Ex-CFO's journal exposes costly MCS health plan
Seth Slabaugh
MUNCIE — Soon after becoming chief financial officer at Muncie Community Schools in the summer of 2014, Chip Mehaffey learned of deficits, lack of cash and delay of payments.
"MCS is rapidly losing money and major changes must be made," he wrote in a journal obtained recently by The Star Press. "Day of Reckoning has come."
Mehaffey contacted comparable school districts — Anderson, Kokomo, Marion and Richmond — to see how they were responding to declining enrollment, property tax caps and reduced state funding.
They told him the benefits package at MCS was unaffordable: "They don't see how we could possibly sustain our finances with what we give employees for health care and in retirement," Mehaffey wrote on Sept. 4, 2014.
EMERGENCY MANAGER SAYS:MCS teachers face cuts to 'rich' health plan
A month later, he contacted the state personnel department, which he says informed him MCS was out of compliance with House Bill 1260, enacted in 2011. It requires school corporations whose costs for health care plans exceed the state plan's costs by 12 percent to enroll in the state plan.
In 2011, the Muncie school district reported to the state that its average health care cost per school employee was $14,264. That was 41 percent higher than the state's average cost per state employee of $10,114.
MCS filed no reports at all with the state in either 2012 or 2013 to show whether it was complying with HB 1260. A report filed in 2014 showed the school district paying $14,521 per employee, or 26 percent more than the state's plan. The school district's total health coverage costs that year exceeded $13 million.
"State Law mandates that Muncie must go on the State Health Plan due to breaking HB 1260 three years in a row," Mehaffey claimed in his journal in early October, 2014. “ … Muncie filed in 2011 but was out of compliance. In 2012 and 2013, Muncie didn't file; out of compliance anyway."
(The teachers union recently told The Star Press MCS was actually "grandfathered" from having to comply until 2015, when it did comply).
Mehaffey in early October of 2014 reported the alleged non-compliance to school Superintendent Tim Heller, who opposed joining the state plan and pledged to state officials to achieve compliance. When Mehaffey recommended joining the state plan for “massive” savings, Heller responded, "This is a human issue, and you need to think of people instead of just money all the time," Mehaffey wrote. "If we don't get our finances in order, this is going to end badly," Mehaffey answered Heller.
The state personnel department confirmed to the Star Press that it was contacted by Heller in November of 2014.
"You have asked us to allow Muncie Community School Corporation for another year to make changes that allow your employer cost of coverage to be in alignment with the 12 percent threshold," the state personnel department wrote to Heller on Nov. 7. "The State Personnel Department does not have authority to grant such an exception."
Because of Heller’s stance, Mehaffey asked employee-benefits firm Unified Group Services to propose a plan to generate savings similar to the state's plan. It was presented to the school board during an executive session on Oct. 23, 2014. Savings to the school district were estimated at $4 million a year, including $2.8 million in savings to be accomplished by an increase in premiums paid by teachers as well as additional savings attained from non-teaching staff.
A week later, a health care consultant recommended to Mehaffey and Heller that MCS join the state plan, Mehaffey wrote in the journal. The consultant, Richard Sutton, believed the state might force the school corporation onto the state plan anyway. Sutton estimated the state plan would save the district $4 million alone in annual premiums on top of other savings.
The Muncie Teachers Association balked at Mehaffey's proposals, which were considered during collective-bargaining negotiations that went to mediation.
Why did Muncie teachers reject a health plan to save $1.9 million yearly?
On Nov. 7, Heller called Mehaffey into his office and allegedly said, "We should just do a deal with the teachers and give in to most of their demands," Mehaffey wrote.The superintendent expressed fear of public backlash and negative publicity if the school corporation and teachers union were unable to settle a contract through mediation, Mehaffey wrote. If they didn’t settle, the Indiana Education Employment Relations Board would have appointed a fact finder to settle it publicly.
" … we will win in fact finding because the law is on our side and MCS can't afford to do a deal," Mehaffey claimed in a conversation with Heller on Nov. 7. "We are in major financial trouble and it's critical we start getting … savings now." Heller and Mehaffey held meetings Nov. 7 through Nov. 10 with individual school board members during which Heller repeated that "we need to give in to MTA to avoid the public backlash," Mehaffey wrote.
On Nov. 12, Mehaffey was called into the superintendent's office, where he was informed that Muncie Teachers Association President Pat Kennedy had presented a deal that included $2 million in health care savings that, according to Mehaffey, "barely" complied with HB 1260. The deal also included a payout to teachers from the health insurance reserve fund equal to a $180,000 pay raise.
"Mr. Heller calls Pat that afternoon and agrees to all of her terms," Mehaffey wrote. "Mr. Heller emails the board to inform them that bargaining is done. One board member emails back and applauds the decision and is 'thankful we will not be going to fact finding' and how concerned she was with public perception."
Aferward, three of Mehaffey’s friends, two of whom were school superintendents, advised him to start looking for another job.
In late November and early December of 2014, Heller reportedly asked Mehaffey on at least three different occasions, “Will we be able to make payroll through June 30 (2015, when Heller would retire)?”
Mehaffey turned in his resignation on Dec. 17. He already had another job lined up by then as principal of Loogootee High School southeast of Bedford.
After announcing his resignation from MCS, Mehaffey was contacted by The Star Press for comment. He said he had “struggled to find satisfaction and joy in the job.” Prior to the CFO position, he had spent two years as athletic director at Muncie Central, during which he discovered that a secretary had diverted, misappropriated or failed to account for nearly $20,000 in athletic ticket sales. The secretary agreed to repay the funds. Before arriving at Central, Mehaffey was the boys’ basketball coach at Winchester Community High School for 14 years. He earned a bachelor’s degree in math and a master’s in physical education/athletic administration.
Now the school superintendent at Loogootee, Mehaffey declined comment this past week about his journal that was leaked to The Star Press.
“The document speaks for itself and I have no further comment on the matter,” he said in an email. “I have moved on to another district and I wish nothing but the best for Muncie Community Schools and the city of Muncie.”
Reached by telephone recently, Heller called Mehaffey “pretty aggressive, pretty young” and a “great educator. I think a lot of him.”
Heller doesn’t recall all of the details of Mehaffey’s proposals but confirmed that he opposed fact-finding and enrolling in the state insurance plan.
“We wanted to have a little bit better plan than the state’s but knew we had too rich of a plan and had to have some savings,” Heller said. “We didn’t want to go to the state plan until we had to.”
Heller also explained his opposition to state intervention in collective bargaining between the school corporation and teachers.
“I worked pretty closely with the Muncie Teachers Association and wanted to negotiate with meaningful input from both parties,” he said. “I didn’t like fact finding. It splits the community, it splits your employees and you lose a little bit of local control … I always use a humanistic approach. It’s better to negotiate with people and have more participation in decision-making than to arbitrarily use an alternative approach. That was my style … You want people to go to work and enjoy their job, not dreading it … My style of leadership is harmonious.”
That’s not to say he dodged tough decisions. Heller took heat over the closing of Southside High School when it was merged into Central High School, and he also faced opposition when he recommended closing Storer Elementary School, which finally closed two years after he retired.
Pat Kennedy, president of the Muncie Teachers Association, was unaware of Mehaffey’s journal until receiving a copy from The Star Press last week.
Mehaffey had written, she noted, that during a mediation session on Nov. 11, 2014, “MTA President Pat Kennedy’s body language and voice tone … changed dramatically … She states that MTA wants a health insurance plan that is in compliance with HB 1260 but no further savings.”
“I have no idea where he got that stuff about body language,” Kennedy said. “I hardly knew the man … He was an athletic director with no experience for the difficult job of chief financial officer. Rather than work with us, he’d call around the state and talk to friends who would say this or that to him … He doesn’t know the whole history … Much of this journal is opinions and some complete fabrication, like the law was on their side.”
The journal left out the part about teachers receiving only one pay raise in the past 11 years, Kennedy said.
Mehaffey also failed to report that, if a school had a collective bargaining agreement in effect on July 1, 2011, and its health plan costs exceeded the state’s by more than 12 percent, then the school didn’t have to become compliant until the collective bargaining agreement expired, Kennedy said.
“We came into bargaining in 2014 knowing that we had to make sure we were in compliance,” she said. “There was never any doubt that we would comply with HB 1260. But the way it was approached by Mr. Mehaffey, it was a 'we had to save $8 million right now' kind of thing. The debt had to be wiped away right this minute, according to him. And that was not possible. We agreed to pay more for premiums, the corporation would contribute less to the health reimbursement account, there would be higher co-pays on medications, and we cut out all spouses who had insurance available elsewhere. MTA came up with those cuts of over $2 million … Chip wanted an average of $9,000 in cuts for every teacher.”
Mehaffey “seems to throw a lot of blame around,” Kennedy said. “He didn’t cause any of the school corporation’s deficit, but neither did we."
Kennedy also explained, “There’s a reason everybody didn’t jump on the state’s plan … Yes, ours is much better. The state’s plan is closer to a catastrophic plan. There is so much out of pocket up front that … it’s a barrier to care.”
Currently, only five of Indiana's 401 public school corporations are enrolled in the state plan: Charles A. Beard in Knightstown, Marion Community Schools, Canaan Community Academy, Whitko Community Schools, and Cannelton City Schools.
In 2015, MCS reported to the state that its health plan actually cost 0.4 percent less than the state's plan. But the cost of the plan was back up again in 2016, when the price tag was 9 percent higher than the state's plan.
(Next: A state-appointed emergency manager recently called Muncie Community Schools' health insurance plan "rich." The emergency management team, which is negotiating a new collective bargaining agreement with teachers, expects to see significant cuts in teacher health insurance costs).
Seth Slabaugh is an education reporter at The Star Press who can be reached at (765) 213-5834 or seths@muncie.gannett.com.