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On deck for Buffalo schools: adjusting pay scheme for building engineers

Buffalo schools got dinged by the Internal Revenue Service last year, so to ensure there's no more problems the district is zeroing in on two areas: the last remnants of the controversial cosmetic surgery rider and the Civil-War-era payment scheme for compensating its building engineers.


The Buffalo Board of Education agreed to hire outside legal counsel to help negotiate a new contract with Local 409, which represents the district's 52 operating engineers. The union's last contract expired in 2010.

Front and center in these negotiations will be the unusual way the district pays them to maintain boilers and heating ventilation systems at individual schools, which was the focus of a recent audit by the IRS.

Buffalo schools pay $7.5 million tax bill – thanks in part to cosmetic surgeries

The building engineers are salaried employees of the district earning about $45,000. But they in effect act as independent contractors who get lump sum allowances totaling $15.5 million to buy their own equipment and hire custodians to help them. That means they get to keep what they don't spend of the lump sum allowances, an unconventional practice that dates back to the Civil War era and has long been criticized because there's no accountability on how the money is spent.

As a result, the IRS last fall settled with the district for $2.5 million in employment taxes it should have paid but didn't.

District officials said they will take an aggressive stance to dump this arrangement with the union during upcoming negotiations.

The district needs to hire a law firm that specializes in this area, because of the "legal complexity, including both labor and tax issues, that come with unwinding a 100-year-old system," said Nathaniel Kuzma, general counsel for the district.

The School Board authorized the district to spend up to $100,000 on legal fees, although the district has yet to retain a specific firm.

The district will do that soon, with the hope of getting to the bargaining table a few weeks later, Kuzma said.

Meanwhile, the controversial cosmetic surgery rider was negotiated out of the new contracts for both Buffalo teachers and administrators, but it's still included for those who retired with the perk.

That's why the school district this week sent a letter to retirees informing them they would be on the hook for a large percentage of the cost of their future cosmetic surgeries.

The same IRS audit said the amount paid for the surgery is subject to employment taxes, unless, for example, the surgery is done to improve a deformity caused by an accident, trauma or a medical condition.

The school district ended up paying $5 million to cover those employment taxes for the three-year period it was audited. Moving forward, however, the district will collect a 40 percent "co-insurance" charge on cosmetic claims that are not medically necessary to pay the retiree share of Social Security and Medicare taxes, along with state and federal withholdings.

Roughly 1,000 people took advantage of the district benefit last year at costs ranging from $10 to $10,000.

The Buffalo Teachers Federation said it received the letter and passed it along to counsel to look into the matter.


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