Is There Really a Way to Control Contract Cost?

1. Is There Really a Way to Control Contract Cost? Mark Fitzgerald And Tim Shrom

2. http://www.ifo.state.pa.us/Independent Fiscal Office – January 2012 National State

3. IFO - Economic Trends • Real growth remains modest for the US (2.0 percent) and the Commonwealth (1.6 percent) for 2012. • • Unemployment remains elevated for the US (8.8 percent) and the Commonwealth (7.9 percent) for 2012.

4. IFO - Demographic Trends From 2010 to 2020, the Penn State Data Center projects that: • Total population will increase 2.3 percent (0.2 percent per annum) • Elderly residents over age 65 will increase 25.0 percent (2.3 percent per annum) • Working age residents will decline by -1.8 percent (-0.2 percent per annum).

5. IFO - General Fund Revenue Trends Based on demographic and economic forecasts: • For FY 2010-11 to FY 2013-14, revenues will increase by 1.6 percent per annum. • For FY 2014-15 to FY 2016-17, revenues will increase by 4.0 percent per annum. • The Pennsylvania tax base will continue its long-term contraction due to demographic factors.

6. IFO - General Fund Expenditure Trends Based on demographic and economic forecasts: • General Fund expenditures will outpace revenues, assuming no further policy actions to bring the two series into balance. • Demographic trends will cause significant growth in the number of residents eligible for Medical Assistance, creating budgetary pressures. • Pension contributions will comprise a rapidly increasing share of General Fund expenditures: 4.2 percent for FY 2011-12 growing to 11.6 percent for FY 2016-17.

7. Locally - Know Your Data • Trending • Where have you been? • Projecting • Where are you going? • Steering • Where do you need to go? • Correcting • Where are you not on course?

9. 8.76% - 1997-98 4.78% - 2009-10

10. Combined 4.88% share increase of the Budget over 8 years 63.43% 68.31%

11. Downward pressure on all shares of other objects Equipment and Supplies = 5.1% 3.24% reduction in share for Debt service liability

12. So, where to start??The big Stuff.... • RX • Salary • Multi-yr promise • Matrix • Step differentials • Column differentials • ERI’s • Difference from Average ..life time earnings...compaction...range reduction.. • Movement on scale / across columns • Tuition reimbursement • Productivity and Leave data • Health Care • PPACA • Cadillac Tax • Cost and medical trend • Total compensation

13. ...the 80 / 20 rule...

18. School District H

19. Matrix structure will impact staffing levels... Correlation to # of staff?

20. 3 R’s – Realistic Range Reduction

22. $761,175 .............06-07 to 09-10 ---Note Front load CBA expiring year

25. Leave Equivalencies: %-Days-imputed value-sub costs

29. Multi-Year CBA....A Required discussion...book the Liability???

31. ERI’s [according to TJS] • Generalization; Cost avoidance too often only exists if there is no replacement, and sometimes not even then • Math must include all dollars to be expended, all revenues to be lost, from all funds used, for all school years impacted • Math cannot include “avoidance” or savings in ‘out’ years for when normal attrition would have occurred anyhow. • Free or significantly reduced Health Care; Guarantees Enrollment...added legacy cost... • Legal and IRS regulatory issues: dot all i’s and cross all t’s • In the past....pace of revenues...covered bad assumptions...

32. Legal Implications of attempting to control costs outside of a CBA Not so fast my friend

33. Challenging Economic Times • School Districts and Intermediate Units will look to contract out services in order to reduce costs in the areas of pension obligations, healthcare, and overtime. • Such contracted services may come in the area of custodial support, transportation, related services under the Individuals with Disabilities Education Act, and food services. • What to know as you go forward…..

34. Contracting Out Services: Getting Started • Is Contracting out a simple process that only includes approval of the school board? • Are there legal implications in using contracted workers versus regular employees? • What Labor Law limitations exist to subcontract? • And, to the extent you are contracting out services, are these “contractors” really school district employees hiding as contractors?

35. Contracts 101 • As with any contract – think of how to shift the risk. • A good contract will help you confront problems and concerns before they rise to an adversarial situation or even litigation. • Unfortunately, too many schools neglect this significant risk management tool. • Often, many school entities do not properly police their contracts and let bad practices develop

36. Outsourcing unionized work • Sure enough as professional and support contract are set to expire, and School Boards are looking for cost certainty (at least in the short term) and to alleviate the burdens of healthcare premiums, PSERs contributions, workers compensation, etc., the push to contract out work is in full force.

37. Outsourcing-Bargaining • In determining whether the employer fulfilled that obligation, the Board will look at a totality of the circumstances. • The “key factor” is whether the employer made counterproposals. Lower Dauphin School District, 19 PPER ¶ 19195 (Final Order, 1989).

38. Outsourcing and Bargaining • The Board will find that an employer has engaged in an unfair labor practice if it refuses to bargain with the union over the subcontracting of bargaining unit work. Elizabeth Forward Sch. Dist. v PLRB, 624 A.2d 215 (1992).

39. PLRB/Subcontracting Bargaining Unit Work If an employer is contemplating subcontracting bargaining unit work, it has an affirmative duty to seek out the representatives of its employees, announce its intentions to subcontract and provide all relevant information for them to fulfill their bargaining obligation. Lancaster County, 24 PPER 24054 (Final Order, 1993), aff’dsub.nom.County of Lancaster v. PLRB, 25 PPER ¶ 25098 (Court of Common Pleas, Lancaster Co., 1994).

40. Online/Cyber Schooling and Bargaining Unit Work • In the Tredyffrin/Easttown School District decision, the Pennsylvania Labor Relations Board has held that the offering of online courses without teacher involvement is a subcontracting of Bargaining Unit services that needs to be bargained to impasse.  • The Labor Board would have authority to issue a cease and desist order on the online courses and under certain circumstances, award lost pay to the Bargaining Unit Members who were allegedly deprived of the opportunity to participate in teaching those courses.

41. Online/Cyber Schooling and Bargaining Unit Work • The only exception that has evolved under the law is under the Rochester Area School District decision.  The Pennsylvania Labor Relations Board did not find unlawful subcontracting when the District offered online courses having teachers involved in the monitoring of the course, grading of the course, or presentation of the online programming, even if it meant that the teachers' duties were either reduced or substantially modified as the result of the programming. In other words, technology that utilizes equipment to eliminate most or all of the duties of a position does not constitute the removal of work.

42. Make sure your independent contracts are truly independent • In determining whether a worker is an independent contractor or employee, we look to a series of tests on the issue: • The IRS Test • The US Department of Labor Test • Pennsylvania Labor and Industry • Pennsylvania Case Law

43. Staying Independent • The status of the employee could have profound implications in the areas of overtime requirements, unemployment compensation, tax issues, pension qualifications, workers compensation, and various other benefits typically provided to employees and not independent contractors.

44. Independent Contractor versus Employee

45. Contractor for Unemployment Compensation Purposes • The Unemployment Compensation Law "presumes that an individual is an employee, as opposed to an independent contractor." Beacon Flag Car Co. v. Unemployment Compensation Board of Review, 910 A.2d 103, 107 (Pa. Cmwlth. 2006). However, this presumption may be overcome if the putative employer shows that the claimant: (1) "was free from control and direction in the performance of his service"; and (2) "as to such service, was customarily engaged in an independent trade[, occupation, profession] or business." Id. "Unless both of these showings are made, the presumption stands that one who performs services for wages is an employee." Id.

46. Contractors: Unemployement • As to the second prong of the independent contractor test--whether the claimant was engaged in an independently established trade, occupation, profession or business--the courts have generally considered: (1) whether the individual was "'capable of performing [his services] to anyone who wished to avail themselves of the services' and [was] not 'compelled . . . to look to only a single employer for the continuation of such services'"; (2) whether the individual was "dependent on [the presumed employer] for employment"; and (3) whether the individual was "hired on a job-to-job basis and could refuse any assignment." Viktor LTD v. Department of Labor and Industry, Bureau of Employer Tax Operations, 586 Pa. 196, 214-15, 892 A.2d 781, 792-93 (2006)

47. Workers Compensation • An independent contractor is not entitled to Workers Compensation benefits because of the absence of a master/servant relationship. 77 P.S. § 21; 77 P.S. § 22; Cox v. Caeti, 444 Pa. 143, 279 A.2d 756, 757 (Pa. 1971). Thus, employee or independent contractor status is a crucial threshold determination that must be made before granting workers' compensation benefits. It is a claimant's burden to establish an employer/employee relationship in order to receive benefits. Johnson v. WCAB (DuBois Courier Express), 158 Pa. Commw. 76, 631 A.2d 693, 695 (Pa. Cmwlth. 1993). Moreover, a determination regarding the existence of an employer/employee relationship is a question of law that is determined on the unique facts of each case. JFC Temps, Inc. v. WCAB (Lindsay and G&B Packing), 545 Pa. 149, 680 A.2d 862, 864 (Pa. 1996)

48. Workers Compensation • The Commonwealth Court in Universal Am-Can v. Workers' Comp. Appeal Bd. (minteer), 563 Pa. 480considered certain common-law factors traditionally used in considering employee status. Consistent with the Board's analysis, the Commonwealth Court noted that while all factors are important, the most persuasive indicator of a claimant's employee or independent contractor status lies in the right to control either the work to be done or the manner in which the work is to be accomplished, citing Lynch v. WCAB (Connellsville Area School District), 123 Pa. Commw. 299, 554 A.2d 159 (Pa. Cmwlth. 1989)

49. Contractor or Employee for purposes of PSERS? • PSERS limits its memberships to “ school employees”. 24 PS § 8301. A school employee is defined as follows- “ Any person engaged in work relating to a public school for any governmental entity and for which work he is receiving regular remuneration as an officer, administrator or employee excluding, however, an independent contractor or a person compensated of a fee basis.”

50. Contractor-PSERS • The Supreme Court in Zimmerman set out a ten part test to determine who is an employee and who is a contractor, thus who is eligible for PSERs membership. • The test consists of the following factors…