Tuesday, December 30, 2008

We Are Not Alone, Part II

The Hilliard Northwest News recently published a guest editorial by Matt Mayer of Dublin. In his article, Mr. Mayer echoes many of the points I've been making in this blog over the past couple of years.

While it is unfortunate that he got hold of some bad data (from official sources), the thrust of his piece is right on target, in my opinion. Voices like ours are cropping up in several school districts in central Ohio. Marc Share in Worthington and Jennifer Smith in Olentangy – both sitting Board members – are two. Now Mr. Mayer in Dublin. I hope he will consider running for school board, or actively support a like-minded candidate.

It could be that a network of school board members across the region could be formed in order to seek ways to counter the power of the district-level education associations (teachers' unions) as well as the OEA. The Ohio School Boards Association could be that vehicle, but I'm not really confident that they're interested in taking a position of opposition to the OEA.

Teachers – a showdown is coming if things don't change in regard to your union's negotiating positions. Those of us who have, or have had, kids in the district know and respect you on an individual basis, and are privileged to call many of you our friends. 

But when it comes time to negotiate your collective bargaining agreement, the relationship changes. We start talking about money and benefits – things that you allow your union leaders to tell you that you want and deserve more of – as though you don't understand that more for you means less for the rest of us. And if you haven't noticed, right now you've got the better situation (and yes, let's assume all of us work hard in our jobs).

I urge you to think seriously about what kind of posture you want your union leaders to take when it comes time to negotiate your next contract in 2010. I hope it is one of empathy, and yes maybe a little appreciation for being in a community that has, time after time, dug deep to support our schools and the professionals like you who give it substance.

If you find that your leaders want to go in a different and more confrontative direction that you desire, it's up to you to make them comply with your wishes, and if they won't, to replace them. You simply cannot be both apathetic and a member of the union. If you think being in the union benefits you, speak up and make it be your union. If you think it doesn't, drop out and speak with your own voice.

Change is definitely on the horizon.

Tuesday, December 23, 2008

Nov 09 Election Analysis

The Franklin County Board of Elections has posted online the Official Results from the November 4, 2008 General Election, which included Issue 78, the 6.9 mill operating levy for Hilliard City Schools. I'm sure a wealth of information can be mined from this data, but here are some things that struck me as interesting:

  • Overall, with 41,160 votes cast, the issue passed with 22,224 votes in favor and 18,936 against, a spread of 3,222 votes, or 8% of the total. However, I think that you also have to acknowledge that if 1,644 of those FOR voters – just 4% – had voted AGAINST the levy instead of FOR it, it would have been defeated. That's pretty darn close, and not anything that should bring confidence or a sense of a mandate to the School Board or Administrators. This one squeaked by.
  • As is usually the case, the precincts in the City of Columbus were quite supportive of the levy, voting 10,647 FOR vs 7,439 AGAINST, a spread of 3,208 votes (18%). If the votes from the City of Columbus precincts were removed from the results, the levy would have passed by just 80 votes. What is it that's different about the folks in the part of the district which lies in the City of Columbus? I've long felt it was the result of years of hearing the propaganda: "Hilliard Schools and Columbus Taxes," which is only marginally true. All residents of the district pay the same school tax, but do pay differing amounts of municipal property taxes, with Columbus residents paying the least because many of their city services are funded via income taxes.
  • But I think there's more to it than that. The only two Columbus precincts that voted against the levy were 77-E and 77-F, which encompasses The Glen, one of the oldest of the Win-Win neighborhoods, having been built in the 1970s. I suspect that many of these homes are owned by the original owners who are now empty nesters, and who have seen their property taxes explode in the past 20 years. If there's anyone who understands the connection between residential growth and property taxes, it those of us who have lived in Hilliard for a few decades.
  • Contrast that to the newest Columbus precincts – areas which were annexed for development in recent years. For example, Columbus precincts 75-A (WestBrooke Park, off Alton-Darby south of Heritage Lakes) and 76-F (Hilliard Green, Roberts west of Walcutt) recorded the largest margins in favor the levy – of any precincts. Both were built out in the last decade.
  • There is a similar pattern in the Hilliard precincts. The most supportive precinct was 4-D, which includes Brookfield Village and Hyde Park, southwest of Hilliard Rome Rd and Tinapple – newer homes, most likely with kids. However, the levy was defeated in Hilliard 3-A, 3-B, and 3-C, which includes some of the oldest neighborhoods in the district (around Beacon and JW Reason elementary schools).
  • As is usually the case, the levy was defeated in every one of the five townships within our school district. In total it was 2,674 FOR to 3,476 AGAINST, with Brown Twp, where I live, having the largest spread: 530 FOR to 901 AGAINST. Being a 20 year resident of the township, and a current poll worker in my home precinct, I think I understand the sentiment of many of my neighbors: a) property taxes have grown at a completely insane rate; and, b) who asked you to put that monstrosity of a high school out here anyway? While the folks in the other townships don't have the second issue so much, many certainly do share a long history in this community. And many feel they've lost any influence over what's happening. We remember when the district was named "Scioto Darby Schools" after all. Since when did the Mayor of Hilliard gain so much influence over our future?
  • I found it very concerning that the voters in the portion of our school district within the City of Dublin defeated the levy, 825 FOR to 1,005 AGAINST. In fact, the largest negative precinct margin was for DUB 2-G, which includes Ballantrae and the surrounding developments, at 250 FOR to 357 AGAINST (18% spread). These folks identify with Dublin more than Hilliard, and I think many believe they got assigned to the wrong school district (even though that land has been in the Hilliard School district for 100 years). There was certainly a lot of angst in 2007 when there was some discussion of shifting the kids in Ballantrae from Davidson to Darby. There remains a feeling among many in our community that Davidson is the more desirable high school because it serves a 'better clientele,' if you will. I heard those very words from an old friend last night – one who has a kid in Davidson. Goodness knows what kind of stigma will be attached to Bradley.
  • Because of the ease of the absentee voting method, and the memory of the long lines in November 2004, we had an extraordinary number of absentee ballots cast this election – 17, 157, or 42% of the total. The vote was 8,485 FOR to 8,722 AGAINST, a defeat by 237 votes. Again, Columbus absentee voters supported the levy 4,149 FOR to 3,527 AGAINST, but it was defeated among absentee voters in every other municipality. My hypothesis is that absentee voters tend to be the more elderly of our population, and that they more than most of us are very sensitive to increasing property taxes. Jim Fedako over at Anti-Positivist had much to say in criticism of my support of the levy, accusing me of conspiring to make such folks choose between paying for food or property taxes. While his accusation was more than a little hyperbolic, there is a little truth to what he says. We can choose to protect the senior citizens by the way, simply by raising incremental funds with an 'earned-income-only income tax' rather than property taxes (disclosure: this kind of taxation would be beneficial to me vs more property taxes).

If something isn't done to change our spending trajectory – driven almost entirely by the teachers' contract – I suspect it will be very hard to get another operating levy passed any time soon. And on our current trajectory, an additional levy will be required in 2010 – sooner if the State of Ohio cuts funding because of its own budget crisis.

The leaders of our school district – the School Board, the Administration, and the union leaders – need to get serious about building a strategic plan for our future. The plan needs to consider several contingencies, especially a material reduction in state funding, and that plan needs to be presented to the people of our community so we can educate and align the community to the plan.

Forget about the rising cost of diesel fuel, or how much gets spent on copier paper. Don't worry about the Audit & Accountability Committee you promised as a political gambit before the election – there's nothing to audit without a plan anyway. It's all about growth, personnel costs and state funding. Nothing else needs any attention right now, at least in terms of finances.

And the only one of those we have any direct control over is personnel costs. The union leaders can either help craft a solution, or become the greatest threat to the future of our district. 

My advice to the union leaders is that they: a) initiate the dialog with the School Board about the future of teacher compensation in Hilliard; and, b) join the effort to put pressure on Mayor Schonhardt and the Hilliard City Council to develop responsibly in the 1,000 or so acres they just annexed west of Alton-Darby Rd. 

And by 'develop responsibly' I mean to pace residential development with commercial development - don't build houses (Mayor Schonhardt) that attract kids to be served by our schools unless you also deliver new commercial development that generates matching school funding.

Tuesday, December 16, 2008

Time Bomb

The chart above was posted on the blog of retired Ohio teacher Kathy Bracy. It shows that the value of the pension fund administered by the State Teachers Retirement System (STRS) has collapsed in value from a peak of $80 billion just a year ago to $50 billion, a loss of $30 billion, or 37.5%. Lots of investment charts look like these days, unfortunately.

This is a time bomb that threatens us all, not just the Ohio teachers – past, present and future – that are depending on this money to fund their promised retirement benefits. Whether you know it or not, you are one of the investors in this system (but not one of the beneficiaries).

Think of a retirement fund like the man-made lake behind a dam. The volume of water flowing through the dam and into the river downstream represents the benefit payments being made to retired teachers. The more that is allowed to flow through the dam, the lower the lake falls.

Just as a lake is replenished by rain, the STRS fund is replenished by three sources: a) contributions made by working teachers, currently 10% of their salary; b) contributions by the employer, currently another 14% of salaries; and, c) earnings generated by investing the pool of money.

The objective is to allow a planned amount of water to flow through the dam – year in and year out – without the lake going dry. Some years it will rain more than others. When there is a lot of rain, the lake fills up. In years of drought, the lake level falls. If our luck holds, and the demand for water downstream doesn't increase, we can keep water in the lake.

We are losing this battle at Hoover Dam by the way. There has been low rainfall for many years; meanwhile the demand for the water of the Colorado River (and the electrical power produced with it) continues to increase, preventing the dam operators from slowing the rate in which the Lake Mead is being drained. If this trend continues, the water may get so low that no more electricity can be produced by Hoover Dam. It would devastate the economy of the southwest, especially nearby Las Vegas. Some say it could happen in 5-10 years.

This massive $30 billion loss to the STRS fund is like a big hole opened up in the bottom of the lake and 37.5% of the water disappeared. It's just irretrievably gone. No way to get it back.

Meanwhile the volume of water that needs to be released through the dam is ever increasing because more and more teachers are retiring, and they're retiring at ever-increasing benefit levels (ie their retirement benefits are based on the average pay of the highest three years, not their lifetime annual pay – on which their contributions were based). Like Social Security and many other retirement plans, it's a Ponzi scheme of sorts in which the oldest members are being paid benefits funded substantially by the contributions of the newer (and working) members.

So what's the impact of that $30 billion loss?

Remember that one of the three sources of money into the fund is the income produced by investing the money already in the fund. Let's say that the STRS investment managers made conservative investments, like US Treasury Bills at 2% interest. With $80 billion in the fund, this would generate $1.6 billion per year in earnings. With only $50 billion in the fund, the earnings produced at 2% interest drops to $1 billion/yr. How do you make up the $600 million loss of income?

One way is to make more aggressive investments in hope of generating the same amount of income with less capital. To generate $1.6 billion in earnings with $50 billion, you need to be earning 3.2% interest. That doesn't sound like much more, but it is. It's actually pretty hard finding places to invest $50 billion and not take a fair amount of risk. As of last week, the auction for Treasury Bills produced a zero percent interest rate. In other words, folks would rather stash their money in an investment earning nothing than put it in CDs at a commercial bank. That's how scared some folks are right now.

And everything else is more risky, as the STRS investment managers found out in their process of losing $30 billion.

Here's another point that many people miss: While the slide from $80 billion to $50 billion equals 37.5%, to get from $50 billion back to $80 billion requires increasing the fund by 60%. Think of it this way, if you have two dollars and lose half, you've lost one dollar and have one dollar remaining. To get back to $2, you have to double your $1. In today's investment environment, it would take years and years. In fact, at a 2% annual return, it would take 24 years to grow $50 billion back to $80 billion – if no money were being withdrawn for benefits.

Remember that there are two more sources of replenishment for the fund, the contributions of the working teachers and the contributions of the employers – the school districts. Us.

STRS is not strictly a government agency, but it is chartered by state law, which also defines many of its operating parameters. In particular, it defines the maximum contribution of pay a school district may be required to contribute to the STRS fund. Currently that maximum is set to 14%, and that's how much is being collected. In other words, even in the recent 'good years' STRS took the maximum they possibly could from the school districts. They've already used up all their bullets.

However, we must remember that laws can be changed. The education lobby is a powerful presence in our statehouse, making significant campaign contributions to politicians at all levels, up to and including the Governor. It would not surprise me in the least to see ORC 3307.28 changed to raise the 14% limit a few percentage points.

When that happens, our School Board will be required, by law, to allocate funds to pay the increased percentage. The money used to pay for this benefit will have to be taken out of something else.

It should be taken out of the next employee contract, in my opinion. After all, we already paid for these benefits once. It wasn't our decision to hire investment managers who would make risky investments and flush $30 billion down the drain. Most of that $30 billion was money we paid directly (via a paycheck from which they made their 10% contribution), and indirectly (via the 14% employer contribution). I certainly don't feel any responsibility to pay more property tax to restore the $30 billion THEY LOST.

We have to keep eagle eyes on this.

Friday, December 12, 2008

Revising History

Two important financial presentations were made at the Board of Education meeting on December 8.

First, District Treasurer Brian Wilson presented his new Five Year Forecast. The Board members had already received the forecast, so Mr. Wilson's presentation consisted of a couple of PowerPoint slides in about the same number of minutes. There was no substantive discussion by the Board.

The Superintendent Dale McVey gave a presentation on how the Administration proposed cutting an additional $3 million from the budget.

Cathy Wogan, reporting for This Week Hilliard, wrote: "Last summer when the board voted to move forward with a 6.9-mill operating levy, McVey said, it was understood that passage would not be enough to keep the district from later making cuts."

The Hilliard Northwest News similarly reported: "Hilliard school district residents were told from the get-go that proceeds from a 6.9-mill levy they voted in last month won't be enough to stop red ink from appearing on the operating budget."

I don't think either one of those statements is true.

I was at the Board's special meeting on August 4 when they discussed levy options. I wrote then that I had done a quick back-of-the-envelope estimate at the meeting suggesting that if the Board reduced the levy to 6.9 mills, they would still have a $3 million annual shortfall to deal with. I went on to write that this number was in the ballpark of what a couple of knowledgeable people I talked with after the meeting had guessed as well. But to my knowledge, there was no official statement from the Board that they had any inkling that the implications of a 6.9 mill levy included cutting another $3 million/yr from the budget.

The campaign website has been taken down, and I don't have any of the official campaign communications pieces any more, but I don't recall seeing any mention of $3 million in cuts being required even if the levy did pass. If anyone still has any of that literature, please take a look and see if this is mentioned.

Nor does the Superintendent's State of the Schools Address on October 6 mention the need for this additional reduction.

I'm not sure the $3 million is even the right target. In fact, I'm suspicious that it's nothing more than the $3 million estimate I did in about 2 minutes during the August 4 meeting, and used in my comments to the Board on August 11.


Because according to Mr. Wilson's new Five Year Forecast (to be posted soon), it doesn't fix the problem. It shows – even with the cuts announced by Mr. McVey – that we will still have an operating deficit of $1.5 million in both 2009 and 2010. In other words, we should be cutting more like $5 million from the budget, not $3 million (by the way, $5 million was the high end of the range estimated by one of the folks I talked with on August 4).

The consequence is that we'll be dragging our cash balance down more quickly than estimated, and without question will need to put a levy on the ballot in 2010 – unless we get some control of spending before then.

How big would the cuts need to be to avoid another levy prior to 2013 (the horizon of Mr. Wilson's forecast)?

In excess of $50 million! During the next five years, we would have to spend, in total, $50 million less to live on our currently projected revenues, without another levy. Is that even possible?

Here's another fact from Mr. Wilson's forecast: our employee costs are projected to go up $39 million over the next five years. In other words, we could get most of the way there by freezing salaries and benefits at the current levels. That's not so outrageous. I think many of our teachers and other employees might be surprised how many people in America have been working for a number of years with virtually no raises. Some have even backstepped in terms of take-home pay, as gross wages have grown little while benefit contributions have increased.

Things aren't any easier for retired folks like me who are living off the income produced by our nest egg. Did you know that as of yesterday, the interest rate on T-Bills issued by the US Treasury is zero percent? Apparently so many people are freaked out by the state of the economy that all they want is a place to put their money that won't lose value. That used to be the banks, but folks aren't so sure any more.

Our Board and Administrators have signaled to us that, with the passage of the 6.9 mill levy last month, they intend to go forward on substantially the same trajectory as we've been on for a number of years - a time when our economy was much more healthy. Mr. Wilson's forecast shows us that this trajectory will cost us an additional $50 million. We surely can't expect the State of Ohio to ride to our rescue given its looming budget crisis. Nor can we expect much help from the commercial sector – I don't see a lot of commercial construction in the next few years.

This is why I've said a Strategic Planning Committee is substantially more important than an Audit and Accountability Committee (notice that we haven't heard much about the formation of the A&A Committee now that the election is over). An A&A Committee looks backward in time and reports whether the organization did what it said it was going to do.

How can you possibly do that if there is no Strategic Plan?

We have to start dealing with this $50 million problem now. If we take action starting in 2009, it's a $10 million/yr problem. If we wait a couple of years, it becomes a $20 million/yr problem.

Things will simply get away from us if action isn't taken soon. If you want to be part of the solution, please consider becoming part of our activist group, and come to our next meeting, Tuesday, Jan 6, 6:30pm at the public library. Bring your friends.

Wednesday, December 10, 2008

Dec 1 Meeting Report

By Mark Morscher

17 people interested in forming a public presence of this blog meet on December 1st to discuss current issues, the future of this group, and get an integrated view of school funding in person. The meeting involved much interaction amongst the attendees and verified that the groundswell of concerns brought up during the last year continues to exist even after the Levy vote, and it demands organization.

Our next meeting will be
Tuesday, January 6, 6:30pm, Hilliard Public Library Meeting Room.

Please join us and bring friends!

Based on the feedback received and observed during the meeting, the following themes were common:

  • Most people had heard the information in Paul's presentation before, but seeing it integrated helped clarify the "big picture".
  • Overwhelmingly, people feel a group like this is needed and will attend future meetings. People want to start now, desire to see action and momentum, as well as to meet regularly.
  • There were many different agendas and "hot points" discussed. We need to coalesce these into a clear platform and action plan.
  • This group needs to be publicized amongst the district constituency to a wider audience and continue to grow.
  • There is a desire to impact local and statewide practices, but a lack of knowledge how.
  • There are many questions and concerns regarding staff size, compensation, union organization and inconsistent quality.
  • There is frustration in the lack of communicated, long-term planning and vision coming from the BOE and Administration. For example, at the current forecast, how much and when will the next levy be needed? What is being done now to reduce the size or need? With the reduction in state aid possibly 10%, what planning and risk management is being done to alleviate the impact? Is the policy for having a 10% reserve going to be met?

Goals/Next Steps

For the short term, I believe the agenda for the next meeting (1/6/09, 6:30pm, HIL Library Meeting Room) should be:

  • Continuing Education: Understanding the "Constitutionality" controversy (presentation by Paul)
  • Create the charter/scope/mission for the group.
  • Identify what we can influence in the short term and what needs to be tabled. (i.e. we are not going to be able influence teacher compensation structure)
  • Immediate Action: Formally request the BOE to create a Strategic Planning Committee
  • Plans for grassroots awareness/marketing: Community organizations, neighborhood groups, other outreach.
  • Discuss goal of November '09 slate of Board of Education Candidates

We need to brainstorm and assign ownership to these items. Come January 6th prepared with your ideas and desire to participate!

As a starting point, I have created a candidate Charter:

As taxpayers, parents and involved citizens of the Hilliard City School District, we will communicate the concerns and expectations of the District's constituency to the Board of Education, Administration and employee organizations in a concise form in order to assist in establishing the goals and action plans necessary for the sustained quality, success and fiscal solvency of the District.

I look forward to seeing you January 6, 6:30pm at the Hilliard Library Meeting Room!


Tuesday, December 9, 2008

Wanna Bet?

I was just reading the latest email newsletter from the Ohio Fair Schools Campaign, and came across this comment:

In an effort to clarify the common misconception that money from the Lottery somehow gets spent on schools, the Wellsville school board has released an article in "The Link," a newsletter printed for legislative liaisons of school boards.

Because this issue has been a source of great confusion for many people over the years, we decided it would be helpful to give our members some information about this subject. Lottery profits do go toward education, but do not provide "extra" money for schools. The Lottery revenue simply frees up money that would have been used on education, to be used elsewhere. While it's true that the Lottery generates about $600 million per year in net revenue for public schools, little of it is new money. In essence schools get nothing extra.

To read a related article, please visit:
11/18 The Review
Board of education clarifies Ohio Lottery advertisements

What these folks are trying to say is that the Ohio Lottery doesn't really help fund our schools. While Lottery profits are directed to the schools, they claim it doesn't make total school funding go up, it just allows money that used to be allocated to school funding to be redirected elsewhere, keeping school funding the same.

That seems plausible to me – it's a sleight-of-hand trick used all the time. For example, United Way has a policy that if an individual contributor says "Use my contribution any way you want as long as you don't give any of my money to The Home for Marooned Martians," they honor that request. However the Home would get the same amount of funding whether or not the contributor made this request, as money is completely fungible.

But I also recognize that Ohio Fair Schools Campaign is a lobbying group representing the interests of the education community, and is a supporter of the Getting It Right for Ohio's Future amendment (GIRFOF), which I vigorously oppose. Their perspective on this is undoubtedly biased, so I thought I'd do a little research, aided by all the information the Ohio Office of Management and Budget posts on their website. I used the Executive Budget for FYs 2008 and 2009 for most of the quantitative information.

As a reminder, here's the language from the Ohio Constitution (Article XV, Section 6):

The General Assembly may authorize an agency of the state to conduct lotteries, to sell rights to participate therein, and to award prizes by chance to participants, provided that the entire net proceeds of any such lottery are paid into a fund of the state treasury that shall consist solely of such proceeds and shall be used solely for the support of elementary, secondary, vocational, and special education programs as determined in appropriations made by the General Assembly.

One thing I didn't know is that lottery profits could be used to pay the debt service on bonds issued by the state for school funding purposes. Those bonds are issued by the State, and the money raised is allocated - at least in part - to the Ohio Public Facilities Commission in order to fund the construction of new school buildings and other facilities. That's a pretty good use of the lottery profits in my opinion, and I think you would have some difficulty saying that this spending would have occurred anyway had the Lottery money not been there.

Okay, so what about the general operating money? Do the profits from the Lottery in any way generate incremental everyday funding for the schools?

I think it may be all but impossible to answer that question with anything but opinion because you are essentially asking this: If the Lottery didn't exist, would the budget have included the same money for the schools anyway? After all, the first Lottery ticket was sold in 1974, so more than 30 years has elapsed since then. How can we ascertain today what funding decisions legislators might have made over the past 30 years had there been no Lottery?

The Lottery's website says they have contributed $15.5 billion toward school funding in that period, or nearly $500 million per year. I think one could be fairly confident that given a total state budget of about $24.5 billon, if the state revenues were $500 million less each year, the schools would have been allocated less as well. Would it have been $500 million less? If you think so, then you are arguing that all the Lottery proceeds go to the schools. If you think the schools would have received exactly the same appropriations if the Lottery didn't exist, then you would be agreeing with the Ohio Fair Schools folks.

The answer is probably somewhere in the middle – the Lottery does benefit the schools, just not as much as Lottery supporters claim.

So why are the Ohio Fair Schools people making their claim that the Lottery money is essentially being stolen from the schools?

Because they are using this half-truth to argue that schools should get all the funding they get now plus the $500+ million per years from the Lottery. Of course 90% of it would end up as the salaries and benefits of school employees, the real motivation for this argument – and the GIRFOF amendment.

Monday, December 8, 2008

New 5 Year Forecast

According to the published agenda, Treasurer Brian Wilson is scheduled to present his new Five Year Forecast to the School Board at their meeting tonight at Avery Elementary, 7pm. The big question is how much needs to be cut from the spending plan, in spite of the levy passing in November.

I did some 'back of the envelope' calculations a few months back and came up with about $3 million/yr. After that, I began to see this number being used by school officials, and I don't know if they were just using my number, or whether they had independently come to the same conclusion.

I guess we'll find out tonight.

Friday, December 5, 2008

Runnin’ on Faith

The passage of the 6.9 mill operating levy on November 4th buys us a little time – very little – to put our school district back on the right financial track. Our School Board and the levy campaign committee didn't talk about how long it might be until they'll be asking for another levy, or how large that levy might need to be.

Here's the truth – if spending growth, which is driven almost entirely by the ever-increasing cost of employee salaries and benefits, continues on its current trajectory, the next levy will be need to be on the ballot in 2010, and will need to be at least 6.15 mills. To restore the 10% operating reserve which the Board adopted as its policy a couple a years ago, the 2010 levy would need to be 11 mills. As large as these millage rates might be, the bigger story is that we have likely entered an era of two-year levy cycles.

And I'm sorry to say that this isn't the end of the bad news.

In June 2005, Governor Taft signed into law the phase-out of personal property tax on businesses. This is the tax on the contents of a commercial building, which includes furniture, manufacturing equipment, and inventory. For most Ohio businesses, this tax will be eliminated by 2009, and for all businesses by 2011.

School districts are one of the primary beneficiaries of this tax, and so to protect the schools, the new law required that through 2010, the State of Ohio to reimburse the full amount 'lost' due to the Personal Property Tax phase-out. In other words, so far we haven't been hurt by any of this because the State is currently reimbursing us about $6.7 million per year.

But that changes starting in 2011. In the period between 2011 and 2017, the size of the reimbursement will be reduced approximately $800,000 per year, and will be completely eliminated by 2018.

To be fair to district Treasurer Brian Wilson, he brings this up every time he presents his Five Year Forecast. Invariably, there is no reaction from the Board. I can understand their being frustrated by these things over which they seemingly have no control, but it has to be discussed and planned for nonetheless.

Someone once said that the rhinoceros is the example of "running on faith," because it weighs 3,000 pounds, can run 30 miles per hour, and can see only about 30 feet ahead. That could describe our school board as well. The 'weight' of our organization hasn't really changed. If anything it continues to get larger and more expensive. The velocity in which we are traveling is as great as it has ever been, especially now that developers have convinced Mayor Schonhardt and the Hilliard City Council that it's a good thing to annex hundreds of acres of land into the City of Hilliard – the first step toward the construction of thousands of new homes, meaning thousands of additional kids in the school system.

And our forward vision is still about as far as the toes of our shoes.

It is a fairly straightforward task to build a forecast that takes into account the growth in students, the growth in personnel costs, and the reduction in state funding and come up with a schedule of projected levy amounts and levy dates. It wouldn't surprise me if it would take on the order of seven mills every two years to keep our district solvent – unless something changes.

The Superintendent and the Board hopes that the something that changes is the way the state funds public schools. The School Funding Subcommittee of the Ohio Board of Education has just released its Final Report, describing the approach they recommend should be adopted by the Governor and General Assembly. Some aspects of this report are troubling, while others show that these folks understand our challenges. In particular, they recommend the creation of impact fees "especially for districts experiencing significant growth," something I've been advocating for some time.

There is also an astounding admission buried in the middle of a long paragraph in the discussion about how to determine spending benchmarks:

The "best buy" approach to defining the base cost was reached after a review of the spending patterns across the state did not reveal a clear pattern of expenditures that led to high levels of academic achievement. In other words, increased funding did not guarantee improved performance.

Nonetheless, the state government will get a lot of pressure to shift more money from those districts perceived to be wealthy (like us) to those who are perceived to be poor. That is because the majority of members in the General Assembly are from the urban and rural districts, and while not at all alike in their problems, shares a belief that whatever those problems are, more money will fix them.

We suburbanites aren't blameless. Most of us came to the suburbs to escape whatever we thought was wrong with the urban and rural schools without giving a thought as to what the implications might be to school funding. That's certainly true for me. We allowed developers and developer-friendly politicians to profit from our desires and ignorance, leaving behind an economic configuration which is unsustainable.

Many believe that if the General Assembly would just heed the decision of the Ohio Supreme Court and stop using property taxes as the primary funding mechanism, all would be better. But if public school funding isn't raised with property taxes, what will replace it as a funding mechanism, and more importantly, will it cost Ohioans any less?

Certainly not. You would be hard pressed to find any government official or education group saying that the problem is that too much money is being spent on education in Ohio. So if they decide to heed the ruling of the Supreme Court and stop using property taxes as a revenue mechanism, the money will need to come from other kinds of taxes, be they sales taxes, income taxes, gasoline taxes or whatever. As taxpayers, we'll lose the direct vote we have on school levies, and all taxing and funding decisions will be turned over to elected officials.

We have to be careful what we wish for, because sometimes we get it…

Tuesday, December 2, 2008

Two-Legged Stool

I regularly read just a few blogs. One of those is State of Ohio Education, written by Susan Haverkos, a member of the State Board of Education, and Colleen Grady, who was also serving on the State Board of Education until elected to the Ohio House of Representatives last month. It is rare to find a political official speaking out on a blog, especially ones with as much openness and objectivity as these two.

Colleen recently wrote an article that has significant importance to the Hilliard Schools community. She talks about the drastic turndown in tax revenue at the state level – so severe that it will be all but impossible for the Governor to propose a budget without taking a bite out of school funding. She writes:

The pain also occurs at a time when Mr. Strickland has said he will deliver on his campaign promise to propose an overhaul in how the state funds schools. That plan would be an answer to repeated rulings from the Ohio Supreme Court that the state's reliance on local property taxes places students in poorer districts at a competitive disadvantage with those in wealthier districts.

There are a couple of gems in that paragraph. The first to note is that the rulings by the Ohio Supreme Court have been driven not because they think property taxes are bad thing in abstract, but because they believe funding schools with property taxes puts poorer districts at a "competitive disadvantage" to wealthier districts. In other words, the thing they have a problem with isn't necessarily the form of taxation used, it's that the outcome is that the poorer districts still aren't getting enough money.

Therefore wealthier districts – and Hilliard is considered one of those – are more than able to fund themselves, and shouldn't need so much aid from the State.

I suspect the Governor agrees with this. He is after all from the same part of the state that my family settled over 200 years ago – the Appalachian counties of southeastern Ohio. If he has to cut the overall school funding budget, I don't see him taking a big bite out those districts, which are barely afloat anyway. And when he broadens his political perspective out to encompass the whole state, he'll note that taken together, urban and rural voters far outnumber the suburban voters.

It doesn't bode well for us. Our school funding has long been a near-equal balance of local residential property taxes, local commercial property taxes and state funding – the three-legged stool that has been stable for many decades.

Readers of this blog know that the stability of the stool has been threatened by the fact that over the past decade, residences have getting built at a rate far higher than commercial development. That means the local residential property tax leg has been growing, but not as fast as the funding need generated by all those new kids living in those houses.

Now the state funding leg looks like it's going to get another good sized hunk sawed off. Our state funding is currently on the order of $35 million per year, and it has been held there for a number of years through a 'guarantee' program related to the phase-out of business personal property taxes. This year, that guarantee will bring $3.8 million to our district.

If the Governor decides to take 10% out of the state education budget, we – as a so-called wealthy district – will likely see our state funding cut by more than 10%. One way to do that would be to rescind this guarantee program, or perhaps just accelerate the phase-out. My calculations suggest that we'll need to carry an additional 3 mills of local taxes to compensate for this loss of state revenue.

That means our next operating levy – which will be needed no later than 2010 – will likely need to be on the order of 10 mills.

That is, unless we can get some grip on the runaway costs of compensation and benefits of our employees.

Teachers as Employers

We hear plenty from the community of teachers about how school funding is screwed up, how school districts are mismanaged, and how teachers are underpaid. It might be worth weighing those statements against the example teachers set as managers of their own affairs.
For example, the Nov 29, 2008 edition of The Columbus Dispatch ran a story titled "Teacher's union pay a surprise to many." When I first saw that headline, my assumption was that this story would be about the way teachers are paid, and was excited to have the Dispatch take some interest in this topic.
The subject was actually much more interesting: the pay given to the headquarters employees of the Ohio Education Association, the state-level organization of Ohio teacher's union (i.e. the Hilliard Education Association – the union representing Hilliard teachers – is an affiliate of the OEA). It seems that while average teacher pay in Ohio decreased last year, nearly half of the OEA staff is paid more than $100,000 per year. This was a surprise to the head of the Lima teachers' union - which signed a no-increase contract this year - who said "classroom teachers have a problem with any management person making six figures."
If that is so, how did it happen that so many OEA staffers are making six figures? Don't the teachers set the salaries for the employees of their own union? Why do they willingly pay nearly $500/yr in OEA dues, then turn around and complain about how much their own union leaders are paid?
Let's also take a look at the oversight of the State Teachers Retirement System (STRS).
STRS is an organization chartered by state law (ORC 3307) to collect, invest, and disburse retirement benefits to retired Ohio public school teachers. It is one of the largest pension funds in the country, having assets of $80 billion as of June 30, 2007.
Ohio law also gives some guidance as to the way the contributions to the retirement fund should be invested:
"The board shall have full power to invest the funds. The board and other fiduciaries shall discharge their duties with respect to the funds solely in the interest of the participants and beneficiaries; for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the system; with care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aims; and by diversifying the investments of the system so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so.." (ORC 3307.15)
Nonetheless, the members of STRS – active and retired Ohio public school teachers – sat back and allowed their Board and investment managers to expose them to a level of risk which has reportedly led to a decline in value of the STRS pension fund by more than 20% in the last year alone (to $54.5 billion). But that's not all. In spite of this massive loss, the STRS investment managers are being paid substantial bonuses. STRS members like Kathy Bracy are shouting in outrage that this was allowed to happen (both the loss and the bonuses).
It's not the first time apparently. In 2003, the same situation occurred, although I suspect the losses were not so substantial.
At least one STRS member understands the root cause of all this: ignorance and apathy - and maybe a little greed - on the part of their membership. RHJones writes that "the indifference should cease" in regard to teachers involvement in oversight of the STRS.
I wonder how much the rank-and-file teachers themselves understand about school funding, investing, or how to carry out the leadership and management of a large enterprise. The evidence is that the answer is 'not much,' and they aren't all that interested in learning about it or being involved with it either. They have sure made a mess of both their own union and their own retirement system. This can't be blamed on school district administrators, the lawmakers or the general public.
Maybe it's time for all the parties involved in public education (teachers, administrators, school boards, politicians, private citizens) to quit blaming each other, and do a little introspection: 
  • What are your true motivations? What is your hidden agenda?
  • Who is supposed to be representing your interests?  How closely do you monitor their actions? 
  • Is it really all about the kids, or all about you?