Chapter 44 law didn’t deliver savings
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Many New Jersey school districts say they did not see the cost savings promised to them by the state when they implemented the mandatory New Jersey Educators Health Plan in 2021.
The Chapter 44 plan, signed into law by Gov. Phil Murphy in 2020 and supported by the state’s powerful teachers union, may end up costing some districts more than the old plan. Three districts have told the state they want out of the new health plan, with support from seven more.
In Ridgewood, school officials said the state estimated the district would save about $4.7 million in health benefits under the new plan. While preparing the 2022/23 budget, local officials learned the actual savings would only amount to $27,000.
The $4.7 million in savings, had it materialized, along with other districts’ health plan savings, are required to be used to reduce the property tax burden. This would also potentially have impacted other programming and school services, said Ridgewood’s school board President Hyunju Kwak.
Other districts have told similar stories of inaccurately estimated savings or additional costs, unlike what the law intended.
What is Chapter 44?
The law is the result of a deal between former Senate President Stephen Sweeney and the New Jersey Education Association. It was touted as a plan that reduces costs by cutting out-of-network reimbursements and offers teachers lower premiums.
The law passed unanimously with a 34-0 vote in the state Senate in June 2020. It replaces Chapter 78, a similar health benefits law passed under then-Gov. Chris Christie, which was criticized by the New Jersey Educators Association for driving teachers out of the profession due to its high cost.
Local school officials agree the plan reduces the contributions teachers make to their health plan, but those savings are passed on to districts and therefore taxpayers. Some district officials have called the law an unfunded state mandate that is causing “significant hardship” as it also adds layers to their negotiations with local employee unions.
State officials and the NJEA don’t agree with local districts’ assessment of the plan, saying that providing teachers with affordable health benefits is not an “unfunded mandate.”
School districts are required to automatically enroll staff hired after July 1, 2020 in the New Jersey Employers Health Plan unless they refuse coverage. Staff hired before that date must be offered the plan that offers a contribution schedule linked to a percentage of teachers’ salaries instead of a percentage of the total premium.
Implemented 15 months ago, 2022 is the first year that savings from the new plan will be reflected in local tax levies.
A New Jersey actuary will analyze the plan and submit a report by the summer of 2023 on whether it saved at least $300 million a year, and if not, the law calls for the state treasurer to design changes that will achieve those savings.
Shouldering the cost
In complaints filed with the state Council on Local Mandates, school districts provided documents arguing they and in turn taxpayers, are shouldering the cost of the new law as health care costs continue to rise. They ask to be released from having to offer the new health plan to staff if they are not going to see savings. Districts said the plan does not offer relief to taxpayers universally, as it was designed to do.
In 2021, a number of school districts, the New Jersey School Boards Association and the New Jersey Association of School Business Officials asked the state Council on Local Mandates to stop implementing Chapter 44. The Council, which can overturn a law if it finds the state has not provided resources to fund it, rejected the groups’ request in December.
Lower Township in Cape May County said the new health plan will cost its school district an additional $44,000. Gloucester City in Camden County said its school district anticipates spending $260,000 more than the previous plan.
Franklin Township in Somerset County did not offer the new plan to employees as mandated, saying their cost would have increased by more than $1 million, which they could not shoulder without help from the state.
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Chapter 44 “results in greater costs to individual school districts and should therefore be enjoined as to those districts,” the three districts and their supporters wrote to the Council on Local Mandates.
Out of 158 districts surveyed by the New Jersey Association of School Business Officials, 85% indicated Chapter 44 would cost them more money. There are nearly 600 school districts in the state.
Among the districts that said Chapter 44 would increase their cost is Warren Hills School District with an increase of $197,000 per year; Bogota with an increase of $19,600; Boonton with an increase of $101,500; Hackettstown with an increase of $41,500; Hunterdon County Education Services Commission wit an increase of $56,260; Morris Plains with an increase of $2,100; and Warren County Technical Schools with $9,300.
The Attorney General’s Office stepped in with a motion to dismiss the districts’ complaints to the Council, and lawyers for the leaders of both legislative chambers, Assemblyman Craig Coughlin and Sweeney filed briefs disagreeing with the school districts. The NJEA also came out in support of the new law.
Providing teachers with affordable health benefits is not an “unfunded mandate,” said the NJEA in its written response to the Council on Local Mandates. The union invoked a clause in the state’s constitution to support its position. It said the state must provide children a “thorough and efficient” education and keeping health benefit expenses low for teachers is critical to provide such an education.
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“There’s been a lot of numbers that have been thrown around for the last year or so and very little ability to follow through and actually back up the allegations that districts have been making about the costs associated with this, or about the lack of savings, because frankly when we’ve challenged them on it, and to, kind of, come to the table and show us that, they haven’t done so,” said NJEA spokesperson Steven Baker.
The schools argue that leaving local districts to negotiate contracts with teachers’ unions to offset costs from the new plan is as good as not funding the law. Districts and unions don’t always agree, they said.
Districts said their hands are tied because they are not authorized to collect money to offset their expenses from any source other than property taxes, according to documents furnished to the Council on Local Mandates.
The new health plan
The new health plan reduces the employee contribution percentage from a range of 3% to 35% to a range of 1.7% to 7.2%, leaving school districts to absorb this difference, according to legal documents submitted by school districts.
The New Jersey School Boards Association, in its letter to the Council, wrote it had cautioned lawmakers not to adopt the law in 2020 without an opt-out clause for individual school districts.
The New Jersey School Boards Association said the law has also exposed school boards to lawsuits for violating labor agreements if they do not offer the new health plan to cut costs.
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In Franklin Township, the teachers’ union filed a lawsuit to force the board to offer the new plan to its teachers.
In response to the districts’ complaints, the Council for Local Mandates informed them their claim was rejected as the costs they cited were speculative and it was too early in 2021 to rule on the matter as districts were still negotiating contracts with their teachers’ unions.
Like Ridgewood, 98 other districts have filed documents that recalculate savings from Chapter 44, according to the state Department of Education.
On March 10, after it conducted a review of districts’ savings documents, the state Department of Education asked school districts to submit further documentation. That same day Murphy announced the state’s education budget.
“Some districts may be able to demonstrate that the health care savings was unrelated to Chapter 44.” the Department of Education said in a statement.
“I don’t think it was anyone’s fault, this was a new law,” said Susan Young, who heads the New Jersey Association of School Business Officials.
The state’s over-assessment of savings from the law was understandable, and it was addressed smoothly, said Young. “The law as it relates to these tax levy adjustments was written very broadly. I don’t think anyone, whether it was school districts or the Department of Education, I don’t think either side appreciated the level of detail that was involved in drilling down to what the intent of the law was.”
The savings districts have seen in the last two years in health insurance costs, however small, are due to Chapter 44, said Baker.
Not true, said Young. There are “many, many reasons why the net benefits for a school district may go up or down, that have nothing to do with the implementation of the EHP plan.”
The law did not take into account the other ways in which the district was saving money for taxpayers, she said.
Mary Ann Koruth covers education for NorthJersey.com. To get unlimited access to the latest news about New Jersey’s schools and how it affects your children, please subscribe or activate your digital account today.
Email: koruthm@northjersey.com
Twitter: @MaryAnnKoruth
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