A harsh financial lesson for Philly teachers

In a surprise move, the state-appointed body that oversees the Philadelphia School District decided last week to unilaterally to void its contract with the teacher's union after failing to reach an agreement over whether teachers should pay more for their health care costs. It's the latest battle over the contentious national issue of health care costs.

The decision stunned the Philadelphia Federation of Teachers (PFT), which represents teachers and school staff. Union President Jerry Jordan criticized the district for providing "a barely legible newspaper advertisement" as a public notice of the meeting where it canceled the contract. The School Reform Commission (SRC), Jordan said, spent "vast amounts of time and money on union-busting strategy sessions with their lawyers " and not enough working with the union.

According to experts, the SRC's action was unusual, though not without precedent, particularly as clashes over public sector pension benefits become increasingly common and may embolden local officials to take a tougher line on this controversial issue.

"Organized labor has largely died out in the private sector but is still strong in the public sector," said John Caskey, a professor of economics at Swathmore College outside of Philadelphia, who is familiar with the district's fiscal challenges. "This will be one more example of getting tough with the public sector."

Indeed, this is a national phenomenon. In New Jersey, Republican Gov. Chris Christie, a potential presidential candidate in 2016, has frequently clashed with the state's politically powerful teacher's union, the New Jersey Education Association. In Chicago, Democratic Mayor Rahm Emanuel earned the wrath of his city's teachers when he rescinded a 4 percent pay raise that had been contractually agreed to.

About 7,000 teachers who were laid off in New Orleans won a court case earlier this year challenging their dismissals, which could result in $1.5 billion in damages, a penalty that a local newspaper said could bankrupt the local school district.

Politics are clouding the picture in Philadelphia. The city hasn't elected a Republican mayor since the 1950s. But Republicans now control both houses of Pennsylvania's state legislature, and Gov. Tom Corbett, who is in the midst of a tough reelection battle, is in the GOP as well. Randi Weingarten, the president of the American Federation of Teachers, which the PFT is affiliated with, accused the governor of political opportunism.

"This behavior -- a governor imposing a contract three weeks before an election when he is losing in the polls -- is the kind of political stunt that makes people lose confidence in government and runs counter to what kids need," Weingarten said in a statement provided to CBS MoneyWatch.

Both sides, not surprisingly, have differing views over whether the SRC's decision is legal. The dire fiscal straits of Philly schools, however, are not in dispute. The district has closed 31 schools and laid of 5,000 workers in recent years. It's one of a handful of government entities Fitch Ratings has rated below investment grade, also known as junk bond status.

Heading into the school year, Philadelphia officials weren't sure they would have enough money to open their doors and were able to do so only after Pennsylvania lawmakers enacted a special tax on cigarettes sold in the city.

Fernando Gallard, a district spokesman, told CBS MoneyWatch the SRC decided to take unilateral action after failing to reach an agreement on concessions on benefits following 21 months of negotiations that centered on rising health care costs.

"The great majority of the teachers do not pay for health care for themselves and their families," he said. "It's been like that for years."

By making teachers shell out more money for their health care, the district expects to save $54 million, money that the cash-starved schools desperately need. Already, many teachers buy their own school supplies because the district can't afford to provide them. One school Gallard says he's familiar with has an operating budget of only $154. Thanks to the SCR's move, that figure will jump to more than $46,000.

But the price the district is paying to fix its fiscal woes may be a steep one. University of Pennsylvania professor Richard Ingersoll told CBS MoneyWatch that Philadelphia's teacher turnover rate is high because neighboring districts pay higher wages.

"When you are negotiating, it's about give and take," he said. "This is all take."