Thursday, December 27, 2007

“It Lasted Four Years”

Our school leaders are fond of saying that the last operating levy, passed in 2004, has lasted one year longer than expected.

That one can slide right by unless you stop to think about it a minute.

The tendency is to interpret that statement as meaning that a fixed amount of money was raised by the levy, and that fixed amount was stretched out over four years instead of three. Kind of like giving your kid a $10 weekly allowance and having him tell you at the end of the third week that he had spent only $20 so far and with the other $10 still in his pocket, could go another week with getting any additional allowance. Like that is ever going to happen…

But it's not the same. That 9.5 mill permanent operating levy we passed in 2004 generates on the order of $20 million every year whether or not the Board asks for more money. Being able to wait one more year before asking for more money doesn't mean they stretched three year's worth of money over four years. Rather it means that the growth in spending has been less than forecasted. That's a good thing, but not the same thing as what is implied by saying "It lasted four years."

But they also raided the cookie jar. The Board passed a policy a few years ago that it would keep an amount equal to 10% of the annual expenditure budget in reserve as a 'rainy day fund.' With projected FY08 expenditures of $148 million, this reserve should be $14.8 million dollars. However if you look closely at the Treasurer's most recent Five Year Forecast, note that the ending reserve will be a little less than $11 million. That seems pretty close, but the real impact is in the following couple of years.

Without passing a levy, we would run out of money next year. But by deciding on a 9.5 mill levy this time around, instead of the 11.5 mills I believe it should be, the Board has also accepted letting the reserve balance further drop to $9 million in 2009 and $4 million in 2010, in violation of their own policy.

There is no rule saying that 10% is the right amount for this kind of reserve. In fact, one could argue that keeping what amounts to a little more than one month's expenses in reserve has little value. When the norm of the Board is to practice brinkmanship by waiting to put a levy on the ballot until it is almost too late, having an extra month's expenses in reserve isn't of much help.

We need to get out of this feast or famine mode by planning with a longer horizon – perhaps two or three levies into the future – and educating the community effectively about school funding so they understand the reasoning behind the plan.

The Dublin Model

In the Sunday December 23, 2007 issue of The Columbus Dispatch was a story titled "Strategy to attract new businesses paying off for Dublin." The most important sentence in the story was near the end:

Unlike other central Ohio cities, Dublin doesn't give property-tax breaks – money that primarily funds public schools – to businesses. Instead, officials offer to finance road improvements or give income-tax rebates if companies meet job-creation goals.

It sounds like the elected leaders of the City of Dublin understand that a high-quality, well-funded school system is the single most important institution in a community. It's the condition that must be satisfied if you want to attract professional people to your town – people who will bring, and attract, businesses that will pay property taxes to help fund the schools as well as income taxes to fund the municipal operations (police, fire, utilities, etc). Dublin now has a mix of professional buildings, manufacturing, and retail spaces which generates healthy revenues for both the city and the schools. Only a very well funded community can afford to plant concrete corn after all!

I've always thought it odd that a city government can waive property taxes. It's not their money - the city doesn't get any of the property taxes. The primary source of income for a city is income taxes paid by people who are employed within the city limits. So the school district wants to see expensive commercial buildings constructed while the city wants the businesses occupying those buildings to have a big payroll. But if the city abates the property taxes, it costs the city nothing and the schools take the hit.

To be fair, it has often been the case in Hilliard that an arrangement is made whereby a new company has its property taxes abated, but yet it pays to the school system an amount equal to what the property tax revenue would have been without the abatement. My understanding is that this is the form of the deal with BMW Financial.

What's the benefit to a company like BMW Financial to have its property taxes abated, yet pay the schools their full share anyway? The answer is that more than the just the schools are funded by property taxes. Many county-wide programs such as Children's Services, MRDD, Metro Parks and the Zoo depend on property taxes, and they get nothing when property taxes are abated. You decide if that's a good thing, but it's another case of a municipality being able to give away someone else's money.

No good deed goes unpunished however. I would argue that one consequence of Dublin's success is that the State of Ohio has concluded that Dublin has the capacity to supply the bulk of its own school funding, and can therefore get by with less money from the State. As of 2003, only 20% of the state income taxes paid by residents of the Dublin School District made it back in the form of school funding. Compare this to 102% for Columbus City Schools and 656% for East Cleveland City Schools (that's not a typo – it's six-hundred-fifty-six percent).

In that year, Hilliard got back 59% and I suspect that percentage has been going down ever since. Hilliard is viewed much like Dublin by the State of Ohio – that we have the capacity to shoulder much of our school funding costs by ourselves.

In other words, we're pretty much on our own. We got into this mess because thousands of new homes were built in Hilliard over the last decade and the city officials did nothing to stop it. In fact, those officials helped make it happen. To let the city officials also give away the commercial income stream for the schools makes things even worse.

We all need to keep an eye on these folks.

Tuesday, December 18, 2007

Unconstitutional: What does it mean?

Nearly everyone has heard it said that the Ohio Supreme Court has ruled on four separate occasions that our current school funding system is unconstitutional and must be fixed. But very few understand what is wrong with it. As always, a little history is helpful.

First off, what is it that the Ohio Constitution actually requires? This is what Article VI, Section 2 says:

§2 The General Assembly shall make such provisions, by taxation, or otherwise, as, with the income arising from the school trust fund, will secure a thorough and efficient system of common schools throughout the state;
One challenge this creates for the officials of the State government is figuring out how to connect funding with the Constitutional standard of thorough and efficient. What they ultimately decided to do was find out how much the top-performing districts in Ohio are spending on a per student basis, and then make the assumption that if every district could spend that amount per student, they all could perform at the same level as the top-performing districts. Let's call this the Target Funding Amount*.

But where was the money going to come from? It was clear that Ohio's long-standing tradition of using local property taxes to fund schools was going to need to continue, as the state income tax system could not generate sufficient funding alone without a massive tax rate increase – something politically impossible. It was also clear that the value of properties in school districts varied widely from the wealthy enclaves of our metro areas to the poor areas of Appalachia. The General Assembly created an element called the Charge Off to take this wide range of property values into account.
The Charge Off is an amount equivalent to the income produced by a 23 mill local levy, and it is deducted from the Target Funding Amount to arrive at the State Aid Amount* – the amount the State needs to send to a district to supplement the district's funding from local property taxes. The effect is that wealthy districts have a large Charge Off and therefore receive a much smaller State Aid Amount than does a poorer district.
This seems fair. So what is the problem?

It is that the General Assembly does not allocate enough money in the Biennial Budget to pay out the aggregate State Aid Amount the above process requires. The Governor and the General Assembly have the difficult task of deciding how much money to allocate to a wide variety of state-funded programs, including Medicaid, and while schools are one of the top priorities, they are not the only one.
The consequence is that the State Aid Amount is tweaked in the budgeting process. No district gets the full State Aid Amount. Instead the funding is based on a notion called the Formula Amount, which is set by the General Assembly during the biennial budget process. It is typically much less than the Target Funding Amount, and that is what has led to the lawsuits.
The primary lawsuit is often called DeRolph v. State of Ohio. Nathan DeRolph was a student in the Northern Local School District in Perry County, one of the poorer areas of the state. The complaint, filed by the Ohio Coalition for Equity and Adequacy of School Funding, representing over 550 Ohio school districts, was that the State of Ohio was failing to meet the "thorough and efficient" clause of the Ohio Constitution. The trial judge agreed, declaring the existing funding system to be unconstitutional. The State of Ohio appealed, and the Appellate Court overturned the trial court, saying essentially that the current system is okay. The Coalition appealed that ruling to the Ohio Supreme Court, who restored the ruling of the trial court – saying that the Ohio school funding system is indeed unconstitutional. The Supreme Court ordered the General Assembly to come up with a new funding approach, preferably one with less dependence on local property taxes, but to date the General Assembly has not done so.

It is within the prerogative of the Supreme Court to dictate the form of a funding system it would deem to be constitutional, but it has not – wisely in my opinion. The Supreme Court is not the appropriate branch of government to be making decisions about the allocation of monies in the State's budget. And so we are left in a Constitutional quandary: a funding system which has been ruled unconstitutional by the judicial branch, and a legislative branch which refuses to change it.

There are two efforts underway to amend the Ohio Constitution to change the way schools are funded. The first is Getting It Right For Ohio's Future, a campaign to put an amendment on the ballot that would take the allocation of school funding away from the Governor and the Legislature and grant it to a commission appointed by the State Board of Education. Getting this amendment on the ballot requires the signatures of 402,000 Ohio voters on the petition, but so far (thankfully) that effort has fallen short.

More recently, State Senator J. Kirk Schuring (R-Canton) has proposed an amendment in the Ohio Senate which would dedicate a fixed percentage of state tax and lottery receipts to education. The idea is that as state income grows, school funding would grow automatically. The Columbus Dispatch published an Op Ed piece calling this a bad idea. I agree.

These funding systems which automatically grow are the brass ring for the unions representing the teachers and other school employees. Around 90% of the cost to run any school district is the salaries and benefits of the faculty, staff and administrators. The unions would like to see school funding grow automatically because they believe it takes the pressure off local school boards to sell their communities on more and more property tax levies to pay their ever increasing salaries and benefits.
But that is a false belief – at least for teachers in the more affluent school districts such as Hilliard. If the State of Ohio gains greater control over school funding, the priority will be to allocate more to the poorer districts and less to the affluent districts. The affluent districts will be expected to continue to pass local tax levies if they want to spend more money per student (e.g. on teacher salaries) than whatever amount is set as the state funding standard.

In the end, these proposed funding amendments would cause communities like Hilliard to pay more combined state income and local school tax while having less control of how the massive state component is spent (because affluent districts have too little representation in the General Assembly).
So am I satisfied that the current funding system is fair to all Ohioans? Certainly not. There are districts truly in need of greater funding support, and frankly the money will need to come from affluent districts like Hilliard, Dublin, Upper Arlington, Bexley and New Albany.

But let's not let the lobbyists of the teachers' and school employees' unions have a loudest voice in the State House. We all need to be telling the Governor and our state Senators and Representatives what we want.
As is always the case in a democracy, apathy and silence are very expensive.

*These are labels I coined for use in this article.
The source for most of the factural information in this article is the "Ohio School Finance Handbook" by Robert G. Stabile (2002 edition).

Saturday, December 15, 2007

Value-Added Evaluation

As readers of this blog know, I make no claim to understand the art and science of teaching. My focus is on the governance and funding of Hilliard City Schools - in other words, on making sure we have the right folks in leadership and that the system has the resources it needs to deliver the performance we in the community expect.

There is an intersection between these two elements - the feedback to the community about how our schools perform, measured against a set of standards applied to schools all over the state. We want to know as parents that our kids are getting a good education, and as taxpayers we want to find out if our money is being well spent.

The 'State Report Card' is one mechanism for answering those questions. Now the State of Ohio is adding another performance measurement called the 'Value Added measurement.' The Columbus Dispatch recently ran articles about this new measurement. Hilliard City Schools was given the top rating, GREEN, meaning that our schools are exceeded what the state would expect, according to their complex formula.

Dave, an educator in southwestern Ohio, writes the blog Into My Own, and in his blog has written an excellent series on the Value Added measurement system. You are encouraged to read it.

Thanks Dave.

Tuesday, December 11, 2007

Warriors without Ammo

I have been in dialog with a good friend over the past couple of days regarding the upcoming 9.5 mill levy that we'll get to vote on in March. He talks about moving to central Ohio about 15 years ago and selecting Hilliard because our schools were good and the property tax rates low. Now, he says, property tax rates in Hilliard are among the highest, and he feels "enough is enough."

Many folks in our community agree with my friend. Their intention is to vote against the upcoming levy because all they know is that they're tired of paying more and more school tax, and simply don't believe more money is warranted. Surely – folks like my friend believe – if we cut off their money, the school district will need to straighten up its act.

I think the problem is that we're confused about who caused the funding problem, and therefore are punishing the wrong folks. If we don't fund the schools appropriately, it's the kids and the great team of educators we've assembled who will be hurt.

It's like thinking we can end the Iraq/Afghanistan wars by withholding ammo and food to the troops we've already sent over there.

The cause of our funding problem is not the school leadership, and it's certainly not the kids. We have funding problems because we sat back and let thousands and thousands of new dwellings get built in our community without considering where the new money needed to educate all those kids would come from. We let our city mayors approve all those development and building permits because, while they understood what would happen, we weren't paying attention.

So our apathy is going to cost us another 9.5 mills in property taxes starting in 2009. And I suspect that it's too late to avoid another levy two or three years out – at least not if we want to maintain the level of programming and services we now have.

There are still thousands of acres to be developed in our school district, including the large developer-owned parcels sitting around Bradley High School (and new For Sale signs went up on a large farm on Roberts Rd this week). If we want to get control of this beast, it's not the School Board we need to influence, but rather Mayor Schonhardt, Mayor Coleman and the Hilliard and Columbus City Councils.

The School Board could certainly be much more vocal on this issue. And they could do a much better job of educating and mobilizing the community on behalf of the schools. But we won't win the battle by cutting off their money. All we'll do is make the schools go into crisis, cause our kids and teachers to be miserable, and diminish the value of our property in an already horrendous real estate market.

Monday, December 10, 2007

District Communications: Still Lacking Detail

The latest issue of the District's Passing Notes was in the mailbox when I arrived home this evening. On page 2 is a story titled "Financial Forecast."

Once again, their communications about school finances is lacking almost any detail.

I really don't understand why the District leadership would spend all the money necessary to mail a four page, full color glossy newsletter to tens of thousands of households, and not use the opporunity to educate the community - especially right after deciding to put a substantial permanent operating levy on the ballot.

I felt the same way when the District published the May 2007 issue of Passing Notes, this time as a front page story, and I wrote to them with several suggestions. Apparently it had no impact.

At the end of the story is instructions on how to find the Treasurer's Five Year forecast on the district website. It tells you to look in the "Fiscal Services" area, but doesn't say that you first must select the "Departments" tab from the left side menu. From there you can select "Fiscal Services" then "Financial Reports" (from the tab at the top).

On that page you will find lots of links to various financial items. Click on "Five Year Forecast and Assumptions" to read the report.

Sunday, December 9, 2007

Wrong Some More: Current Millage Rates

I know this will seem like 'piling on' but I just found another error in the Nov 28 cover page story "School Board Votes to put 9.5 mill levy on March ballot," published in the Hilliard Northwest News.

The second paragraph reads: "If adopted it [the levy] would add an extra $291 per $100,000 of property value to the 14 mills, or $1,290 per $100,000 owners currently pay annually.

The correct number for the effective millage is about 37 mills, according to a sample of properties I researched on the website of the Franklin County Auditor. All the other dollar amounts were recorded accurately.

Here's some other facts about your current property taxes that might be helpful as true to measure the impact of this levy on your own taxes:

  • Homeowners in the school district pay a variety of different property taxes depending on the municipality in which your home sits. My family lives in Brown Twp, so our total property tax bill is 2.04% of the market value of our house. If you live in the City of Columbus, your total property taxes are about 1.86% of the market value of your home. Homeowners in the City of Hilliard pay about 2.14%.


    One example is that folks who live in the City of Columbus may pay a different amount for their fire/safety services, which are both provided by the City of Columbus, than those of us in the Brown Twp, which contracts with Norwich Twp for fire service and the Sheriff's department for police services.
  • But regardless of the municipality in which we live, we all pay the same millage for our school taxes. Right now that ends up being about 1.3% of the market value.
  • If it passes, the 9.5 mill levy being proposed will increase the school component of your property taxes by 23%, and your overall property tax bill by about 14%.
  • Remember that we get to soften the impact of this through deductions on our Federal Income Tax returns, assuming that nearly all homeowners itemize their deductions on Schedule A. So let's say that your home has a $200,000 market value, and you are in the 25% federal income tax bracket. The levy would increase your annual property taxes by about $600, but by deducting that $600 from your taxable income, the federal income tax you owe would decrease by 25% of the $600, or $150. The effect is as though the levy cost you $450/yr. This makes the overall increase in your property taxes due to the 9.5 mill levy more like 10.7%.

    In rereading this post, I realized that I'm guilty of some bad math too. My analysis compared the post-tax cost of the increase to the pre-tax cost of the base property tax. So let's use real numbers:

    The current component of my property tax bill for school taxes is $4,566.71 per year. The County Auditor has calculated what the cost/mill/yr is for each property in the county, and this number is available on the Auditor's website. For mine it is $108.48/mill/yr. Therefore, a 9.5 levy would add $1,030.56 to my annual tax bill, which is a 22.6% increase. Adjusted for taxes, it's still 22.6%.

    Sorry for the confusion. June 23, 2008

The worst thing people can do right now is make up their minds about the levy without making the effort to understand the facts. It's a shame neither the local papers nor the district leadership are much of a help, and it's worse when the information is wrong.

I will continue look for inaccuracies and report them via this blog. You also invited to go to my companion website and sign up for the electronic newsletter. There's no charge - it's just another way to get information to you.

Friday, December 7, 2007

OAPSE Contract Analysis

I requested and have received a copy of the 2008-2010 Contract with Local #310 of the Ohio Association of Public School Employees. This is the union which represents:
  • Transportation workers: Bus drivers, mechanics, dispatchers and Bus Aides
  • Secretaries
  • Building maintenance workers
  • Custodians
  • Nurse Assistants and Licensed Occupational or Physical Therapy Assistants
  • Various other kinds of assistants
  • Accounting clerks
  • Print shop operators
  • Technicians, including the webmasters, software developers and project managers, systems analysts and database administrators, help desk agents, network techs
These are the sections I found of interest (my comments in italics):
  • 18.01 – The School District pays 100% of the cost of life insurance premiums and dental insurance for fulltime employees. However for hospitalization and major medical insurance, the School District pays 94% in 2008, 92% in 2009, and 90% in 2010. I've not seen prior versions of the OAPSE contract, but I believe that in the past, the School District has paid 100% of the health insurance premiums. This is a major issue in the negotiations with the teachers' union as well.
  • 20.04 – Vacation leave for year-round employees is 2 weeks for 1-6 years to 4 weeks for after 20 years. No more than 10 vacation days can be taken while school is in session. Very reasonable.
  • Article 21 – each employee gets 3 paid personal days each year. Reasonable as well.
  • Article 23 – each employee gets 15 days of sick leave each year. Unused sick leave can be accumulated to a maximum of 255 days. I have never been granted 15 sick days in a year, but my guess is that most employees accumulate the sick days for catastrophic situations. It has the same effect as fully paid short-term disability coverage for 100% of the normal wage. Okay with me.
  • Article 34 – 34.10 and 34.11 prohibit laying off employees and replacing them with subcontractors. I have no issue with this as long as the wages and benefits remain comparable to private industry.
Of course, the meat of the contract is the wage schedules. As is the case with the current agreement with the teachers' union, there is a pay grid for each of the three contract years: 2008, 2009 and 2010. Across the board, the grid for 2009 provides for pay rates 3% higher than 2008, and the 2010 grid is 3% higher than 2009. Unfortunately, this is all the local newspapers will report and, as is the case with the teachers' pay scales, this is only part of the story.
Like the teachers, the OAPSE contract has a length of service component as well. So the change in one individual's pay from year to year is the combination of the lift of the entire pay scale (3% in the case of this contract) AND the length of service increase. The length of service increase is about 1.3% for most OAPSE jobs, and a little more than 2% for IT (information technology) positions.
The combination of these two raise components is 4.25% to 4.5% raises for most OAPSE members, and 5% raises for IT positions.
These numbers sound reasonable to me. But there's a wild card in the deck:
The Board signed a side agreement with OAPSE which says: "… if the Board's eventual agreement with the Hilliard Education Association… results in a higher percentage general increase on base salary…for teachers than the Board's percentage general wage increase appearing in the Board's tentative agreement reached with OAPSE… and/or a lower teacher contribution toward the monthly cost of health and dental insurance … the Board will thereupon offer to OAPSE a percentage general wage increase and monthly employee insurance contributions that match the … HEA agreement…"
In other words, the teachers are now effectively bargaining for themselves and the OAPSE members. No wonder the OAPSE negotiation was completed so quickly. All the OAPSE members have to do is sit back and let the teachers' union (the Hilliard Education Association) do all the hard work.
This side deal also keeps the two unions out of conflict with each other. The HEA members can't accuse the OAPSE members of undercutting them by taking a lesser deal than the teachers wanted.
Is it really all about the kids?

Monday, December 3, 2007

Wrong Yet Again: Magnitude of Cuts

This story in the November 28, 2007 issue of Hilliard Northwest News is an accurate reflection of the School Board meeting on November 26 - except for one very important set of numbers.

Treasurer Brian Wilson stated that, in a "worse case scenario" in which the upcoming 9.5 mill permanent operating levy does not pass, the spending cuts would need to be $3.9 million starting in the 2008-2009 fiscal year, $18.2 million starting in the 2009-2010 fiscal year, and $3.1 million in the 2010-2011 fiscal year.

So far so good. But the Northwest News added these numbers together and reported that a total of $25.2 million in spending cuts would be enacted.

The correct interpretation of Mr. Wilson's statement (confirmed to me by Mr. Wilson) is that $3.9m would be cut from 2008 to 2011 (3 years = $11.7m), $18.2m from 2009 to 2011 (2 years = $36.4m), and $3.1m in the last year, totaling $51.4 million.

Big difference. I doubt that the Board or Administration will take any steps to get a correction printed by Hilliard Northwest News.

So what does that mean?

Since 90% of the operating funds go for salaries, let's assume 90% of the cost reductions must come from staff reductions (layoff, no replacements, etc). Based on the cost and headcount numbers for 2006, the average salary and benefits for a HCSD employee is $71,000/yr. So:

  • To cut $3.9m starting in the first year means $3.5m (90%) in salaries & benefits, or 49 employees.
  • The next year is harder. To remove $18.2m total requires $16.4m in employee costs. That means 230 people.
  • In the last year, the salary and benefits cut would be 90% of $3.1 million, or $2.8 million. That would require another 39 to be removed from the payroll.

This numbers are gross approximations. The jobs eliminated might not be in the same proportion as the overall job distribution. Since there are about 1,600 employees of the district, and only 900 are in the classroom, one would hope most of the reductions would happen in the 700 other positions.

A little of that might be healthy. But we also have to recognize that a service that seems optional or even superfluous to one might be felt to be a necessity by others. Cutting over 300 people from the payroll would be noticed by virtually everyone.

If we don't want our community to melt down, these things need to happen:
  1. The leadership of the district - the School Board, the Administration, and the union leaders - have to give everyone a fundamental understanding of how school funding works, and how the money gets spent. There is too much ignorance and distrust in our community right now. I've been harping on this for years.

    This lack of information leads folks to blame the school leadership for all of our funding ills. It's really not their fault - our community has been screwed up by unmanaged development. It is the mayors and city councils, not school leadership, who controls this.
  2. All of us in the community must look past our selfish perspectives and really think about what is good for the community as a whole. Most of the 80,000 people who live in our district came here because of the schools. In doing so, we participated in the creation of the funding problem. We can start taking control of the future, but past damage is done, and now we're seeing the cost.

I'm a Ronald Reagan fan, but I have to agree with a comment a friend once made about Reagan's administration: "It was like he invited the whole country to big steak dinner, then left without picking up the check."

I think we can say the same about our local politicians. How do they keep getting re-elected?