Education Law : Pennsylvania Education Law Lawyer & Attorney : Fox Rothschild Law Firm : Education Statutory and Regulatory Changes

By: Jeffrey T. Sultanik, Esquire, Chair of the Education Law Group, Fox Rothschild LLP

Those Pennsylvania school districts that have aid ratios of less than .4 (the wealthier school districts in the Commonwealth of Pennsylvania) are looking at historically low Act 1 indices for the next few years. Indeed, districts that have aid ratios in excess of .4 are also facing historically low numbers.

For the 2010-2011 school year, the base Act 1 index is 2.9%. For 2011-2012, the Pennsylvania Association of School Business Officials has opined that based upon the statewide average weekly wage and the employment cost index that one should expect an Act 1 index of 1.4%.

Putting aside the PSERS crisis that our State Legislature has yet to satisfactorily address, districts that are currently engaged in negotiations or soon to engage in negotiations should perform some relatively easy calculations to determine the amount of available dollars that can be spent on collectively bargained contracts.

Salary and healthcare benefit packages are not subject to any exception under Act 1. Because healthcare benefits have consistently exceeded the Act 1 index levels (as well as current CPI numbers that are hovering at the 1.2% level), districts that enter into collective bargaining agreements that substantively exceed their applicable Act 1 index will find themselves over time eating into their available fund balances, to the extent they exist.

A district should calculate the amount of dollars that a 2.9% Act 1 index would generate for the 2010-2011 school year and how much a 1.4% increase would generate for the 2011-2012 school year. If you are considering a collective bargaining agreement that extends beyond that, expect a low Act 1 index of the 1.4%-1.5% range for the next one or two years because of the lagging statistical data the comprises the Act 1 index.

Then take that available number and reduce it by about 50%. In most districts, the salary and benefits on your teachers’ contract represent approximately 50% of the tax effort/budget of the district. That number should yield the target number that a district should negotiate toward in order to enter into a fiscally prudent contract.

In those districts that I have worked with the Business Office to do this calculation, at least for the first two years of the contract, the index is often not enough to cover salary step movement alone. The numbers are sobering and is indicative of the difficulty that many districts are now having trying to enter into a collective bargaining agreement with their teachers’ union, particularly when the cost of healthcare benefits continues to escalate at sometimes a geometric level.

Teachers’ unions in the Commonwealth of Pennsylvania have not vocalized their understanding of this situation though some PSEA UniServ Representatives and Federation Representatives have acknowledged the significant consequences of the low Act 1 index on the ability of a school district to fund a labor contract.

If the Pennsylvania State Legislature intended the Act 1 of 2006 legislation to make it difficult, if not impossible, for a school district to enter into a multiple year labor contract with its teachers’ union, the Legislature has succeeded without amending Act 195 or Act 88 of 1992.

Unless a school board engages in this exercise, they cannot determine the scope of the difficulty of entering into a multiple year labor contract with its teachers. If a school district does this and does not have substantive financial reserves, they will find themselves over the next few years substantially cutting back on program, furloughing staff, and changing a lot of the “value-added” aspects of their teaching program that originally caused individuals to settle in their school districts.

Going through this exercise will undoubtedly yield profound results in a very difficult time. Things just don’t seem to be getting better.

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A reader asked me in the context of my prior article dealing with CCP Lackawanna v. OOR (see item from August 17) how that case might apply to the tax records in the hands of the Tax Collector.  It doesn't.  In fact, the CCP Lackawanna case is the exact opposite of that.

For the benefit of those unaware of this, the OOR has taken the position that where a Tax Collector performs his statutory duty on behalf of an agency, it remains the agency's duty to get his records and turn them over upon request.  This despite the statute making the Tax Collector exempt from the RTKL.  The OOR's position was successfully challenged in the Montgomery County CCP with the case on appeal to the Commonwealth Court.  (I wrote about this situation in an alert to the firm's clients back in January 2010 before Mr. Honaman took his appeal on behalf of Signature Solutions. CW Ct. argument is now scheduled for September 2010, so stay tuned).

Thus, where the CCP Lackawanna case involved judicial records (private non-RTKL records) in the hands of an agency with a duties under the RTKL, the Tax Collector situation involves a request for arguably public records sent to an agency that does not have the records to turn over. 

So I would not recommend relying upon the CCP Lackawanna case for issues dealing with the Tax Collector's records. For that issue, we will have to await the ruling of the courts.  That being said, were I deciding the case, I would side with Judge Moore (of Montgomery County CCP) and point out that the records the Tax Collector is required to turn over to a taxing agency is limited both in extent and timing and only make an agency turn over what it has actually received.

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In what should have been an obvious decision, the PA Commonwealth Court recently gave guidance to public bodies holding executive sessions related to litigation matters.  The case was Trib Total Media, Inc. v. Highlands School District, 1588 C.D. 2009 (Pa. Cmwlth.).

The facts were fairly odd.  The Highlands School District's board held an executive session to discuss tax assessment litigation.  This is a perfectly legitimate use of an executive session.  What the court found made it not so legitimate was that in addition to their attorney, the Board invited the owner of the tax parcels -- otherwise known as the adverse party.

A board is supposed to hold all meetings in the public eye so that the public can remain informed on the business of the board.  An executive session excludes the public and is permitted only in limited situations.

The purpose of an executive session for litigation is to discuss strategy and facts that, if they became known to the adverse party, could impact on the District's position during that litigation.  A board is permitted to invite others into an executive session if doing so will further the aims of such an executive session, but as you see there are clearly limits on who can be invited when the board is discussing litigation.

In this case, what the court found was that by including the adverse party in the executive session, the board made it pointless (and a Sunshine violation) to exclude the public.  The court recommended that if the board had simply wanted to negotiate, it should have followed normal precedures for it, by giving a negotiator parameters and authority to meet with the tax parcel owners.  Discussions in executive session on the negotiations toward settlement would then have been permissible.

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The Commonwealth Court recently issued a decision in the Court of Common Pleas of Lackawanna County v. the Pennsylvania Office of Open Records and Lackawanna County, No. 35 M.D. 2010 (Pa. Cmwlth.). Essentially, this case indicated that where an agency has access to a record as a result of its support of a second agency, that record will maintain its status and exclusions as though it was only held by the second agency.

The court found that the requested records were judicial records (normally exempt from the RTKL) but they were housed on the County's computer server, giving the County access to and control over the records.  The OOR had decided that meant that a requester could gain access by directing a request to the County.  The Commonwealth Court disagreed.

Essentially, the court decided that the County was providing a support function to the judicial agency and that the County’s ability to access records as a result of that support did not convert the judicial agencies documents into County documents.

Just because the County provides logistic support to the courts does not mean that every record stored on what the County provides as part of its function to support the court makes it a county record – those records always remain the records of the court.

The court went on to point out that a different finding would lead to an absurd result where one could obtain non-public documents of the court simply by directing the request to the county.

This reasoning applies equally well to §708(b) exceptions. Thus, the §708(b) exceptions that would apply to a supported agency will continue to be effective on the records in the hands of the supporting one. An example of interest to some agencies might be where they contract with another agency to analyze or gather data and issue reports used for negotiations.

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In an interesting but unpublished opinion out of the Third Circuit Court of Appeals, which covers Pennsylvania, New Jersey and Delaware, there is a lesson for parents’ attorneys and a possible opportunity for school districts involved in fee disputes under the IDEA. In the case of L.J. v. Audubon Board of Education (2010), after having successfully won an IDEA administrative hearing, parents’ counsel filed a fee demand of 235.8 hours at a rate of $400 per hour, which the court struck down to 177.2 hours at a rate of $250 per hour.

In reaching its conclusion, the court noted a couple of important issues. First, the fees must be reasonable and determined by the community market rate. Second, the rate needs be determined based upon the experience, skill and reputation of the lawyer involved. Finally, the court noted that the attorney petitioning for the fees has the burden of showing that the fees are reasonable and meet the standard.

For parents’ attorneys this may be a lesson to be more reasonable in fees or it may cost you, in the case of  L.J.’s counsel it cost over $50,000 in expected fees that were denied by the court. For school districts, this presents an opportunity in that perhaps sometimes it is worth challenging an unreasonable fee demand.  

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By: Jeffrey T. Sultanik, Esquire, Chair of the Education Law Group, Fox Rothschild LLP

One of the most fundamental issues involving school boards is their policy-making function. Successful school boards are policy-driven.

However, in the quest to be policy-driven, many boards and districts struggle with the role of a board in dealing with procedures versus policy. A fundamental understanding of the distinction between procedure and policy is required in order for a board to appropriately ascertain its policy-making function.

What follows are the definitional differences between policy versus procedure, along with a series of bullet points that distinguish between policy and procedure in order to get a better grasp of the situation:

DEFINITIONS OF POLICY VERSUS PROCEDURE

Policy:  The formal guidance needed to coordinate and execute activity throughout the district.  When effectively deployed, policy statements help focus attention and resources on high priority issues - aligning and merging efforts to achieve the district's vision.  Policy provides the operational framework within which the district functions.

Procedures:  The operational processes required to implement district policy.  Operating practices can be formal or informal, specific to a department or building or applicable across the entire district. If policy is “what” the district does operationally, then its procedures are “how” it intends to carry out those operating policy expressions.

DISTINGUISHING CHARACTERISTICS

The distinctions commonly drawn between policy and procedures can be subtle, depending upon the nature of the organization and the level of operations being described in the statements.  Nevertheless, there are common characteristics that can help discern policy from procedures (or the practices used to implement policy).  Here they are:

·                    Widespread application – Policy

·                    Narrow application – Procedure

·                    Changes less frequently – Policy

·                    Prone to change – Procedure

·                    Usually expressed in broad terms – Policy

·                    Often stated in detail – Procedure

·                    Statements of “what” and/or “why” – Policy

·                    Statements of “how,” “when,” and/or and sometimes “who” – Procedure

·                    Answers major operational issue(s) – Policy

·                    Describes process – Procedure

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 By: Jeffrey T. Sultanik, Esquire, Chair of the Education Law Group, Fox Rothschild LLP

On April 30, 2010, the Commonwealth Court of Pennsylvania ruled against Dr. John Baillie, former Chester County Intermediate Unit Executive Director, in Baillie v. Public School Employees’ Retirement Board, No. 1306 C.D. 2009, on the basis that his alleged emergency return to service did not fulfill the requirements of the PSERS.

The case involved the September 2006 notification of the CCIU Executive Director that he intended to retire in January 2007. However, Dr. Baillie agreed to work under an emergency contract until the end of the school year. In light of the alleged challenges facing the Intermediate Unit and the perceived shortage of qualified candidates to replace Dr. Baillie, the CCIU Board voted in November 2006 to employ Dr. Baillie under an emergency contract until June 30, 2007. Dr. Baillie retired on Friday, January 5, 2007. After spending the weekend in retirement, Baillie returned to his job as Executive Director on Monday, January 8, 2007. In April 2007, Dr. Baillie began collecting a retirement annuity from PSERS effective January 2007 and simultaneously, he collected his salary from the Intermediate Unit for his work as Executive Director.

In April 2007, by email, the CCIU announced Dr. Baillie’s retirement on January 5, 2007, but explained that his last day at the CCIU would be June 30, 2007. A copy of the email was sent anonymously to the PSERS with the following handwritten notation: “Thought this was illegal? (Double dipping).”

The CCIU informed PSERS that exigent circumstances prompted its decision to employ Dr. Baillie on an emergency basis. PSERS concluded, however, that Baillie’s employment from January 8, 2007, to June 30, 2007, was not prompted by a genuine emergency but by astute planning by Dr. Baillie, with the agreement of the Intermediate Unit. Accordingly, PSERS recalculated Baillie’s final average salary based upon a retirement date of June 30, 2007. This recalculation also excluded from his final average salary per diem compensation Dr. Baillie had received from the CCIU for unused vacation days. As the result of this recalculation, PSERS ordered Baillie to repay PSERS $79,083.39.

Dr. Baillie attempted to argue that the CCIU had emergency conditions during the second half of the 2006-2007 school year. This was supported by the Board President of the Intermediate Unit, which indicated that “… recent legislation that required taxpayer approval of school district budget increases; contract negotiations to avert a threatened strike of support staff personnel; pending construction or renovation of four educational facilities; and the retirement of several persons in managerial positions at the Intermediate Unit …”

PSERS based its argument on Section 8346(b) of the Retirement Code, which authorizes public schools to employ a retired public school employee, who is collecting a retirement annuity, for up to six months when there is an emergency. In that case, the retiree is able to collect both his/her annuity and his/her salary for the emergency services rendered. However, PSERS did not believe that there was an emergency in Baillie’s case. PSERS sought to show that the “emergency” was one created by Baillie’s retirement, and it could have been solved by hiring a temporary or permanent replacement, instead of retaining him as Executive Director after a sham retirement. PSERS presented testimony from three of its employees that it did not constitute an emergency.

According to the case, PSERS examines two factors to determine whether an employer has abused its discretion when it hires a retiree on an emergency basis. First, PSERS determines whether the rehiring was planned before the retirement took place and, second, it determines whether the employer made a bona fide effort to fill the emergency vacancy with a non-retiree.

The Baillie decision stands as precedent of the emergency services provisions under PSERS. PSERS will vigorously investigate situations that they believe to be improper.

In such a situation, we suggest that any district write to Troy Peechatka at P. O. Box 125, Harrisburg, PA 17108 requesting an exception to Act 2004-63 due to an emergency situation. You will be required to provide substantiation of the situation of hiring a retired individual and what efforts the district made to fill the position with a non-retired individual.

Merely hiring someone as an independent contractor will not likely pass muster today due to the strict interpretation of independent contractor status that PSERS uses.  It is suggested that you work with your legal counsel carefully to protect the interests of all involved in these processes.

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By: Jeffrey T. Sultanik, Esquire, Chair of the Education Law Group, Fox Rothschild LLP

As part of the economic squeeze impacting school districts in the region, many school districts are looking to the benefits of going to self-insured core health benefit programs to save district dollars. There is quite a lot of evidence to indicate that going to a self-insured health benefit program may yield some substantive health benefit savings for the employer.

Looking at the decision on the savings issue alone, however, is not enough. There are number of additional factors that need to be addressed prior to moving to self-funding.

• Bargaining Considerations – Fringe benefits, including healthcare coverage, are considered to be “wages” within the meaning of the Public Employe Relations Act and are, therefore, a mandatory subject of bargaining. The question that has been raised with respect to self-insurance is whether a change “related” to benefits but with no practical impact on bargaining unit employees triggers a bargaining obligation on the part of the district.

In 1995, the Pennsylvania Labor Relations Board in Palmyra Area Education Association v. Palmyra Area School District, 26 P.P.E.R. ¶26087 (March 21, 1995), involved the school district’s implementation of a self-insured plan with benefits identical to those available under the prior Blue Cross contract. The Labor Board nevertheless found that transitioning to a self-insured status, in and of itself, was enough to trigger a bargaining obligation. The Labor Board emphasized the fact that the district was no longer subject to regulation by the Commonwealth Insurance Department (as was Blue Cross), and the district’s position inappropriately “dismissed any significance placed on the reputation and track record of an insurance carrier or plan.”

The Palmyra decision, however, is not necessarily consistent with federal labor law under the National Labor Relations Act, which often is followed by the Pennsylvania Labor Relations Board. In Connecticut Light and Power Company, 196 NLRB 967, 969 (1972), the National Labor Relations Board reasoned: “The method used in processing of employee claims under a medical/surgical policy, the practices and procedures of the insurance carrier in allowing or disallowing claims, and the dispatch and efficiency of its personnel in processing such claims are facts connected with a carrier’s administration of a health insurance premium … It is difficult to accept [employer’s] argument that whereas an employer must bargain as to the benefits which may be provided under a health insurance program … bargaining [may] stop short of involving the actual selection of a carrier and leave that matter to its sole discretion.” In sum, the Pennsylvania Labor Relations Board has held that the bargaining was mandatory with respect to both the nature of the health benefits and the provider. The Second Circuit disagreed and refused to enforce the Labor Board’s decision and found that nearly every managerial decision impacts in some way upon wages, hours, working conditions, and that the employer was free to choose whatever carrier it liked to fulfill the terms of its bargained-for agreement with the union.

Fox Rothschild’s Labor and Employment Department has been successful in working out Memoranda of Understanding with various school districts regarding the implementation of a self-insurance program. This is something that needs to be addressed and discussed as part of the process.

• Non-Discrimination Testing – The move to self-insurance would also trigger the requirements of Section 105(h) of the Internal Revenue Code. The district would then need to engage in benefits testing to make certain that highly compensated individuals under a self-insured medical plan would not be discriminated in their favor over non-highly compensated individuals, typically not covered by a collective bargaining agreement. In Pennsylvania, this often means that cabinet level employees and/or the Act 93 group who have a health benefit plan that requires a lesser employee contribution in premiums than what is provided to non-highly compensated individuals may have to report the value of the benefit as part of their taxes.

This may be an unanticipated tax consequence faced by many school entities that have recently moved to self-insurance.

These issues will become more prevalent by 2014 because under the recently passed federal health benefits legislation, these non-discrimination requirements will take effect as of then. In the meantime, districts face a risk of being audited by the Internal Revenue Service and having to undergo required benefits testing.

Fox Rothschild can assist your school district in engaging in benefits testing should this be an issue for your district.

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By: Jeffrey T. Sultanik, Esquire, Chair of the Education Law Group, Fox Rothschild LLP

Every Monday-Friday from 6:00 a.m.-7:00 a.m., I read the online versions of School Business Daily, Employment 360, and The New York Times. I do this so that I can keep not only up-to-date to satisfy my own intellectual curiosity, but also to provide that type of broad-based legal advice that all the consultants say is necessary to provide the value-added legal advice that clients deserve.

Over the past year, the focus of these publications (primarily School Business Daily) has been to report about the crises that are being faced by public school entities throughout the nation, along with Canada. There isn’t a day that I read stories outlining extensive furloughs of teaching and support staff, referenda failing to raise taxes, state pension funds being seriously underfunded, school entities seeking protection under Chapter 9 of the bankruptcy laws, increasing labor strikes because of constrictions in the ability of school districts to pay a fair compensation level to its professional and non-professional staff, proceeding to shorter school years and work weeks for the purposes of saving money, and state legislatures grappling to deal with mounting debt and an inability to meet the educational needs of the students.

Indeed, in the State of Pennsylvania, Pennsylvania’s only way to fulfill the obligation to pay the basic education subsidy to Pennsylvania school districts was as the result of the federal stimulus funds, which are scheduled to run out at the conclusion of the 2010-2011 school year. The State will then be forced to make up the $760 million it received from a tax base that is suffering from a prolonged recession that does not seem to benefit most of the school entities in the State. Coupled with state statutory restrictions on districts’ ability to raise additional income because of our reduced statewide average weekly wage and a reduced employment cost index for secondary schools, the future of public education in Pennsylvania as we know it is in serious danger. Pennsylvania is not alone.

In my 31 years of observing public school entities, primarily in the State of Pennsylvania, I will be the first to say that the school districts that I have represented over these years have not always done things in the most optimal and efficient manner. I am also aware that the school districts I represent are laden with a myriad of federal and state mandates and competing community concerns about the delivery of the educational program that stretches the ability of any board to effectively satisfy its constituencies.

That being said, I do believe that the future of public education is clearly at risk. In Pennsylvania, the state legislature is faced with a serious funding shortfall for the state pension system for state employees (SERS) and for public school employees (PSERS). The projected rate spike will start in 2012-2013 and has the potential of making almost every one of the 500 school districts in the Commonwealth of Pennsylvania insolvent and unable to fulfill its statutory requirements to pay its pension obligation.

Thusfar, the reaction of the Pennsylvania legislature is to hold hearings and study the issue. In the meantime, the failure to address the “pension spike,” which was exacerbated as the result of our poor economy, is putting the brakes on the viable negotiations of successor labor contracts and essentially paralyzing the ability of even the most reasonable of school boards to resolve any compensation or wage-related issues that will extend beyond the 2011-2012 fiscal year.

Unfortunately, I have not seen that either the state legislature or the federal government has exercised the kind of intestinal fortitude that it will take to address the crisis that will affect us even if the economy slowly improves and recovers from the October 2008 collapse.

Unless our legislature and federal government successfully addresses the issue of education, the system is, in my opinion, on the verge of collapsing within the next 2-3 years.

What will it take to resolve this problem? As stated before, it will take a level of intestinal fortitude that is typically not seen at the legislative level. We have to unfortunately come to terms with the fact that we will no longer have the financial horsepower to operate our educational system in the way that we know it. There will have to be significant changes both structurally and substantively in order for us to inch our way out of the “educational depression” of our time.

Specifically, this is what needs to occur:

•  Districts themselves have to be more aggressive in negotiating labor contracts that are affordable to the district with substantive concessions.
• State legislatures need to give boards the leverage under state law to unilaterally implement its last best offer when the labor contract is at impasse.
• State pension systems need to be overhauled with the pension systems that provide for defined benefit programs having to be “frozen” so that additional accrued defined benefit obligations will not occur and that the pension systems have to move to purely defined contribution programs. Making it applicable to only new employees is too little and too late, given the broad-based nature of the economics facing school entities.
• School districts will no longer be able to create golden handcuff benefits at all levels in the organization and will have to substantively live within their means moving forward.
• The use of distance learning and technology to pool district resources to deal with low enrollment programs and to rethink the traditional virtues of a bricks and mortar education will be necessary.
• Teachers will no longer be able to have expensive/Cadillac healthcare plans that are substantively different than that received by the taxpayers who fund our education.
• State legislatures will need to remove, to the extent possible, as many of the mandates that preclude efficiencies of school districts as possible.
• Legislatures should eliminate archaic bidding laws in favor of electronic methodologies.
•  Legislatures should eliminate prevailing wage laws on public building projects, even though they support unions. Our communities can no longer afford the impact of prevailing wage predeterminations on building projects.
• School districts should be able to furlough professional and non-professional staff for economic items only, notwithstanding any statutory requirements or strictures.
• School district traditional notions of having a high school class of 25-30 students may have to change. Districts may want to consider having a full-time teacher who is supported by assistant teachers earning a lesser sum of money following a university model. Perhaps school districts will have lecture courses that would have between 50-75 students with smaller group discussion courses led by assistant teachers.

These ideas and more ideas will need to be implemented in order to assist our school entities that are going through the most difficult time since the Great Depression. The future is not completely bleak and rethinking education as we know it may be a valued outcome.

I, for one, cannot sit idly by while the world around us seems to be closing in on our educational establishment. The time is now to intensely pressure our state and federal legislators that we do need to changes and the flexibility to continue to operate and we do need their courage to address issues that they may not want to address. Their failure will be our failure, and the failure of generations to come. Please do not let our state legislators and legislatures to mortgage our future by amortizing the debt of our pension obligations for many years to come. We need to deal with the issue now, limit benefits, and begin to live within a standard of living more commensurate with the output of this country, which is no longer a manufacturing power. Unless we do this, the great American equalizer will fall the way to a mediocre educational delivery system that will cater to the needs of those with exceptionalities only, while the more affluent population will be educated in private or charter schools. I do not believe that this was what our constitutional framers thought was in the best interest of our community. It is time for the wake-up call.

Otherwise, I envision the next 20 years of my practice to be devoted to be a “workout lawyer.” The term “workout lawyer” primarily refers to private sector attorneys who spend their time legally untangling debtor businesses and either winding them down and sending them to bankruptcy or working out their economic situation so that they can continue to operate. This is not an exciting prospect for the educational industry.

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