health care.  Recently Duluth city government’s problem with health care costs made the news broadcasts. The school district also has a serious problem with health care expense, but no one even talks about it, because the teachers’ union dominates the school board so thoroughly.

The union pours money into local elections and expects allegiance from its endorsed candidates. The president of Duluth Federation of Teachers, Local 692, groused: “Some of the people on the school board are no longer the same people we helped get elected,” when the board allowed a few modest concessions to be put on the bargaining table in 2013.    

The district has been negotiating two two-year contracts with the union in recent years. 
When the last agreement came to the board, in 2017, Harry Welty was the only member who voted against it, pointing out that he was concerned about the “difficulties lying ahead of us.”  

Welty added that if his “voting against it helps make that (reality) more apparent to the community, I think they (the citizens of Duluth) need to be aware that we’ve got this financial problem that will be facing us in the future.”

About a month later, the district crashed into statutory operating debt, which forced big midyear cuts in operations. The depletion of the reserve fund was primarily caused by a big increase ($1.1 million) in the employee Healthcare Reimbursement Account. 

The district contributes to these employee accounts annually. The money covers out-of-pocket expenses – copays and deductibles – for medical care. It is not use or lose. 
If it isn’t used, it accumulates year-to-year and is invested for the employee. It belongs to the employee when he or she leaves or retires.

The contract is currently written so any increase in this expense comes primarily out of the district’s budget: 95%. The union is only on the hook for the remaining 5%. 

Obviously, a contract so lopsided puts the district’s budget at risk if and when this expense takes another upward spike. During the last campaign, I tried repeatedly to draw attention to the fact that contract language had to be rewritten to slow this growth to a more manageable level, but no candidate endorsed by the union (the group that dominates the boardroom) would even entertain the discussion.

Board member Kelly Eder, union-endorsed, someone who had not been through any previous negotiations and did not know the history of those negotiations, countered my concerns this way: “Education and teaching is people heavy. It’s expensive. People are expensive. Health insurance goes up, life insurance goes up…”

It certainly has been going up. In fiscal year 2020, the cost for employee benefits rose to more than a million: $1,765,916. 

In fiscal year 2021, it rose just shy of a million: $928,699, for a total of $2,694,615 in two years. 
Obviously a $2.7 million dollar increase in such a short span is tough on the budget. In terms of percentages, the cost rose from 23.2% of general fund expenditures, to 25%.

Keeping the family happy

The district has been negotiating with the union since last July. I don’t know what concessions are on the table, but seven months without a contract suggests the union is not delighted by what administration is serving up. 

Throughout the campaign I heard rumors of a possible strike and more than once Superintendent Magas was described to me as a “union-buster from Wisconsin.”  

Union people were upset that Magas had brought in a labor lawyer to help hammer out an agreement. Some of the district’s bargaining units are now rumored to be calling for a vote of no-confidence.

ISD 709 is in a real bind, due to the feckless leadership that preceded Magas: Dixon and Gronseth. 
Keith Dixon had gotten a 66% vote of no-confidence in his prior job in Faribault, Minn. He’d pushed through a consolidation project in that district, left a fiscal mess in his wake, and the teachers turned on him. To avoid a repeat reaction to his repeat action in his new job, he bent over backward to placate the Duluth union.

Duluth citizens who tried to warn about a fiscal train wreck were of course correct. The budget destruction from Dixon’s spending spree happened exactly as they predicted. 

The district’s total reserve fund plummeted from $30,151,202 to $6,799,777 during the six years of the cotton-topped hustler’s reign. Three years after he left, it dropped to $1,934,777. Four years later, it was completely depleted and in the red.  

How do you stop a train already off the tracks and still roaring along at a hundred miles an hour? 
Bill Gronseth, Dixon’s replacement, didn’t have a clue. His strategy was to deny the problem as much as he could, blame the people who had warned the wreck was coming, and keep preaching that everything was going to turn out gloriously in the end.

Gronseth’s relationship with the teachers’ union was familial. He’d once been a member; his wife was a current member. 

Deanna Gronseth actually participated in the union’s screening of board candidates in 2017, and aided DFL/union campaigns, helping get her husband’s preferred people on the board. Bill showed up at the DFL endorsement convention and worked a room filled with DFLers and union people. The crowd was one big happy family, shaking hands and hugging each other.    

Bill’s attempts to rein in the contracts were feckless, but he did make a half-hearted try in 2013. Single employees in the district get completely free health care, unheard of even in the public realm anymore.  
“To have totally paid health insurance, whether it’s single or family, is totally unheard of in this day and age,” is the way the former HR manager, Tim Sworsky, put it during the board’s closed-session discussions in 2017.  

During the same 2017 meeting, former board member Johnston told his colleagues that the Minnesota School Boards Association didn’t track health benefits very well, but “they did run some numbers for me and our benefits are pretty --”  

“Healthy?”  Bill inserted, finishing Johnston’s sentence with a bad pun.  Laugher broke out in the room.  
Gronseth told the board that during the 2013 negotiations the district tried to get single employees to contribute something to the cost of health insurance premiums: “20% on single payer was our charge, and well, (Gronseth chuckled,) we didn’t get there. Then we tried for 10%, and we didn’t get there either.”

Didn’t get anywhere

The next set of negotiations, in 2017, were borderline inept. 

Trying as hard as he could to get out of town, Bill was adverse to a fight, though few people would have had the stomach for one. Teachers are becoming more confrontational across the country. 
In 2018, teacher protests and strikes erupted in West Virginia, Arizona, Kentucky and Oklahoma. All of these states lag near the bottom in teacher compensation and education spending, but the power of angry teachers was very sobering. 

In 2019, more teachers got out on the streets with protest signs in Los Angeles and Denver. Pay isn’t the only complaint. Teachers have also become more vocal about their safety and well-being in regard to increasing student mental health issues, school shootings and the pandemic.

Given the multitude of problems besetting public education, including teacher shortages, and the state of ISD 709 specifically, it’s amazing Magas is showing any backbone at all. 

A teacher strike for a school district with ISD 709’s problems is not pleasant to contemplate. Parents have many more options for educating their children than they once did. A strike by Duluth teachers would be very damaging for a public school district that is struggling to retain market share in an increasingly competitive marketplace.

But what’s the alternative? 

Keep stumbling ineptly along as the district has done for several years under poor administrative leadership and a school board that represents the union’s interest more than the overall district’s and taxpayer’s interest – the proverbial fox guarding the henhouse?

Just how inept the negotiations were handled in 2017 is illustrated by the answer given by the district’s CFO to this question, asked by former board member Johnston: “So, have you figured out what that 10% savings (in single payer premiums) would be for us?”

The CFO replied: “I did some calculations for the district as a whole, and it was in the ballpark of $200,000...”

Not a single person in the room flagged the $200,000 figure as inaccurate. 

In the previous four years (2014-2017,) insurance premium costs had risen $1,373,233.84. The district’s total annual cost for single payer health insurance premiums in 2017 was $4,467,053.80. 
A 10% employee contribution would have saved $446,705.38; a 20% contribution would have saved $893,410.76.  

In 2013, ISD 709 narrowly averted statutory operating debt by undesignating a $4 million severance insurance fund. The district’s reserve worksheet projected the budget to be in statutory debt again by fiscal year 2018, if expense/revenue patterns remained in place.

The agreement reached with the teachers’ union in April of 2014 left all the coverage – including the HRA agreement – in place, except for one small change. Instead of half-time employees being covered, employees had to be at 60%, a change of four hours: from 20 to 24. 

The district wanted to offer coverage only to employees who worked 80%, but got rolled, and even this small turn of the faucet was soon turned back.  Before the contracts could even take effect, nearly all employees once employed half-time were jumped to 60%.  

I’m glad these employees – usually on the lowest rung of salaries – have insurance, but this kind of failure to control spending is a major contributor to the budget problems of Duluth’s public education system. 

On top of the benefit package remaining unchanged, a 3% raise given out in 2015 jumped teacher salary compensation $2,109,971, not counting step-and-lane and longevity increases. Salary/wage compensation for all other bargaining units increased $2,139,087. 

Total wage expense jumped in the neighborhood of $4.3 million, in a school district with an unrestricted reserve fund that was falling to less than 2% of expenditures.

As the reserve worksheet projected, the district crashed again into statutory operating debt in 2018.
One problem connected to another

The public passed a $1.8 million levy referendum in 2013, but the district could only muster enough money to hire a net gain of 16 teachers after replacing retirees.

With rising operating costs, the money didn’t go far enough to make much of a dent in the district’s biggest problem: class size. 

The average size of elementary school classes dropped from 29.33 to 27.42, average size in middle school from 34.42 to 32.69, and in high school it dropped from 35.66 to 34.15 – a whopping one (and a half) less student.

In Dec. 2015, teachers from Duluth East High School sent a letter to the school board, complaining about the lack of progress.  

“When the levy was passed,” the teachers told the board, “one of the key focus areas was reducing class size. Our data for the last five years would indicate that this has not happened at East.  We encourage you to review data and ask for your support to funnel funding into the classroom.”  

The teachers from East included a compilation of class sizes, breaking the numbers down to class sizes more than 30 and 40. The teachers listed 143 class sections of between 31-34 students and 121 class sections between 35-39 students. The teachers told the board there were 37 class sections of more than 40. 

The teachers summarized this way: “In other words, sections over 30 students: 307, sections 35 students and over: 158, sections over 40 students: 37. Although there are large class sizes in a number of content areas, the following are areas with CONSISTENTLY LARGE (caps included) classes: math, science, physical ed.”  

The teachers seemed unaware that wages had gone up $4.3 million that very year, considerably higher than the increase in levy revenue. 

Where was the money to reduce class sizes going to come from? 

The same thing happened in 2017.  Behind closed doors, the board and administration admitted they were signing contracts the district couldn’t afford and were going to “gamble” on the public passing another levy. 

The levy did pass again (another $5 million/year) and class sizes still didn’t budge, because much of the revenue was again diverted to cover the contracts.

I personally don’t mind seeing lab-or gain a little muscle from worker shortages, but when it comes to public education, Minnesota is not West Virginia or Kentucky.

In a letter signed and dated right before he left town, former Superintendent Gronseth informed me that the “average cost of a full-time teacher in the district is about $96,000.”  

A recent “Best Cities for K-12 Teachers” report by the consumer research website GoodCall.com ranked Duluth quite high, at 86 out of a study of 689 cities nationwide. One of the top reasons cited for prospective educators to consider Duluth was “favorable teacher salaries.”  

It can be reasonably argued a favorable climate helps attract and retain good teachers. And good teachers are certainly worth good pay.

During the 2017 closed sessions one board member lamented: “I’d love to pay teachers and our staff much more than they get, but we only have what we have.”  

I share this sentiment, but the truth is the board did give away more than it had, and subsequently had to again rob from a levy that should have been used to hire more teachers.

Hopefully an agreement can be reached during these negotiations that prevents that pattern from repeating.