Sunday, August 31, 2014

BCTF vs. BC Liberals: How Far Apart Are They?

Sept 2 Update: As reported by the Vancouver Sun, Peter Fassbender is saying that the parties are more than $300 million apart on compensation (wage plus non-wage benefits). The analysis below shows that the gap between their publicly stated positions is about $770 million ($401 M on wages, and about $369 M on benefits assuming they start fully in 2015-2016). This implies that they were privately willing to make concessions to bridge about half of the compensation gap, and the remaining difference is small ($300 M/5 yrs = $60 M/yr = 2% of current compensation). The real issue remains class size, composition and specialists: the government is offering almost nothing, while BCTF's demand would cost about $1 billion total if it loses the court case, and $1.6 billion PER YEAR if it wins the court case.

Based the following documents by the BCTF and the government, the math works out as follows:

Current wages and wage-related benefits: The government states that BCTF's proposal, which includes a 3.5% increase and three 1.5% increases, will cost $211.1 million in Year 5. This means that the current base is 211.1M/(1.035*1.015^3-1) = $2.566 billion.

Current total compensation: The government states that an increase of $335.8 million would correspond to a 11.2% increase. This implies a current base of $2.998 billion.

BCTF Salary Demand (Total amount above current wage)
Year 1 (2013-2014): $5,000 signing bonus = $150 M
Year 2: 3.5% = $90 M
Year 3: additional 1.5% = $130 M
Year 4: additional 1.5% = $170 M
Year 5 (2017-2018): additional 1.5% = $211 M
Total: $751 million, or $150 million per year on average + 100% economic stability dividend

Government Salary Offer (Total amount above current wage)
Year 1: 0
Year 2: 1%, and additional 2% seven months into the year = $47 M
Year 3: no increase = $77 M
Year 4: additional 1% = $104 M
Year 5: additional 0.5%, and further 1% ten months into the year = $122 M
Total: $350 million, or $70 million per year on average + 50% economic stability dividend

Difference between BCTF Salary Demands and Government Salary Offer (ignoring economic stability dividend)
Total over 5 years: $401 million
Average per year: $80 million (3.1% of wage base)
Ongoing difference at June 30, 2018: $67 million (2.6% of wage base)

Non-wage compensation: BCTF demands an increase costed at $125 M in Year 5 by the government.

Grievance fund: BCTF demands a one-time $225 M fund

Class size, composition, and specialists: Government offers a $15 M increase to the Learning Improvement Fund (LIF), from $60 M to $75 M. BCTF says that this is old money, and demands:
- a further $225 M per year until the court case is resolved, to be continued if the government wins;
- the restoration of the original 2001 language if BCTF wins, costed by the government at $1.67 B in Year 5 (if this replaces the LIF and the $225 M fund, the net cost is $1.37 B).

Difference between Total BCTF Demands and Government Offer:
Total over 5 years: $1.67 billion
Average per year: $334 million (11.1% of compensation base)
Ongoing difference at June 30, 2018: $417 million (13.9% of compensation base)

These numbers assume that:
- BCTF's non-wage compensation and class size/composition/specialists demands are to be implemented in Year 3 (2015-2016). An earlier implementation, during the current school year, would increase the total and average per year cost (but would not affect the ongoing difference in 2018).
- BCTF loses its court case. If it wins, then the total ongoing difference ballons to $1.79 billion in Year 5, or almost 60% of the current compensation base.
- The economic stability dividend is nil (it is likely to be small anyway).

Given these numbers, it's no surprise that Vince Ready declared in impasse. At the end of Year 5:
- the government's proposal costs $159 million per year ($144 M in wages and $15 M for the LIF increase);
- BCTF's proposal costs $576 million per year ($211 M in wages, $125 M in other compensation, $15 M for the LIF increase, $225 M for class size/composition/specialists) if it loses in court;
- BCTF's proposal costs $1.95 B if it wins in court.

Another way to took at this is through the rate of increase of ongoing costs:
- government: 1.0% per year
- BCTF: 3.6% per year if lose court case, 10.5% per year if win court case.

The government's proposal is obviously stingy: it is likely to come in below inflation, which implies a real cut, following two years of wage freezes. On the other hand, other public sector unions have settled for similar increases.

BCTF's demand that if it wins the court case, the 2001 language be restored, is obviously unrealistic, and is probably a bargaining tactic to obtain the $225 million/year fund. A 3.6% annualized increase is normally not out-of-line, but in the context of agreements signed by other unions, it is quite high.

I believe that a reasonable settlement would be along the lines of:
- 1.5% increase per year in total compensation, with no signing bonus. The parties can decide how to divide this into wage and non-wage benefits. The price tag would be $688 M over 5 years, which is slightly above below the middle of the government salary offer worth $350 M and the BCTF compensation demand worth $876 M $1.12 B (assuming that the non-wage demands are enacted in Year 3). The total increase would be 7.7%, about zero after adjusting for inflation. This is more than what other public-sector unions got, but likely less than private-sector wage increases. The final ongoing cost would be $232 M per year.
- $200 million one-time grievance fund, but only if BCTF wins in the Supreme Court.
- Increase the LIF to $150 million. This is double the government's proposal of $75 million, and half BCTF's demand of $300 million ($75 M LIF plus $225 M fund).
- Replace the LIF with $225 million annual fund if BCTF wins in the Supreme Court.

Total ongoing cost of my proposal at June 30, 2018:
- If BCTF loses: $322 million per year (compared to $159 M and $576 M)
- If BCTF wins: $397 million per year (compared to $159 M and an unrealistic $1.94 B)

The annualized increase in ongoing funding would be 2.1-2.5%, which I think is a fair outcome for our education system, and right in the middle of the 1.0-3.6% cost of current proposals. It slightly outpaces inflation, and along with a decrease in enrollment, should allow for a modest improvement in services. At the same time, it is less than provincial GDP growth, so this is definitely an affordable plan, even if BCTF wins the court case. The total risk of the court case to the taxpayer, $75 million per year plus a one-time payment of $200 million, is manageable considering that it concerns more than a decade of education funding - keep in mind that the BC government spends over $5 billion per year on K-12 education, and over $44 billion per year overall.

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