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TTA Background Paper on Elimination of The QEO

Posted by Dennis Menzel on May 10, 2009

The Governor and Legislature are eliminating the Qualified Economic Offer (QEO) as part of the 2009-2011 budget. The requirement for considering the local government’s economic condition as part of the arbitration process is being eliminated as well. The revenue caps however will remain in place.

The QEO has enabled School Boards to hold increases in teacher compensation to moderate levels compared to the astronomical increases that occurred in the 1980’s and early 1990’s. Once the QEO is eliminated there will be no limit on compensation increases. School districts will be faced with substantial increases in salaries and benefits each time a new contract is negotiated.

When the Wauwatosa teachers’ union and the School Board cannot come to an agreement over salary and benefits, each of their proposals will be submitted to a State arbiter for a decision. At this point the other part of the statutory changes becomes crucial. The union’s proposed compensation increases will be compared to the higher compensation offered by other districts. With consideration of economic conditions no longer part of the arbitration process, the arbiter will impose the higher salaries and benefits sought by the union without any consideration of the economic condition of the District.

Since the revenue cap is being continued, the Wauwatosa School District will have to cover the costs for increases in teacher compensation from within the District’s budget. It is highly unlikely that the District will cut programs while it has a substantial funds balance. As a result the funds balance will be exhausted and the District will essentially be bankrupt.

The funds balance has been accumulated as part of sound financial administration of the District. It is used to cover expenditures during periods when the District is awaiting disbursement of State funds and property tax funds. Using the funds balance for compensation increases involves using one-time money to cover ongoing costs. These funds will be exhausted after a relatively short period of time.

There are several consequences for using the funds balance for compensation increases. Once the funds balance is exhausted, the District will have to borrow money to cover its expenditures during the periods when State aid and property tax revenues are not available. Borrowing funds will result in a budget increase to cover the interest payments for the borrowed money.

As long as the revenue cap remains in effect, the District will have to cut programs to cover the compensation increases once the funds balance is exhausted. The magnitude of the program cuts to fund accumulated compensation increases and the added cost of interest expenses is likely to be devastating.

The program cuts will result in parents and teachers demanding that the revenue caps be eliminated. The pressure from parents, school boards and teachers across the State to eliminate the revenue caps will be overwhelming. As soon as the Governor and the Legislature eliminate the revenue caps, property owners will be subjected to unsustainable increases in their property taxes to restore the programs that were cut to cover compensation increases. The property taxes will increase exponentially with each compensation increase granted in the future.

Elimination of the QEO is a foregone conclusion in the light of the amount of pressure the Governor and legislators are under to take this action. Given that they will eliminate consideration of economic circumstances of the school districts, we can assume with absolute certainty that they have not given any consideration to property taxpayers. Taxpayers need to pressure the Governor and legislators to establish taxpayer protections that prevent uncontrollable increases in property taxes.
 

Dennis Menzel

Tosa Taxpayers Alliance