Considering the Financial Consequences of MESSA for School District Budgets

At the present time, around 23 percent of the average school district's operating budget is allocated for employee insurance benefits.45 With this drain on the financial resources of school districts, there is legitimate concern that the rising cost of MESSA coverage will force many school districts to cut educational programs. As costs rise, school districts must either turn to the taxpayers for additional funds or reduce the level of educational programs. The Michigan Association of School Boards, which favors the idea of maintaining current benefit levels so long as they are provided more efficiently than MESSA, noted this problem:

If schools cannot control the cost of health insurance coverage, it will take an increasing portion of every school's budget. This means there will be fewer dollars left to maintain andlor improve current programs. Health insurance premiums are rising at a rate of 11 percent to 12 percent per year-school budgets are increasing at a much slower rate. 46

According to data provided by the MASB, the average annual cost for full family health insurance coverage is approximately $5,700. In the year 2000, that same cost is expected to be $14,170-an increase of 148.6 percent. Unless school district revenues rise by an equal amount, health insurance expenditures will require an even larger proportion of school district budgets. Realistically, there is little chance that enough tax revenue will be acquired to increase school health care budgets by 148.6 percent.

With employee compensation increasing and taxpayers more resistant than ever to additional funding proposals, it is apparent that school districts will have to make budgeting changes. Districts could eliminate positions, but the threat of union resistance is too much to bear for most districts. Another alternative is to roll back or eliminate programs. In the worst case scenario, the school district could shut down altogether, as the Kalkaska schools did in March of 1993 when citizens rejected a tax increase and the district could no longer afford to operate. Or, perhaps, school districts could make some targeted effort at controlling the cost of employee insurance, which would entail a frontal assault on MESSA.

For the time being, MESSA enhances the overall problem by charging school districts high rates for health insurance while cost-cutting options remain untapped, such as the option of moderating benefit levels. MESSA will contend otherwise, but when it has $100 million in available cash and cash equivalents, there is no way of evading the issue. As long as taxpayers are hostile to millage proposals and tax increases, MESSA's insurance premiums continue to rise, and MESSA receives public funds in a noncompetitive market with only minimal incentives for improving efficiency, school districts will have to pay for higher employee insurance at the expense of other educational programs.