Should more local governments be re-examining their health care options?

In an intriguing piece in Sunday's Milwaukee Journal Sentinel, Alan Borsuk suggests a simple solution to curb runaway health care costs for the Milwaukee Public Schools (MPS): eliminate the district's preferred provider health care option, and require all employees and retirees to enroll in the district's less expensive health maintenance organization (HMO) option.

Citing MPS budget officials and the $7,400 annual cost differential per family between the two plans, Borsuk suggests the annual cost savings could be significant. As expected, Borsuk's piece already has drawn dozens of comments from readers, as well as a call from Mayor Tom Barrett to pursue the idea.

Should additional analysis of this concept verify substantial savings, and should it gain any traction with MPS, it will be interesting to see whether such an approach is pursued at other levels of government that also offer workers multiple health care options. In particular, as the Forum's recent report on the potential restructuring of Milwaukee County government indicates, this strategy could hold significant logic for that government.

Section I of our report contains a lengthy discussion of the county's health care offerings. Like MPS, the county provides a Preferred Provider Option (PPO) that offers access to a wide network of providers with co-pays and deductibles, as well as a traditional HMO option. Unlike MPS, however, the county charges much higher monthly premiums to subscribe to the PPO plan. For example, union employees pay $35 per month for an individual and $70 for a family for the HMO, and $75/$150 for the PPO.

Largely because of this cost differential (as well as, perhaps, the robust nature of the HMO plan), we found that 81% of the 4,322 active county health care subscribers selected the HMO plan in 2009. Conversely, of the 5,996 retired health care subscribers, who pay no monthly premium and, therefore, are not incentivized by lower premium co-payments to select the HMO, 71% selected the PPO plan. That plan costs about $2,000 more annually for families and $5,000 more for individuals.

The discrepancy in active and retiree enrollments in the two plans is striking in light of the magnitude of the county's retiree health care costs, which comprise about half of its annual $140 million health care bill, and for which it has an unfunded long-term liability of about $1.5 billion. Given that the more expensive option is used predominantly by retirees, and that the county has little opportunity to incentivize use of the HMO among the retiree population, it would appear logical for county leaders to ask the same question Borsuk asks of MPS officials: why even offer a PPO option?

Of course, as with MPS, that issue would need to be collectively bargained. One would imagine, however, that this would be a far more attractive bargaining chip for county labor unions than for teachers, as relatively few active union workers at the county even use the PPO. In fact, logic would dictate that of the 19% of active county workers who do subscribe to the PPO, most are likely management employees who can better afford the much higher monthly premiums.

As we have blogged previously, retirement benefits for public sector employees will continue to come under close scrutiny in light of the financial problems facing virtually all levels of government. The fact that health care benefits will not escape this microscope is demonstrated not only by the Borsuk article and reaction to it, but by a prominent article in Sunday's Green Bay Press-Gazette. If the similarly strong reaction from readers to that article is any indication, public sector health care benefits may even exceed pension benefits as a lightning rod for emotional public debate.

The implications of redefining poverty

How to define and measure poverty in the U.S. has long been an issue of debate. This is not an esoteric argument--most federal and state entitlement and benefit programs tie eligibility to need using the official measure of poverty. Any move to change the definition will have an effect on these programs and the families participating in them.

This week the Commerce Department announced the development of a new measure of poverty designed to be more nuanced than the existing measure. By including factors such as housing, child care, and health care costs, it is argued to be more representative of the actual pressures faced by today's families. However, this new measure has been rolled out as a "supplemental" measure and will not replace the existing poverty definition, which is based solely on food costs. Thus, the new measure will not have an impact on the eligibility rules for the thousands of federal and state programs aimed at low-income families.

What it might do, though, is illuminate just how well those programs are doing at meeting the goal of eradicating poverty. While the Commerce Department does not offer an opinion on whether the new measure will result in more or fewer families being defined as impoverished, a similar supplemental measure used in New York has resulted in higher poverty estimates in that city. Therefore, the new federal measure may well show that despite the passage of nearly 50 years since an American President first declared war on poverty, our poverty-alleviation policies have a larger target than we had assumed.

Increasing the visibility of the gap between who the state and federal governments will serve and who is truly in need might affect local governments in different ways. It might increase the pressure on local governments to fill that gap with locally-funded programs and services, which few local governments are in a position to do in the current budget climate. On the other hand, it might make it easier for the private and non-profit sectors to coordinate efforts with local government. Having a uniform definition of those in need, yet ineligible for certain government benefits, could allow charities and philanthropies to be more confident about stepping in where the need is greatest, without risk of supplanting public funds. A better picture of the gap may also allow for more efficient grant-making.

The first use of the new, supplemental poverty measure will be with the 2010 Census. Wisconsin's local governments would be wise to plan now for the potential impact to their budgets.

Conference casts Wisconsin as uniquely engaged with water issues

Last week’s “Water and People” conference presented by the Marquette University Law School underscored the importance of water to Wisconsin in terms of a natural resource, an economic development driver, and a commodity to be regulated and potentially traded. Numerous speakers described Wisconsin residents as being far ahead of other areas in understanding water’s importance and influence on quality of life.

Where water issues intersect with policy issues, Wisconsin’s abundance of water was identified as both a positive and a negative. Having so much water, which is priced relatively cheaply, may discourage some from realizing the need for conservation, taxes, regulatory policies, and relative equity in water distribution. This contrasts with public debates about oil and other energy sources, where scarcity and high prices generate concerned consumers, interest in conservation, and a multitude of regulations. Dr. Jame Schaefer, a professor of theology at Marquette University, did caution against viewing water as a commodity or resource, however, stressing that it has intrinsic worth beyond its usefulness.

As Wisconsin positions itself to emerge as a leader in freshwater technologies, the division between environmental concerns and economic development was identified by some conference panelists as a false dichotomy. Art Harrington, a partner at the Godfrey and Kahn law firm, said that a main challenge is not necessarily having regulations, but uncertainty about what regulations will be. He called for clear guidance from government on what water policy will be 15 years in the future, since certainty contributes to economic opportunity and investment.

Despite the codification of many water use policies in the Great Lakes Compact, some water issues are still up for debate. Maureen Taylor, Executive Director of the Michigan Welfare Rights Organization, cast water as a human rights issue, noting that 42,000 Detroit households had their water shut off in one year. The conference also explored questions such as: Who should have access to water and to whom does water belong? Who should pay for water and how should it be priced? As southeast Wisconsin moves forward in conservation, regulation, and entrepreneurship, we have the potential to break new ground in answering these questions within the context of their environmental, economic and ethical implications.

Stay tuned for the results of the Forum's latest People Speak Poll, conducted in conjunction with the Center for Urban Initiatives and Research at UW-Milwaukee and The Business Journal, which probes public opinion on various water issues in the region. The poll results will be released in The Business Journal on March 12.

To furlough or not to furlough

Government furlough days are in the local news again, with a report in the Milwaukee Journal Sentinel on Saturday that Milwaukee County may consider up to 10 additional required days off without pay this year for certain employees. But Milwaukee County isn't the only place where furloughs have become a key budget-cutting strategy.

Governing Magazine columnist Girard Miller recently wrote that "furlough fever" has taken hold across the nation, as state and local governments struggle to respond to budget problems without resorting to permanent layoffs. In light of this trend, he asks what will happen if scores of government workers are forced to work four-day weeks and the public doesn't notice?

The question is especially pertinent given that the extreme fiscal pressures facing state and local governments in Wisconsin and nationally are unlikely to ease any time soon, despite indications of economic recovery. In light of that reality, if public officials sense that government furlough days are met with a shrug from taxpayers, it certainly will be tempting for some to view them as an appropriate annual budget-cutting strategy.

Whether that's a good thing or a bad thing from the perspective of ordinary citizens depends, of course, on the number and applicability of furlough days. Here in Wisconsin, furlough policies include the City of Milwaukee's four scheduled furlough days in 2010 for most city employees (certain public safety personnel only are subject to two days); the State of Wisconsin's 16 furlough days over two years for non-emergency personnel; and Milwaukee County's current 12 furlough days in 2010 for most workers (employees who work for certain Constitutional officers, such as the sheriff and register of deeds, are among those exempted).

This is relevant because citizens may not notice if their city human resources office is closed for a few days. Conversely, they may care more if their Division of Motor Vehicles office is closed for several days, and they likely would care a lot if their state university classes are cancelled or their local fire station is closed for even a day or two.

Another key question is the extent to which furlough days - while producing savings on paper - truly save actual dollars. An article from Stateline.org points out some of the practical fiscal impacts of furlough days that may reduce their ability to generate real savings - including the potential need to replace employee work time lost to furloughs with more expensive contracted work time; the loss of productivity from government workers whose job it is to collect revenue for the government; and the potential need to pay time-and-a-half for overtime to ensure that critical services continue in the face of furloughs. This latter factor contributed to Milwaukee County's decision to exempt sheriff's department personnel from furloughs.

It also is important to consider the impact of furloughs on the effective functioning of government. As a former government administrator, I know one of the most difficult parts of the job - particularly when budgets are tight - is motivating staff and battling poor morale. What does it say to government workers when their leaders find their daily tasks so inconsequential that they require them to stay home for several days each year?

Finally, a more subtle impact is the types of tasks that will be ignored should more than a few furlough days per year become the norm. When positions are cut or hours are shortened, the first tasks that fall off the shelf for short-handed government departments are tasks like quality assurance, preventive maintenance, performance measurement and research-based problem solving. Are government leaders really doing themselves and their constituents a favor by risking that such activities don't get done?

It can be argued that as a short-term strategy to help offset temporary recession-induced budgetary problems, or as a response to unanticipated mid-year budget crises, furloughs may make a great deal of sense. But public officials who might be contemplating furloughs as a longer term strategy would do well to carefully cost out and deliberate the full range of impacts.

New rules for voucher schools having an impact

In the Forum's 12th annual census of schools participating in the Milwaukee Parental Choice Program (MPCP), we found that recent regulation changes have had an impact on the number of schools participating in the program. Between the 2008-09 and 2009-10 school years, the program saw far fewer new schools join and many other schools close or drop out of the program. Thirteen of the 14 schools that closed were not accredited, which was a new requirement that became fully phased-in last year.

In addition, a rule put in place for the 2009-10 school year that requires schools new to the program to obtain pre-accreditation seems to have dramatically reduced the number of new schools this year. Over the past decade the program was averaging 11 new schools a year, but this fall just three schools joined the program. Many, if not most, of those new schools were start-up schools, but the three schools joining the program this year are all established schools. The pre-accreditation requirement, which was intended to ensure new schools have a solid operational and educational footing, seems to be having an impact.

We also examined the potential impact of new regulations requiring schools to administer state standardized tests and to report MPCP student test scores. Starting in the 2010-2011 school year, all MPCP schools will be required to administer to MPCP students the same state standardized tests as public schools.

Nearly all schools in the program administer standardized tests and 37% of schools administer the Wisconsin state test. This rule will require the two-thirds of schools that use a test other than the state test to either switch tests or to add in the state test.

Another new rule kicks in this August, when schools will, for the first time, be required to report MPCP student test scores to the state Department of Public Instruction. Of the 112 schools in the program this year, 102 administer at least one type of standardized test and are expected to be able to report test scores in the fall.

For more information and for updated data on enrollment trends, schools gaining and losing the most MPCP students, schools’ racial make-up, and the aggregate high school drop-out rate see the full report.

Click here for complete 2009-10 data and a directory of all participating schools.

The decade of infrastructure?

The Governing Magazine web site recently published a provocative piece declaring the first decade of the 21st century the "decade of infrastructure."

While acknowledging the many infrastructure challenges still facing the United States, the piece argues the past decade was the one in which Americans came to grips with the importance of their roads, bridges and transit systems. It also cites increased use of transit nationally and creative approaches to highway and bridge reconstruction as evidence of an infrastructure epiphany.

Regardless of whether one agrees with this premise from a national perspective, it is interesting to think about it from a regional point of view. Was the past decade the one in which southeast Wisconsin came to grips with its longstanding transportation infrastructure problems?

The answer to that question is in the eye of the beholder, but certainly we can point to the following signs of success:

• After years of controversy, the $810 million Marquette Interchange reconstruction project not only happened, but happened pretty darn well. The project came in on time and on budget, and the disruption associated with it was far less onerous than many had feared.


• Milwaukee gained national attention from its decision to tear down the Park East Freeway and replace it with a ground level boulevard. While the projected economic development benefits have not come close to materializing so far, most would agree the plan has not produced more congestion and otherwise has worked well from a transportation perspective.


• The Sixth Street viaduct project showed that roads and bridges, in addition to connecting commuters between two points, can serve as neighborhood gateways and points of architectural pride. The related Canal Street reconstruction, meanwhile, has been a significant factor in the rebirth of the Menomonee Valley.


• After years of planning for the day when federal funds might be available for high speed rail, Wisconsin was rewarded with a recent $823 million federal pledge to a Milwaukee-Madison rail line. Undoubtedly, there will be plenty of future debate regarding the merits of this project, but it certainly is a sign that our state's political leaders can successfully compete for federal infrastructure dollars.

On other major transportation issues, success is more difficult to define. For example, significant progress was made on planning and building diverse support for the Kenosha-Racine-Milwaukee commuter rail line, but lack of a local funding source has prevented the project from moving forward. Meanwhile, an act of Congress broke a 17-year logjam and divvied up $91 million in federal funds reserved for a Milwaukee transit project, allowing the City of Milwaukee and Milwaukee County to independently pursue downtown streetcars and bus rapid transit, respectively. Still, lack of local funding sources looms as a major obstacle to those projects as well.

Which brings us to perhaps the region's biggest transportation infrastructure failure of the past decade: the inability of elected leaders to agree on a dedicated funding source for the Milwaukee County Transit System. As the Forum has documented in great detail, MCTS' funding problems escalated throughout the decade. Receipt of stimulus dollars to buy new buses has delayed a full-fledged crisis for now, but that crisis is expected to re-emerge within the next three years. While a new regional transit authority proposal from Governor Jim Doyle could solve the problem, its fate remains uncertain.

So, as we begin a new decade, those looking to enhance the region's mass transit infrastructure find themselves asking the same two questions they asked at the beginning of the previous decade and the decade before that: how will we pay for our basic bus service, and how can we even think about new transit options until we solve that fundamental problem first?

Redefining Pension Benefits... A National Trend

Recent stock market volatility has had a negative impact on public pension systems and governmental budgets. Even the best managed systems have seen unfunded liabilities grow dramatically, causing governments to rethink the basket of public services provided. Many governments are also considering cuts less noticeable to the public, but impactful to public employees.

Does the tremendous need for cost cutting measures make public sector pension reform inevitable? A recent study published by the American Legislative Exchange Council (ALEC), an association of state legislators, entitled State Pension Funds Fall Off a Cliff, discusses the losses that state government pensions have taken and pushes governments to further reform their pension systems. The authors argue that the only viable long-term solution is to replace current defined benefit plans with 401(k)-style defined contribution plans for new employees.

In addition to pursuing a defined contribution approach, many governments may seek retiree benefit reductions within the defined benefit schema. Milwaukee County, for example, has included a provision in its 2010 budget extending the normal retirement age from 60 to 64 for new employees and reducing the pension multiplier from 2% to 1.6% for new employees and for future years of service for existing employees. Though this has only been implemented so far for non-union employees, it reflects the types of adjustments being sought as governments become more strapped for cash.

Demonstrating that Milwaukee County is not alone, the Colorado Senate recently passed a measure that would make significant changes to pension benefits for current and future employees, including a five-year increase in the retirement age, a reduction in the cap on inflationary increases for pension payments from 3.5% to 2%, a five-year service increase for retirement eligibility, and increases of 2% for both employer and employee contributions to the pension system. Colorado projects a savings of $80 million annually from these pension reforms.

In addition, Massachusetts Governor Deval Patrick recently filed legislation that would dramatically reform pension benefits of current and future public employees. The proposal would increase the retirement age for all state employees and cap pensions at a percentage of the federal pension limit, or roughly $85,000. In addition, pension benefits would be based on the five highest-paid consecutive years of service rather than three years to better reflect an individual’s career pay. Judges would begin paying into the system as well. The state would save an estimated $2 billion over the next 30 years as a result of these changes.

This is not to say that 401(k) plans have been off the table. On the municipal level, last October, Orange County developed a two-tier pension system that gives general employees an option between the existing defined benefit pension formula and a new hybrid pension formula. Though the new hybrid pension will have a lower benefits formula, it will also include a 401(k)-type benefit that the county would match by up to 2%. This initiative is expected to save the county a projected $10 million in the first year. Orange County has also taken on other reforms that produce more modest savings, including negotiated benefit reductions for sheriff deputies.

The trends discussed above indicate that public sector employees and retirees should brace themselves for significant reductions in retirement benefits. Whether that's fair is subject to debate, but given the severe loss of assets experienced by many public pension funds, it may well be a necessity.