Why are schools not furloughing their employees?
Barry Gardner, Chief Financial Officer, MSD of Wayne Township
As the impact of COVID-19 continues to rear its ugly head on the economy and many businesses have begun to reduce salaries, there has been a question lingering under the surface with many state leaders: Why have schools not furloughed nonessential, non-teaching employees? It is a valid question and one that needs to be and can be answered.
While schools in general have not been impacted financially in the short term, there is a looming potential financial storm on the horizon. State sales and income tax revenue provide the majority of funding for K-12 education in the state. As the economy has been shut down and many individuals have lost their jobs, we have seen a large decrease in state revenue and projections for continued shortfalls in revenue. In the April revenue report, the State revenue was down by $964 million. While much of this was due to the income tax filing delay, there was a drop of over $100 million in sales tax alone. The April decline is especially scary when you consider that the economy had already been shut down for half the month of March.
This has happened at the same times schools in Indiana were shut down by the Governor and moved to various models of remote learning. The move to remote learning forced many school employee groups to the sidelines, unable to do their jobs remotely if they were not providing teaching or instructional services to students. Across the state, bus drivers, paraprofessionals, child nutrition workers, and many custodians were sent home to create social distancing while still receiving their weekly pay.
Why then did schools not react like many businesses during this time and furlough their employees? I ran the analysis of this very question by diving into the numbers here in the MSD of Wayne Township. The MSD of Wayne Township is located on the west side of Indianapolis serving nearly 17,000 students while employing approximately 2,400 teachers and support staff.
First, let’s look at the potential savings a district might see by furloughing a set of its employees. In the MSD of Wayne Township, we began with the assumption that on March 13, when schools in Indianapolis were closed by the Marion County Department of Health, we would have furloughed 75 percent of all classified staff. Classified staff in this example is defined by employees groups consisting of transportation, child nutrition, custodial, support staff and paraprofessionals. The other 25 percent would have stayed on to help continue the essential functions of the district that were still running during the closure of school buildings. The furlough of these employees would have resulted in a reduction of expenses of $6,602,252 between March 13 and August 1 when wages and benefits are calculated.
Sounds pretty good, right? Well, it does until you begin to factor in unemployment for these employees. Given the state of the current economy and the sudden loss of their jobs, it is reasonable to assume these employees would have filed for unemployment and won their case. It is also important to understand that furloughing these employees in March would actually create additional unemployment costs for the district. Many of these groups do not work in the summer months, but they are given a letter of assurance their jobs will be there in the fall when school resumes. This letter of assurance is essential for schools to ensure they are able to staff their buildings when school resumes.
In furloughing employees in March, schools would have picked up unemployment costs for June and July, months during which these employees would typically not have been paid. When you then calculate the cost to the district of the unemployment benefits that would have paid out, the savings from March until August are reduced to approximately $2.1 million. Still, that sounds like fairly significant savings, correct? It is, until you take into account the size and scope of that savings. For the MSD of Wayne Township, the $2.1 million in savings would equate to roughly 1.3% of our combined Education, Operations, and Referendum budgets. While $2.1 million still sounds like a significant amount of savings, in a district our size it represents three days of operating expenses. These savings also come with various offsetting impacts that cut into those savings.
- Morale
In many school districts in Indiana, the individuals who make up these employee groups live within the district boundaries. In the MSD of Wayne Township, 67% of classified staff members live in our district. They are parents, grandparents, and relatives of the students in our schools. This decision would force much of one’s community to the unemployment line, placing financial and mental stress on those families.
- Impact on people’s finances
A decision to furlough 75 percent of our classified staff in the MSD of Wayne Township would result in an additional 850 people filing for unemployment and having their financial stability impacted. As noted above, this turmoil only represents roughly 30 percent savings of the potential expenditures for the district and simply shifts the remaining costs to the State and potentially Federal government through unemployment assistance. As has been noted in the media, many individuals can actually receive more through the current unemployment status than in their current job. If this is the case, we have simply shifted the problem to another government entity. Additionally, this would only create an even worse hit on the economy if public schools across the state furloughed their entire classified staffs.
- Ability to resume staffing levels
A great concern for school districts if they were to have reduced staff in March would be their ability to ramp back up to necessary staffing levels in August. Additionally, there is a chance many of these employees would find other, better paying work, especially bus drivers who possess a CDL license and could find work in the transportation industry. Imagine the implications of having to open your buildings with only half of your custodial or bus driver positions filled. We would not be able to transport students to school, thus creating academic and logistical issues.
Schools do not function like a business that can adjust staff levels with the amount of business or sales coming in and simply scale up as those increase. The MSD of Wayne Township would need all 1,200 classified staff in buildings ready to go on August 1. Schools cannot simply flip a switch and fill this large a staffing gap in a matter of days.
- Impact of onboarding new employees
Another ramification of the staffing issue would be the need to onboard new employees. In continuing to pay these employee groups, the district cuts down on turnover in staffing. For the MSD of Wayne Township, that is typically less than 10 percent. If the district turned over half of the positions furloughed, we would have additional hours required for onboarding these new employees above and beyond a normal year. Our calculations show that we would expend an additional 420+ hours of employee time onboarding for this transition at a cost of approximately $80,000. This would be nearly impossible to complete in a one or two week span leading up to the start of school.
Schools across the country and in Indiana will face tougher times ahead in funding and in their overall financial operations. There are many strategies and potential options for meeting this challenge being discussed across the state. Currently, every two weeks, more than 150 school finance leaders from across the state gather virtually to discuss ideas such as these. These discussions and the analysis conducted in the MSD of Wayne Township show furloughing groups of employees was not an ideal option. While savings could be gained, they are far outweighed by the financial impacts to employees and logistical impacts to schools. It is important to remember that the $2.1 million in savings for the MSD of Wayne Township would be a one-time benefit, while the costs would be much more widespread and long lasting. Schools finance leaders and superintendents are working and will continue to work diligently to prepare for the difficult days ahead, but we know our people are just too important to spare for such small savings.