Midland (Michigan) Public Schools (MPS) is struggling with how to establish fixed costs (via employee contracts) against a backdrop of decreasing state aid and increasing retirement and health care costs. An arbitrator is now trying to mediate a deal.

To allow their new contracts to cope with these variables, the MPS Board of Education proposed what the arbitrator referred to in the report as the “Grosse Pointe formula,” a direct reference to the agreements we have established locally. I’ve written about how our contracts work many times and presented on the topic at Board meetings. The MPS arbitrator described it as follows:

The “Grosse Pointe formula”…provides for teachers sharing in the increase or decrease in foundation allowance revenue, with adjustments for pension costs and step increases, and further adjustments if the fund equity falls below 10 percent or increases above 15 percent. The district proposes making this formula a permanent part of the parties’ contract.

This is a fair summary that, by the MPS’ Board’s calculations, would yield a 7% salary reduction for teachers. This is a district that has already experienced real pain. The report shares that MPS has closed five schools, teacher ranks have been reduced by 40%, but despite that the report offers a familiar refrain.

The savings [from these cost cutting efforts] has, however, been more than offset by dramatic increases in the pension contribution rate the District must pay into the Michigan Public School Employees Retirement System (MPSERS).

This is precisely why what is now being referred to as the “Grosse Pointe formula” makes so much sense. Why shouldn’t employee total compensation adjust automatically to account for increases in indirect compensation, such as retirement, that benefit those same employees?

The arbitrator does not see it that way, however. Why? She admits that “it is challenging to analyze the financial information, because so many factors have been changing simultaneously.” This is why we have built our GPPSS Budget Modeling Utility, to address this very problem, dismissing the “Grosse Pointe formula” by saying:

I am not recommending a specific formula for the parties to use in future years, although they could use the same general approach… It is not possible to predict what will happen with State funding. However, the State’s economy has begun to recover… I do not think the “Grosse Pointe formula” would be the best option for the district. It was not clear from the exhibits whether Grosse Pointe is experiencing the kind of enrollment loss which Midland is.

The very reason he does not opt for the “Grosse Pointe formula” (“not possible to predict State funding”) is the VERY reason TO adopt it. And maybe the State economy IS improving. If it improves to such an extent that Fund Equity increases, then it all works out as well. But to cite enrollment differences is downright silly when earlier in the document the MPSERS issue is properly cited as Midland’s biggest problem.

So what did the arbitrator propose as an alternate to the “Grosse Pointe formula”? What model is better in his eyes than a system that adjusts compensation to variables beyond local district controls?

• 2% salary reduction
• One unpaid furlough day in 2011-12 and two in 2012-13
• a range of 1.75% to 3% health care cost sharing
• increase class sizes

The arbitrator’s summary point regarding the MPS Board’s salary proposal was that it “did not adequately recognize the ongoing reductions in staffing can continue to achieve some of its needed reductions in expenditures.”

So in direct response to rising retirement costs, this arbitrator has determined that having fewer school days (furloughs) and increasing class sizes is what’s best for the students of Midland, Michigan – all while hoping against hope the State economy improves and Michigan’s $38 billion unfunded pension liability gets closed fast.

Really?

I’ll take the “Grosse Pointe formula” over that any day.