Pennsylvania Association of School Business Officials Mailing Address: Office Location: P.O. Box 6993 2608 Market Place Harrisburg, PA 17112-0993 Harrisburg, PA 17110 Telephone 717-540-9551 www.pasbo.org FAX 717-540-1796 Testimony of Jeffrey A. Mummert, PRSBA Business Administrator/Board Secretary, South Western School District Chair, PASBO Legislative Committee House Education Committee Public Hearing on HB 135, P.N.129 March 12, 2013 Chairman Clymer, Chairman Roebuck and members of the House Education Committee, thank you for inviting the Pennsylvania Association of School Business Officials (PASBO) to testify on House Bill 135. My name is Jeff Mummert and I am the Business Administrator of the South Western School District in York County. I serve as a member of PASBO s Board of Directors as well as chair of its Legislative Committee, a committee on which I have served for eight years. PASBO s membership covers a wide spectrum of non-instructional disciplines required to support student achievement and classroom learning. More about our organization can be found at the end of my testimony. Just like the state, local governments and school districts have been struggling the past few years to balance our budgets, during these challenging economic times. School districts have been hit particularly hard due to increases in pension costs, lack of growth in assessed real estate values, the loss of federal stimulus funding, the reduction or elimination of state assistance and the limited ability to increase revenues as a result of the Act 1 index limitations. Districts have dealt with staffing reductions and program cuts and have looked at every conceivable way to save money. We have been thinking both inside and outside the box, using all of the tools available to us. So how can the General Assembly help you ask? By providing one more tool in our toolbox by once again establishing the Mandate Waiver Program. 1 P a g e
PASBO believes the mandate waiver program has clearly demonstrated its value since it was first enacted into law more than ten years ago. During the ten year period the initial program operated (2000 through 2010) the Pennsylvania Department of Education received 893 waiver applications, approving 681 applications and modifying 65 others. These approved mandate waiver applications saved school districts in the Commonwealth, and indirectly their taxpayers, a substantial amount of money through direct cost savings and more efficient operations. This is a good thing and it needs to continue. Now if I were in your shoes I would probably ask the question how much savings are we talking about? If you are looking for a number of how much school districts saved in total as a result of the previous mandate waiver program and the 681 approved and 65 modified waivers that were granted I don t have that figure. Some of the savings from mandate relief are very easy to quantify, and I will provide a few examples from my school district later in my testimony. Others are savings in staff time and effort through greater operational efficiencies that are difficult to quantify. Here are some of our specific suggestions where we believe a mandate waiver program could be particularly effective. These are areas that can provide the largest savings of either dollars or time (or both) and, in that respect, they are the most valuable in providing an incentive for school consideration. Property Tax Collection Practices: Section 683 of the School Code requires school boards in school districts of the second, third or fourth class where a tax collector is not elected to collect school taxes, or where there is a vacancy or where any new tax collector refuses to qualify or furnish a bond, to appoint one or more persons as tax collectors. Some school districts have significantly reduced their tax collection costs. However, a waiver to allow schools to collect their own taxes would be a more efficient method to allow many other school districts to reduce their tax collection costs. In school districts where tax collector compensation has been reduced and/or there have been no candidates for the position, bank lock boxes have been utilized to collect property taxes. The lock box process is reliable, enhances liquidity and interest earnings, 2 P a g e
improves reporting, reduces auditing expenses and is convenient for taxpayers. They allow the tax collection process to be completely automated. A relatively new state law, Act 32 of 2008, restructured the earned income tax collection process statewide. This was done in order to save millions of dollars in tax collection costs, and to make the system more efficient to both taxpayers and businesses. It is time to give school districts the same opportunity to reduce costs and increase efficiency for property tax collection as well. We strongly support amendments to the School Code and other appropriate state statutes to allow school districts to collect taxes by using banks or other agents. If that cannot be achieved, we recommend HB 135 include the provision to allow districts to seek a waiver of Section 683 of the Local Tax Collection Law. Separations Act of 1913/Section 751 of the School Code: PASBO believes there are significant benefits to school districts, both through cost savings and by greater efficiencies on school construction projects, by allowing school districts to use a single prime contractor. The Separations Act and Section 751 of the School Code require school districts to bid construction projects with a minimum of four prime contracts (e.g. general, plumbing, heating, and electrical) and to award a contract to the successful bidder for each prime. School districts have sought waivers of the multiple prime contractor requirement for several reasons. Single prime contractor projects reduce their costs and increase their efficiencies. In contrast, with multiple prime contracts, overhead costs are incurred. In addition, school districts must have multiple insurance coverage and multiple site supervision labor costs. A single prime contractor project eliminates such duplicative costs. Additionally, the use of single prime contractor construction puts school districts on an equal footing with the private sector. In 2006, the South Western School District wanted to expand our Transportation/Maintenance Center. We wanted to hire the same local company that had constructed the building initially (the district purchased the property from the contractor after it was constructed) as they were very familiar with the 3 P a g e
building. This design-build approach had the contractor doing both the design work and the construction. In order to do this we needed two waivers. We needed a waiver from the bidding requirements as we wanted to contract with the same company that initially built the structure, and we needed a waiver from the Separations Act allowing us to use a single prime contractor. The contractor we wanted to use had provided us with a cost estimate to do the project of $459,000. As a result of this reasonable cost estimate, we decided to pursue the waivers. Initially, we were rejected, due to the Commonwealth Court decision in Perkiomen Valley Plumbing and Heating, et al v. Commonwealth of Pennsylvania, Department of Education. PDE was not granting any waiver applications of the multiple prime contract mandate - Section 751 of the School Code at the time. We still had a need for this addition, so we then went through the normal process to construct these improvements. In 2008, PDE was once again approving waivers from the Separation Act so we applied again for the two waivers. PDE Denied our request to waive the bidding requirement so we could not contract directly with the contractor of choice. And in order for them to approve the single prime contractor approach, we needed to provide proof to PDE that it was less expensive to use that approach. To get the proof, we needed to bid the project both ways (single prime and multiple prime contracts). The bids came in at $1.289 million and $1.234 million respectively with the contractor we wanted to use choosing not to bid. So a project that should have cost us $459,000 was now costing us $1.234 million. I believe that is a pretty good indicator of the potential cost savings a waiver of the Separations Act could provide. We ultimately rejected all of the bids and did not do the project. In 2011, we constructed a large pole building about 100 yards away for approximately $525,000. If schools are to operate like businesses, they need the same tools as the private sector to achieve those efficiencies. Therefore, PASBO strongly urges that any enacted Mandate Waiver Program provide school districts the flexibility to seek multiple prime contract waivers. Moreover, school districts should have the option to seek bids for projects using both single and multiple primes, and to be able to select the lowest cost option. 4 P a g e
Prevailing Wage Act of 1961: This law provides that public entities in the Commonwealth pay stateestablished wage rates to workers on public sector construction or renovation projects which exceed $25,000. This Act should be included in any mandate waiver program you establish. The intent of the Act is to insure quality workmanship; however, its success is questionable. Some highly qualified contractors routinely do not bid on prevailing wage jobs because of the added paperwork and regulation. If supply and demand drive marketplace costs, then it is simple to conclude that the reduction in competition drives prices for school construction jobs higher. The Act also presents a significant financial burden to school districts and ultimately taxpayers, in the form of increased labor costs on school construction projects. Construction costs are estimated to be between 10% and 30% higher because of the Act s requirements. In 2010, the South Western School District needed to make some roofing repairs to four of our buildings. We used a roofing consultant and piggybacked off of the U.S. Communities Master Intergovernmental Cooperative Purchasing Agreement, to enter into a contract to do the repair work. The initial proposal for the scope of work was $84,504. Prior to attaining Board Approval, we inquired as to whether the proposal that was submitted had used prevailing wage rates since the total cost of the project exceeded the $25,000 threshold. We were informed that the initial proposal did not include prevailing wages. The vendor resubmitted a proposal for the exact same scope of work using prevailing wages and the total cost of the project increased from $84,504 to $126,825 an increase of $42,321 or 50%. The only change in the proposal was the use of prevailing wages. I can t think of a more apples-to-apples comparison of the direct impact that paying prevailing wages has on school district construction and maintenance projects. Because of the prevailing wage law, our taxpayers had to pay $42,321 or 50% more for our roof repairs than they otherwise would have had to. In a neighboring state, Ohio, the Legislative Service Commission (LSC) issued a report on May 20, 2002 (S.B. 102 Report: The Effects of the Exemption of School Construction Projects From Ohio s Prevailing Wage Law). The LSC report estimates the aggregate savings on school construction from 1997 through 5 P a g e
2001 at $487.9 million or 10.7 percent. PASBO firmly believes similar savings would be achieved in Pennsylvania. We would like to see in a Mandate Waiver Program the ability for school districts to seek a waiver of the prevailing wage act. Advertising thresholds for Competitive Bids and Other Legal Notices: Sections 106 (Publication of Notices, etc.; proof of publication), 751 (work to be done under contract let on bids) and 807.1 (Purchase of supplies) of the School Code include advertising requirements. The cost to advertise is significant. It is not uncommon for advertising costs to be in excess of $1,000 for projects or supplies that exceed the $18,500 bidding threshold. Multiply thousands of dollars times dozens of projects for 500 school districts, and the amount of savings school districts and taxpayers can realize is in the millions of dollars. The South Western School District spends about $20,000 a year for advertisements required by the School Code. School districts are required to advertise their school board meetings. We also must advertise our bids for three consecutive weeks in two newspapers of record. There are other more effective ways of advertising. In addition to our advertising requirements, we use direct mailing and email to notify existing vendors and potential vendors of bid opportunities. However, technology has grown and prohibiting its utilization where it can reduce costs is an undue burden to school districts and taxpayers. This mandate is rooted in the past and fails to adapt to a very changed world that the internet has created. Newspapers are adapting to this changed world as many now provide subscriptions and content online. Please provide school districts with relief from the escalating cost of newspaper advertisement and allow for advertising legal notices on the internet. This would give school districts much needed latitude and flexibility as well as cost savings. In addition we would suggest that a new mandate waiver program allow schools to actually waiver a mandate not just adjust it. Under the former mandate waiver program the advertising for bid requirements weren t waived; the threshold that required bidding was just inflation adjusted. I believe that is not the definition of a waiver. 6 P a g e
Personnel: To the extent possible, a new mandate waiver program should help schools in waiving personnel mandates. In a typical school district budget personnel including wages and benefits can consume two-thirds of all expenditures. To drive significant savings to schools, mandate relief in personnel is necessary. I do realize that personnel costs are driven primarily by collective bargaining statutes outside of the School Code. But the School Code does contain items such as the mandate in section 513 (b.1) for continuation of healthcare to retirees. Continuation of health care is not an issue if retiring employees were to pay their fair share. But this mandate effectively requires us to continue medical coverage at the employee rate while retirees are the largest and most expensive users of medical services that drive up costs to schools. House Bill 135 largely mirrors the former mandate waiver program. PASBO believes a more expanded and comprehensive law would generate significant savings and efficiencies. The previous law is overly restrictive. Given the extreme financial limitations all schools are facing, a strengthened mandate waiver program would encourage cost savings for schools and their taxpayers. I need to make one last point on this issue. If possible, please keep the process as simple and user friendly as possible by considering the following: - Eliminate the requirements that school districts publish a legal notice of the waiver request in the local newspaper. This requirement is a mandate that is subject to a mandate waiver. - Allow waiver requests of two or more provisions in support of one issue to be submitted through one application. This suggestion would certainly provide efficiencies for both the Department of Education and schools. - Provide blanket waivers to all school districts after a specific type of waiver has been granted multiple times. Again, this suggestion would provide efficiencies for both the Department of Education and schools. - Allow intermediate units to submit a waiver to cover all schools within the intermediate unit with approval. 7 P a g e
The bottom line in this whole discussion is this school districts are operating more like businesses in the private sector each and every day. We are in a No Dollar Left Behind mindset looking for any and all ways that we can save a dollar. If we can save money, we will pursue that opportunity. If not, we won t. It s just that simple. A mandate waiver program makes sense. It allows school districts and other local education agencies the opportunity to save money and to create efficiencies, which in turn benefits everyone: taxpayers, school boards, administrators, teachers and most importantly students. Please adopt the mandate waiver program and provide as many opportunities as possible for cost savings. Thank you again for the opportunity to discuss HB 135. PASBO looks forward to working with the committee on this issue and ensuring that Pennsylvania s public schools are further able to increase their efficiency and decrease their costs of operation through a Mandate Waiver Program. ABOUT PASBO www.pasbo.org Smart Business + Informed Decisions = Great Schools The Pennsylvania Association of School Business Officials (PASBO) is a statewide association, 3,000 members strong, devoted to helping the business of schools stay on the right track through education, training, professional development and timely access to legislative and policy news. Our membership base covers school professionals working in finance, accounting, operations, facilities, transportation, food service, technology, communications, human resources, purchasing and safety services. While diverse in areas of specialty, all members share a common goal - to support classroom learning in schools during good and bad economic times through smart business practices. PASBO helps make that goal a reality. 8 P a g e