Saturday, March 8, 2008

Making the Cut

A friend asked me this week if I knew anything about the spending on things like athletics. I don't. In fact, up to this point my concern has been mainly the revenue side - where does the funding come from?

But with the defeat of the levy this week, and the need for cutbacks in response, it's time to start looking a little more closely at the spending side of our operation.

In the upcoming weeks, the Board is going to need to deal with making $4 million in cutbacks. The question will be - in what areas? Since nearly 90% of the operating budget is salaries and benefits, one would assume that a great deal of the $4 million will have to come from a reduction in employees.

Some quick math: In FY07, we spent $126 million on salaries and benefits (see FY08 Budget, page 36). In the same year, we had 1,653 employees on the payroll (see CAFR, page 100) . That works out to roughtly $75,000 per employee per year. If we said 90% of the $4 million cutback had to come from personnel costs, that would be $3.6 million.

And so to eliminate $3.6 million of spending, the employee population would have to be reduced by 48 employees, or 3%. This chart shows the distribution of employees as reported in the 2007 Comprehensive Annual Financial Report (CAFR).

Where do you begin?

Well, 48 is exactly the number of "Planning/Curriculum" people we have on staff. This function has grown from 11 FTEs (Full Time Equivalents) in 1998 to 48 in 2007, an increase of 339% - much higher than the 34% growth in students over the same timeframe. These folks are "intervention teachers, technology teachers and Literacy Collaborative Coordinators" according to info I received from our Treasurer, Brian Wilson.

Or how about the "Other Professional" category, which has grown from 10 to 76 FTEs (638%) in the past decade. These are "Intervention Tutors, Gifted Intervention Specialists (teachers of gifted kids) and ELL (English Language Learner) Teachers," according to Brian.

Or we have 20 more on the Administrative staff than 10 years ago, growing from 46 to 67 (46%).

We've also added 69 Teaching Aids in the past decade - growing 148% from 46 to 115.

If you do some ratio analysis of functions versus student population, the "Other Professional" category has the top change, going from approximately one employee per 1,200 students to one for every 200 students. Planning/Curriculum dropped from one employee per 1,000 students to one employee per 300 students.

One ratio which has remained most constant is Regular Teachers to students. Even though we have added 185 Regular Teachers in ten years, the student-to-Regular Teacher ratio has been about 20:1 the whole time. However, we must also observe that the two high growth categories identified above are also comprised largely of teachers.

One fallacy in my analysis is the assumption that the spending reduction would average $75,000 per employee, which allows us to arrive at 48 as the number of people that might have to be cut. But staff reductions are normally carried out in a way that it is the employees with the fewest years of service which are laid off first, and they typically have well below average salaries. Therefore, to achieve $3.6 million in spending reductions with newer employees, many more of them will need to be laid off.

No doubt some of the spending reduction will come from not replacing folks who retire or otherwise leave the district. That's good - not only does it avoid a layoff, these are often the highest paid individuals. Others will come from not hiring for positions that were budgeted but not yet filled, because the $4 million is a budget reduction. In other words, we have to reduce what we planned to spend by $4 million, not cut out $4 million of existing expenses.

But please, my fellow community members, remember that every job we cut means that there is a family which is going take an income hit, and will have to scramble to find another job - a tough challenge in today's job market. It is a hard thing to lay off people - I've had to do it a couple of times in my career. In one case it was a fraternity brother I had gone to college with.

It made me resolve to never let organizations I was responsible for get overstaffed. It's far better to ask the team to work a little harder in the good times than to have to lay off folks in the down cycle, which always eventually happens. Corrections are tough - it's better to manage tight all the time than it is to have to make big cuts.

It might be time for our Board to make the strategic decision to hold our staff size relatively constant over the next several years - through normal attrition - but reconfigure the staff so that critical functions (like classroom teachers) are not shortchanged.


  1. Paul,
    "Since nearly 90% of the operating budget is salaries and benefits, one would assume that a great deal of the $4 million will have to come from a reduction in employees."-Paul

    Not necessarily a "reduction in employees", Paul, especially since a reduction in employees will negatively impact students, and the employees who are let go.

    Instead, is there a reason the same salary and benefit cost savings can't come from adjustments to the salary and benefit increases in the new contract?

    While not chump change, with nearly 1,700 employees, a $2,000 per employee savings in salary/benefits cost saves $3.4 million this year, and every year thereafter.

    No, this is not meant to establish a precedent. However, it may be far better than permanently laying off 50 or 60 lower paid (newer) staff to achieve the same savings.

    It is definitely better for the students, and hopefully the staff would recognize some benefits of not going through losing co-workers, and having to re-organize classes and assignments througout the district.

    I'm sure it sounds crazy, but Hilliard is fortunate to NOT be locked into a contract right now. This affords the board and leadership the flexibility to reconsider what they can afford in the contract, which is a good thing, not a bad thing.

    Why would the board and district leadership not be willing to look at the possibility of smaller than 3% base increases, and more cost sharing for healthcare for instance...for the sake of the students, the residents, and the Hilliard School District as a whole?

    P.S. You came up with $75,000 average total compensation per Hilliard SD employee. How do you suppose this average compares with average total compensation for individual Hilliard residents, and does this matter? 3% base raises plus step increases, and no cost for great/expensive health do you think that compares with individual Hilliard residents, and does this matter?

    These are not personal questions for you, but important questions for the district.

    Keep up the effort to help Hilliard Schools.

  2. I should have said, "employee expense," and you're right, there are a number of ways to go about this.

    The $75,000 includes both salary and benefits. Salaries alone was $95 million, making the average salary a bit more than $57,000 per FTE.

    According to the US Census Bureau, the median household income in ZIP code 43026 is $70,000, but I think these are mostly two income families. The HH income is higher in the Dublin part of the district, and lower in the Columbus part.

    I think many folks are trying to figure out what constitutes fair pay for school employees, notably teachers. In the private sector, it's set by supply and demand. That's the reason high-tech companies had to pay six figures to software engineers 10 years years ago. Now half the kids in engineering school are studying computer science, and salaries are starting to come down.

    On the other hand, when I was in engineering school at OSU in the early 70s, the bottom had fallen out the aerospace industry (end of the Apollo program, cancelling of the SST project), and guys with aero/astro engineering degrees had a horrible time finding jobs. A fraternity brother of mine ended up teaching physics in high school - and teachers had very low pay then. Not what he was expecting.

    At this point, the only thing holding up teacher salaries is the union. That's neither good nor bad, just the truth. There are many more teachers graduating than there are jobs - at least in the nice suburban districts.

    If teacher salaries were set by supply and demand, Columbus Public would be paying a boatload to get good teachers in their toughest schools, while most suburban districts could pay less and still fill their roster.

    Before anyone starts yelling at me - I do not have a problem with teacher compensation as it stands. My beef has always been that I think the current system fails to reward great teachers and protects bad teachers.

    The public wants to fix that. The education community needs to figure out a solution, and it's not the GIRFOF amendment - which is a state-funded guaranteed employment program.

    Thanks for your comments.

  3. $140 Million dollar budget.

    90% goes to salaries.

    To save $4M, a 3% reduction (I prefer percentages to absolute numbers as $2,000 to a first-year teacher is much more than to a 20-year veteran) is all that is needed across the board.

    Seems simple. And it works for Year 1. However, we will still need to recover an additional $14M ($18M shortfall minus $4M saved) in Year 2. Much more needs to be cut in Year 3 without an additional levy.

    I like this idea of not cutting jobs. But in some cases it might not be so bad to lose a few admins, staff and teachers. There is always some "dead-wood" to trim in any organization and some jobs, as Paul says, "nice-to-have" positions that we really don't need, but certainly liked to have. Same with any budget I suppose. I don't NEED Cable, but it sure is nice to have.

    $4M is a solvable amount. And could probably be met with little to no pain (obviously SOME pain if pay cuts are in order or jobs are lost - but minor compared to what it could be). Will the Board elect to take those cuts? Or send a message? Will the teachers, staff and administration collectively give up 3% of their pay to save other's jobs? I don't know. In a perfect world, we would all do the "right thing". But even in the private sector, as we tend to like to compare everything, there aren't many people writing checks back to their companies when layoffs come so that those folks can come back to work. I'm not sure the company would want those laid-ff back in all cases anyway... as I said, there is low-bearing fruit that offers savings and an opportunity to weed out some people. The issue here, is that all non-admin cuts would be determined on a seniority basis and wouldn't necessarily get the "weeds".

    3% cuts across the board sounds good to me, in theory. And it makes 2008/2009 balanced. But the years beyond would still be in the red.

    It's going to take a combination of things, including pay cuts (or reduced increases, more likely), elimination of positions, and increased taxes on homeowners to make budgets work over the next several years.

    If teachers take only the step increases (still a nice raise) and pay their fair share of premiums - both of which I think can happen, that would constitute about $2.5M of the $4M needed for 08/09. Another $1.5M in cuts at the admin/staff positions, operations, etc., and the $4M is met.

    Three problems remain in my opinion...

    1) That only solves the 1 year shortfall. It is certainly a gesture of "goowill" which may make the taxpayers feel better, but in the end there is still a 3-year shortfall in excess of $40M ($52M projected shortfall minus $12M in reductions per the plan outlined above).

    2) I'm not convinced that we, the taxpayer, aren't suppose to "feel the pain". I think the district (Read: BOE President) fears if we achieve $4M in cuts and don't "feel pain" then the next levy won't pass (which will REALLY be needed, no getting around it). It goes back to Paul's, and other's, notion that educating the public is crucial. If the public is educated that even though $4M is cut, a shortfall exists in the coming years, then maybe the next levy passes (even though it puts the same amount of tax burden on the community as the recently failed levy did). But from what I've seen and heard in the post-election discussions in the paper, it is believed that the taxpayer needs to see and feel the cuts so that we vote for the next levy.

    3) Let's say the $4M cuts required for 08/09 budget are met AND the community is aware of this and appreciates the "goodwill" and now is ready to note FOR the next levy. One major assumption is that a significant portion of the 57% that voted against the last levy did so to "send a message". But what if the majority who voted no will vote NO on any levy simply because they don't want to pay more taxes, or can't afford to pay more taxes, or aren't happy with the $4M cuts. Even knowing their district (teachers, staff, and admin) did all the right things, I'm not convinced that's enough to sway the 1,700 people needed from this past election to change their vote. We could very well find ourselves in the same boat a year or two from now, with NO ONE in the district to blame. It would be on the State and the taxpayers. We couldn't blame anyone else that time.

    So, yes, if we can cut $4M by reducing increases and cutting non-essential positions, it's a start. It's a very good start! But it's not victory. Another levy, maybe not as much but close to the size of the one just voted down, will be lurking in the next year or so. The cycle goes on and then we can't blame teachers or staff anymore. They did their part (which they should). But we will still be asked to do our part. Which is another 9-ish mil levy.

    Band-aids are great, but not when the patient is bleeding out. Unfortunately, public schools are bleeding out and a $4M dollar bandaid just won't solve the problem. Something drastic has to change soon, and it really must come from the state or by the Grace of God (companies start rolling into Hillard SOON!).

    A root-cause solution must be met. And it's more than salary increases... it's growth, lack of state funding, and a lack of sufficient corporate taxation in the district.

  4. KJ:

    Well said.

    Of the many dynamics which will influence the next election, one will be turnout. It's shaping up to be another bitter partisan race for President, as it was in 2004. The turnout in Hilliard was something approaching 80% as I recall, and many were first time or sporadic voters who rarely engage in the democratic process. That makes them wildcards in the next election.

    There are around 40,000 registered voters in the school district, but only 25,000 voted last week. If we get 80% turnout in Nov, that will be 32,000 voters - which is 7,000 more than in this election.

    Here's what I'm getting at: for the levy to pass in Nov, I think we'll need somewhere around 16,000 FOR votes, or 5,000 more than this time.

    Here's the scarier number: if every person who voted in this election votes exactly the same in the next election, then it will taken 75% of these additional 5,000 people to vote FOR in order for the levy to pass.

    And that's just to squeak by. I've been saying for a couple of years that the community education job is not done until a signficant majority of people vote to support levies.

    After all, most people moved here to send their kids to Hilliard schools. You would think there is a natural bias to support school levies. When they get voted down by margins like this last one, it is a statement of distrust with the leadership.

    This community communications I'm talking about must be bi-directional. The school leadership needs to make sure the community understands very well how schools are funded, and how the money gets spent.

    Then they have to listen to what the community wants. In the last full-blown survey, the school leadership was dinged for not listening to the community (only 15% gave the district a "A").

    More than anything - the district leadership has to signal "We're listening" right now.

  5. Good points KJ

    I dont think this has to be positioned as just pay cuts. Just cuts in the growth of the compensation model.

    Right now funds are being spent
    with the current contract being carried over until it is settled.
    So that means there is currently
    zero cost containmnet being realized. Same raises, same step raises, same medical benfits.

    I think the point to the board admis, HEA is
    1. Everything is on the table not the usual, sports, busing, arts music easy out. The compensation
    model has to absorb a good part of the cuts.
    2. The cuts should be detailed.
    There was talk of 1m in cuts, but line by line if I was running the campaign I would have a line by line communication on what was cut
    Guess what, no soap
    3. If you think the electorate is ticked off now, just wait
    4. We need to elect some pro school funding legislators who can deliver
    5. The old days of circling the wagons with everyones friends is
    going to have to be more inclusive
    Ideas, criticism, with well thought
    out communication is positive not
    meant to tear down the school system
    6. The for the kids thing is a well worn out symbol that is falling off the flag poll
    7. I think a lot of the teachers
    dont necessarily like what is happening they do a good job, are dedicated and we appreciate it.
    But the HEA needs to get a reality check and I think this whole protest thing in school has ticked off a lot of parents and students
    After all if it is about the kids
    why cause a DISRUPTION in the
    school building about MONEY

    There is a need to build a new group who will thoughtfully and positively will upgrade communications and ask tough questions of our board.
    This blog has created some interest
    But come the next levy I see a new
    group of people who will get organized who might just fight this newlevy tooth and nail and that would not be good. I have
    put my name in to start something thoughtful, pointed, and postive with Pauls blog help and offer

    Anyway thanks for listening

  6. To the first anonymous poster; I got a kick out of your comment:

    "especially since a reduction in employees will negatively impact students"

    Give me a break. Do you honestly think that with the way administrators and support staff have ballooned at levels surpassing the student growth, there could not be many cuts that would be absolutely transparent to the students and quality of teaching? I've heard descriptions of curriculum admins, PR admins (who did a lousy job with this levy BTW), etc. Drop some of that dead wood out and see how much "impact" there is to the students. My guess - NONE - because those people have little to do with educating children anyway. I guess they might be nice to have in different times, but times are tough and tough choices need to be made.

    This is the same union attitude that has ruined the school system and brought us to this point. Bloated, unnecessary staffing positions that were created that we somehow now "can't survive without". This is why I voted against this levy and why I will continue to vote no until some sense of reason returns to the BOE.

  7. The connection between a lot of money and good schools has never been satisfactorily shown, in my opinion.

    There's an analogy in how we thought we could go into Iraq and immediately introduce a flourishing democracy. The ingredients that go into good schools - like good democracies or good parenting - have little to do with money. D'Tocqueville said that democracies only work as long as the citizenry is virtuous; so too school systems.

    Most of the problems with schools are resistent to money: i.e. the breakdown of the family, the lack of role models for young males, bad teachers who are allowed to teach because the union protects them, students who don't want to learn, etc...

    The problem with all of this is that perceptions do become reality. If Hilliard turns down levies, we become perceived as being againt good schools and that leads to fewer students who want to learn coming here, and that to a downward spiral. If all the suburbs would say no to most levies, Hilliard's perception won't be as hurt because we won't be seen as an "outlier".

  8. Hypothetically, what do you suppose would happen if one business in a given industry had to implement the base plus automatic step increases, the free family health insurance, the time off provisions, the 30 year full pension, etc. that is the standard union model in our public education system?

    I believe that company's costs would skyrocket, its product prices would skyrocket, and it would go out of business for lack of customers, as its compensation costs would have priced its product out of the market.

    The point is that the union driven model of overly generous compensation for the past 20-30 years has driven the cost of public education beyond the means of the average resident.

    This was a foreseeable outcome, and the residents are starting to understand the cause of the school funding crisis.

    The unions have not gotten to enjoy the meager raises, rising insurance costs, and elimination of employer pensions that most residents have experienced for over a decade now.

    It may finally be time for the union to start sharing the sacrifice. The fact that they have asked us to keep them protected from this for so long may only mean that they need to take their medicine in large doses, starting now. This isn't going to be pleasant, but medicine never is.

    The people are starting to "get it", as relates to staff compensation, and the connection to school levy demands. Some district leaders are starting to "get it", as well. The key question is "Will the HEA start to "get it" now, too?"

    If they don't, the taxpayers are very unlikely to forget, and are even more unlikely to keep funding pay and benefits that so significantly exceed their own.

    Sorry to be so bold, but it is what it is.