The amount Minnesota school districts spend on teacher salaries and benefits outpaced the rate of inflation between 2003 and 2014, with the largest growth recorded in the cost of pensions and health care.

A Star Tribune analysis of compensation data showed that teachers’ take-home pay has declined an average of 2 percent statewide after adjusting for inflation. But the cost of benefits such as health care and pensions, paid by districts, has risen 29 percent above the rate of inflation during that same period.

The trend, revealed in data from the Minnesota Department of Education, comes at a critical juncture in budget negotiations at the Capitol. Senate DFLers and Gov. Mark Dayton are pushing for more funding for schools to stave off cuts to teaching staff and programming. About 80 percent of what the state spends on education goes to teaching salaries and benefits.

In the fiscal year 2014 school districts paid $5.6 billion in total compensation to teaching staff. That’s up about $600 million from 2003, the inflation-adjusted data show. Benefits make up about a third of total compensation packages. Some districts have attempted to tamp down escalating health care costs, but officials say benefit costs continue to eat up a larger share of school budgets.

“We believe it’s manageable, but this is not something that’s happened overnight,” said Tim Alexander, assistant superintendent for human resources at Minnetonka Public Schools. “I don’t see it as something correcting itself overnight either.”

School districts say that much of the growth in retirement spending stems from legislative changes in 2010 that required both teachers and school districts to contribute more toward pensions — a decision over which districts say they had little control.

But it’s been health care costs that have delivered the real hike. They make up the largest component of benefits and grew 32 percent over the rate of inflation between 2003 and 2014.

“As long as those costs continue to rise, we’re going to continue to see those types of increases in our expenses on an annual basis, whether it’s to the school districts themselves or the employees,” said Gary Lee, director of management services for the Minnesota School Boards Association (MSBA).

Keeping costs down

To put a lid on health care costs, some districts are moving to self-insuring their employees. More than 30 school districts, including Minnetonka, have already made that decision.

Under self-funded plans, as they are also known, employers assume the financial risk for providing health care benefits, paying each claim out of pocket, instead of giving a fixed premium to an insurer. Such plans are attractive to employers who can customize the plan to meet the needs of their workforce. Because they don’t prepay for coverage, such plans also free up cash for employers.

Education Minnesota, a union representing more than 70,000 educators, has pushed a couple of measures at the Capitol intended to address growing medical costs, including a decadelong effort to create a statewide health insurance pool. Legislators have approved the proposal in the past, but former Gov. Tim Pawlenty vetoed it each time.

Teachers scored a victory last year when the Legislature moved to require districts buying group health insurance to get at least three bids, a change intended to bring more accountability and transparency.

“We hope with competition that it’ll help bring down costs,” Education Minnesota President Denise Specht said, noting the requirement is just now taking effect.

Specht said rising medical costs have made it difficult to negotiate for higher salaries. Teachers and support staff have to make a choice during contract negotiations, she said: “Am I going to get a salary increase or am I going to ask my employer to contribute to health insurance?” she said. “Many times at the bargaining table it isn’t an ‘and.’ It is a ‘Which one of these do we find more important?’ ”

Minnesota ranks 21st in the nation for educator pay, with an average salary of $54,752, according to data compiled by the National Education Association, a national labor union.

Fight for more state dollars

With less than a week left until the end of the legislative session, school districts are pushing for additional funding on the basic school funding formula, the basis of most district budgets. Anything less than a 1.5 percent increase per year would result in teacher layoffs, larger class sizes and other program cuts, districts say.

Senate DFLers and Gov. Dayton on Monday called for a 2 percent per year increase in per pupil payments to school districts, double what they originally proposed.

House Education Finance Committee Chair Jenifer Loon, R-Eden Prairie, said rising health care costs could cut into any formula increase the Legislature provides schools. “Once you look at some of those benefits costs, that [funding] increase is largely eaten up,” she said. “It’s a factor we need to be discussing.”

Senate Education Chair Chuck Wiger, DFL-Maplewood, said districts have done their best to keep costs down, including pushing for more preventive medical care such as wellness programs. Nonetheless, he said, the trend is one the Legislature will “need to continue to monitor and review.”

To avoid larger budget implications in the future, curbing the growth in health care costs is essential, district officials say. But they and others say it’s tough in education, a human-intensive industry where compensation packages must stay competitive to attract and keep teachers.

“We have to take care of our resources,” MSBA’s Lee said. “And our resources are people. We’ve made great strides addressing the needs of our students, and we continue to make progress in that, and the concern here is that if we have to cut back on those resources, then we’re going to go backward on the strides that everybody wants us to do, including our students.”