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There Are Better Ways To Cut Costs

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While superintendents and school boards are always looking for innovative instructional programs, they're loath to innovate when it comes to making budget reductions. Instead, they fall back on the same set of tried-and-true methods that spreads the misery around and results in their school systems' becoming less viable and more demoralized each year.

Here is a set of suggestions based on the "If you're dealt lemons, make lemonade'' school of management. All would be worth considering even if there weren't a fiscal crisis, since they help school systems enter the next century leaner and more flexible than they are now. The first five suggestions focus on reducing personnel costs without harming students or staff morale; the final two are "can't lose'' methods of reducing noninstructional costs significantly:

  • Limit the hiring of full-time teachers to 40 percent to 60 percent of the number required. Staff most of the remaining positions with half-time teachers.

Every time you're about to offer someone a standard teaching contract, you should repeat quietly to yourself: "Offering this contract is the same as assuming a $1 million mortgage.'' Sure you need more teachers, but traditional teaching contracts aren't always the way to go.

For instance, if full-time high school teachers in your system teach five classes and half-time teachers teach three, it doesn't take a C.P.A. to see that you're much better off hiring two part-time teachers. Even after you provide benefits to two half-time teachers, the annual savings--if figured on a per-class basis--are dramatic: about 10 percent initially and 50 percent within 10 years. For while the full-time teacher is still around, the part-time positions have long since turned over. Assuming a 30-year teaching career, this could result in savings of $400,000 per position in today's dollars; other benefits are lower retirement costs, more staffing flexibility, and fewer tenured teachers. Colleges have learned this lesson well: Adjunct faculty members now outnumber tenured professors on some campuses.

  • Replace some vacant teaching positions with computers and instructional software.

Another way to cut costs when fewer full-time teachers are hired is to invest in computer-managed instructional systems. These provide students with complete courses in mathematics, language arts, science, and other subjects. They can provide instructional results comparable to standard instruction, and at less cost if they're used to replace traditional instruction for part of the day, rather than to supplement it. This is done by using the computers to present material initially, and having the teachers wrap lessons around the computer instruction to add interest, relevancy, and promote student interactions.

If we start with a traditional classroom of 24 students and an experienced teacher, the instructional cost per student in that room is about $2,000. If we increase class size by four students in that class, the cost drops to about $1,700. When this $300 savings is multiplied by 28 students, the resulting savings equal $8,400 per room. Multiply these savings across five years and the total is $44,000 per room.

Since either a fully loaded 486 I.B.M.-P.C. clone or Macintosh can be purchased for about $1,000, equipping a classroom with 29 P.C.'s (28 for students and one for the teacher) now costs about $29,000. Add $3,000 for a powerful network-server and $10,000 for a collection of the best programs and CD-ROM's available, and the total cost is $41,000--$3,000 less than the savings generated by increasing class size by four students per class.

Thus, by diverting money from the salary account and capitalizing the equipment over five years, we've placed a powerful work station on every student's desk in that room at literally no cost. If we can then structure the school day so that each student spends from 60 to 90 minutes working independently on a computer, instead of with the teacher, the teacher is left with about 20 students to teach at any given time. By using this strategy we can provide students with the best learning tools available without floating bond issues or begging for supermarket sales slips, while improving the effective student-teacher ratio by about 20 percent.

  • Adopt the "Austin Plan'' as a way of reducing elementary school costs by 20 percent and providing students with a better education.

Some years ago, the Austin, Tex., school system staffed some of its elementary schools with only classroom teachers, a principal and a librarian, and janitors and cafeteria workers. For these schools, all the money that usually goes for music, physical-education, and art teachers, reading specialists, counselors, aides, and so on went to pay for more classroom teachers. The experiment was meant to improve student performance, and it ran for several years without any definitive results.

In these tough times, however, the Austin Plan deserves a second look because of its fiscal advantages. Imagine a typical elementary school with a 22-to-1 student-teacher ratio. In most schools--especially if the students are economically disadvantaged and the school receives federal funds--the student-professional staff ratio is about 11 to 1. This means that if we staff a school according to the Austin plan (converting full-time-aide positions to classroom-teacher positions on a two-for-one basis), and even permit a few special-education positions to survive, we can still realize about a 13-to-1 student-teacher ratio. If we then adjust the teacher staffing so the final ratio is 15 to 1, we achieve a significant reduction in salary costs while still providing a student-teacher ratio equal to the best private schools. If districts converted all their schools to this plan over a period of years, they could reduce the cost of educating elementary pupils by at least 15 percent and provide a better education.

"But elementary teachers can't teach everything,'' you might say. Sure they can. They're certified to teach all subjects and most of them would gladly do so if they could have only 15 students in their room. Or they'll trade off subjects with other teachers so that some teach music to several classes while others focus on music or physical education.

"We don't have enough classrooms,'' you say. Connect adjacent classrooms with interior doors and assign two teachers to 30 students. The results may be even better.

  • Offer high school teachers the opportunity to teach an extra period.

Most high school teachers teach five out of either six or seven periods. Forgetting for a moment the inequity of their teaching four hours a day when their elementary counterparts teach five, what about paying high school teachers to teach an additional period? The payment could be a stipend similar to those given to teachers who volunteer to coach: about $2,000 to $4,000 a year. In fact, even if we were to declare teaching more important than coaching and give teaching stipends of $5,000, it would still be a great bargain for the citizens. A $5,000 stipend is less than half of what we pay (including benefits) a high school teacher to teach a class. It is also a neat way of giving the teachers a 10 percent to 20 percent pay increase without increasing their teaching load beyond what elementary school teachers contend with every day.

  • Encourage staff members to voluntarily change from full-time to half-time positions, and provide corporate-type "early out'' benefits.

Because of seniority rules, layoffs and position cuts seem to affect more of "the young and the eager'' than "the tired and the restless.'' Typically, we lose those who are near the beginning of their careers and are still eager to teach or to develop the world's best math program, while those who are ready for a change or counting the days to retirement continue to give their minimum until they can afford to leave.

The next time layoffs are inevitable, try first asking for volunteers who would prefer to work less than full time. If the incumbents are teachers, permit them to drop down to half time so that the system can realize the kinds of benefits described earlier. If they're administrators or support staff, allow them to work 20 to 40 hours a week, as they see fit, adjusting their hours to the daily demands of their jobs. Many will get "eight hours worth of work'' done in four to six hours if they can leave at 2 P.M. each afternoon, take Mondays and Fridays off, or run a small business on the side. And this way we're only paying for the actual number of productive hours we're getting. If 10 percent of your staff members accept this kind of offer, the results are equivalent to laying off 3 percent of the staff--except that there won't be morale or labor problems.

Industry-style early-out programs are another means of avoiding layoffs. Offer staff members who are near the top of the pay scale, but are not eligible for early retirement, a month's pay for every year of service and three years of health benefits if they resign immediately. For each non-school-based vacancy created this way, freeze a position at the same pay level for a year; then hire from the bottom of the pay scale when filling the job. Fill school-based vacancies created this way with part-time staff members. These moves will permit the early-out program to pay for itself in short order, help rid the system of "rust-outs,'' and provide dramatic long-term savings and promotion opportunities. You should also offer employees already eligible for early or regular retirement more modest early-out incentives. For six to 12 months pay, many will be happy to retire.

  • Use utility audits, expense-reduction analyses, and system redesigns as mechanisms for redirecting funds from noninstructional to instructional budgets.

Nothing receives as close attention from managers as the bills that cross their desks. But when it comes to utility and telephone bills, they'll approve them for payment with hardly a second thought so long as the long-distance calls were authorized. They simply don't have the know-how required to decipher these bills with their mysterious codes and symbols, and they trust that everything is on the up-and-up. Yet, a study done by Consumers Checkbook, a nonprofit watchdog group, found that four out of five businesses were being overcharged for their utilities and that 83 percent of the bills they audited contained errors.

This has given rise to a new kind of firm that will go through an organization's utility bills and use a combination of computer analyses and on-site inspections to uncover errors and overcharges, and obtain refunds for services going back as far as seven years. They also recommend how future utility costs can be reduced. The fees for these utility audits are typically 50 percent of the refunds and first year's savings. If they can't find savings, the school system pays nothing. The refunds are often substantial--a firm recently won a $400,000 telephone rebate for a college in New York State and another negotiated a $6.6 million refund for a large brokerage house. Refunds in the $10,000 to $100,000 range aren't uncommon for organizations the size of school systems.

These firms also specialize in analyzing and reducing other expenses where overpayments are common. These include computer equipment, supplies, and services; copier rental and maintenance contracts; cleaning products and office supplies; and health insurance and other employee benefits. Overpayments are especially common when buyers are overloaded, lack specialized expertise, or are bypassed by unit managers. These expense analyses include reviewing the past year's bills and comparing the prices paid to what other vendors charge for similar products, recommending alternate vendors or products, and negotiating with the present vendors for lower prices and/or better-quality goods. These services are particularly valuable for school systems that acquire most goods and services through bids. The analyses identify areas in which new bids are needed, suggest how bids be reworded, and identify vendors that should be invited to bid. The fees are typically 50 percent of the first year's savings, with no fee due if savings can't be found.

Some utility-audit and expense-reduction firms specialize in particular kinds of institutions, such as school districts or hospitals, and these firms also do much more sophisticated analyses that lead to the kinds of recommendations made here. These system redesigns are usually billed by the hour and are usually done in close cooperation with the school system's own staff.

  • Create more flexible employee-benefit programs and restructure retirement programs to reflect the realities of the 90's.

Employee benefits are most school systems' fastest-growing expense, and retirement programs are often their fastest-growing long-term fiscal obligation. This has led to many districts' reducing their benefit packages and underfunding the annual contributions they must make to keep their retirement programs solvent. Here again, there are much better ways to cut costs.

The largest expense in benefit programs is medical insurance, which often costs $2,500 per employee per year. Yet in most school systems, probably 30 percent to 60 percent of staff members are covered under their spouses' health plans. Why not make health insurance optional and split the savings with the staff members who don't need it? Or, allow employees to trade their health coverage for benefits costing even less--such as 10 additional leave days (substitutes usually cost less than $75 a day). Staff members should also be permitted to trade other coverage they don't need (for example, life insurance for young, unmarried teachers) for cash, other benefits, or for leave worth about 50 percent of the savings.

With the mobility of today's workforce and the temptation to underfund retirement systems, these may not be the best places for staff members to keep their money. Why not have school-system and state retirement contributions paid into employee-controlled éŸòŸáŸ's annually, and/or into independent plans such as T.I.A.A.-CREF, which most colleges use? To make this a cost-cutting opportunity, work with employee associations to create "win-win'' situations. Employer incentives can include reducing contributions by 10 percent, and rolling over all funds now being held by the pension system into individual I.R.A.'s and/or T.I.A.A.-CREF. The latter strategy will reduce operating costs sharply, providing greater savings to the employers and employees. And even with a 10 percent cut in future contributions, this is still a very good deal for employees, since it provides immediate vesting, national portability, and increased safety.

Remember, budget-cutting creates opportunities as well as crises. A recent article in The Wall Street Journal, for example, attributes the Ford Motor Company's success to innovative cost-saving strategies it rammed through labor unions and its own managers in the early 80's--during one of the worst fiscal crises in American automotive history. Had it not been for that crisis, the Journal article asserts, the unions never would have accepted innovations such as cross-job training and work assignments. And the Taurus would never have seen daylight, had it not been for management's willingness to gamble the company's future on a design that resembled no other. Thus, Ford would not have become the most profitable American automobile manufacturer, with labor costs that are a fraction of those of General Motors.

G.M., on the other hand, dealt with the fiscal crisis of the early 80's by using traditional budget-cutting techniques such as layoffs and plant closings, and by producing more traditionally designed cars. Now, a decade later, Ford is riding high and G.M. has reported the largest loss in American manufacturing history. Does this tell us something?

Steven Frankel is the president of Cost Cutters Ltd. in Potomac, Md. He has also been the director of educational accountability for one of the nation's largest school systems for the past 12 years.

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