Saturday, December 26, 2009

Time Is Of The Essence

I wrote a piece in October called "Rabbits & Hats" which addressed the fact that the leadership of our District had decided to use what is likely to be one-time Federal stimulus money to fund current operations, allowing Superintendent Dale McVey to make the declaration during his 2009 State of the Schools speech that there would be "no levy in 2010." While the Superintendent attributed this levy interval to 'stretching the dollars' from the last levy, the numbers in the latest Five Year Forecast show that there has been no overall decrease in spending. Indeed, there has not even been a decrease in the rate of the increase in spending from the historical trend, as can be clearly seen in this chart, drawn from the official Five Year Forecasts.

Don't get me wrong – I'm all in favor of maximizing the interval between operating levies if the lengthening of the interval is a result of significant and permanent spending reductions. But that is not the case here. Had we not received this Federal stimulus money, and were not planning to spend our cash reserves down to threadbare levels (in conflict with the Board's policy to maintain a 10% cash reserve), there would absolutely have to be a levy on the ballot on 2010 in order for all of our programming and services to be preserved, precisely because there have been no significant and permanent spending reductions made.

It is certainly true that some cost savings have been instituted – the Superintendent outlined a number of them in his speech, reporting that reductions totaling $7.5 million had been implemented in the past two years, although it is not clear whether this $7.5 million would be eliminated over one year, three years or a hundred years. However, we should note that the total operational spending by the district was $146 million in FY08, $150 million in FY09, and is projected to end FY10 at $158 million. In other words, annual operational spending has increased by $11 million in just three years. Even though our student enrollment has been essentially flat, from 15,150 in FY08 to our current 15,523, our annual operating expenses have risen by 7.7%.

There is no mystery as to what causes the increase in spending: it's the cost of compensation and benefits for the teachers, staff and administrators, which I most recently addressed in an article titled "Teacher Raises = Levy Size." Of the $11 million in expense growth over the last three years, over $8 million, or 73%, is attributable to compensation and benefits.

We may be able to make it to 2011 without putting a levy on the ballot if there are no hiccups in revenue and no surprises on the expense side. But by spending down our cash reserves, we'll have little capacity to absorb surprises without having to take drastic action.

Notice that there haven't been any official hints about how large that levy might need to be in 2011. It's not that hard to come up with a ballpark number. A key factor is the amount of revenue that is generated each year by a one mill levy. This factor is different for every school district, but is readily available from the Ohio Department of Education's website, via the "CUPP Report." In our case, 1 mill = $2.4 million/yr in revenue. Knowing that, all you have to do is look at the Five Year Forecast and see how many mills it takes to fill the gap between projected revenue and projected spending, while never letting the cash balance get below zero.

With no new levy, we'll run out of cash in FY12, so we'll need to pass a levy no later than Nov 2011 (which is in FY12), and it will require at least 4 mills to get us through FY12 – just that one year. If we go with only 4 mills in 2011, then to fund FY13 we'll need another 12 mill levy in Nov 2012, which would keep us afloat through FY14 with $5 million in cash in the bank at the end of that year. Or we could go for 10 mills in 2011, but would still need another 10 mills in 2013. Or we could go for 12 mills in 2011, and not likely need to put another levy on the ballot until 2014.

I know you must think I'm nuts saying that our tax rates would have to increase by 16 mills or more in the span of 3 years. This would add $491/yr per $100,000 of home valuation, meaning many HCSD homeowners would see their annual tax bill go up on the order of $1,000 – about 15%. But that's how the numbers come out. We can play with the size and timing of the levies (the sooner we add a levy, the smaller the millage can be), but the fundamental truth is the same – our spending is rising at a rate which will continue to require levies of increasing frequency and size.

Note that I'm not the only person saying this – in its December 14 report to the School Board, the Audit & Accountability Committee also said that having the Compound Annual Growth Rate (CAGR) of expenses be greater than the CAGR of revenue is a fundamental problem – worsened by the fact that the CAGR of expenses is double the increase in the Consumer Price Index over the same period. In their conclusion, the Audit & Accountability Committee said: "Most concerning is the fact that Hilliard's growth in spending [per student] from 1995 to 2008 is the highest of the six local districts" used for benchmarking, which were Dublin, Gahanna, Pickerington, Westerville, and Worthington.

Getting this Federal stimulus money doesn't change the underlying reality – it just lulls us into believing that the revenue vs. spending problem can be dealt with later – that we have the "luxury of time," as the Superintendent stated at the October 12, 2009 Board meeting, when the latest Five Year Forecast was presented by Treasurer Brian Wilson. I think this is a perilous frame of mind, unless the community is well-informed about the big picture. Here is an article just published by the Associated Press on this very point.

One part of the school funding story that almost everyone misses is that by the time a levy is next put on the ballot, the real fight will have been long over. When 88% of the total operational spending of the District is for compensation and benefits, the single most important recurring event in the life of our community is the renegotiation of the labor agreements with the teachers' union – the Hilliard Education Association (HEA) – and the union representing the bulk of the staff – OAPSE Local #310. Both of these agreements will be renegotiated in 2010, and will determine the labor rates in our District for a number of years following.

And so when we next see a levy on the ballot, the only thing we as a community will be deciding is how many people are employed by the district, and therefore what programs and services are offered. If the labor rates negotiated in the next contract end up being about the same as the assumptions used in the preparation of the Five Year Forecast, then we will be able to keep all the programs and services we have now – provided we are also willing to pass the 16 mills worth of levies described above. We can't have one without the other.

I personally believe there is just about a zero chance of the people of our community supporting a 15% increase in our property taxes in three years, much less a perpetual rate of increase of this magnitude, and therefore a slim chance that the School Board would even consider putting levies of this size on the ballot in the first place.

So what is to be done?

The answer is painfully clear – the only way to preserve all of our programming and services is for the employees of our district to accept a substantially reduced rate of growth in the cost of compensation and benefits. I am not now, nor have I ever, advocated pay cuts. Last year I asked the two unions to forego one year of base pay increases – a request which was met with complete silence by all members of school leadership – School Board, Administration and the union leaders.

There are only so many knobs we can turn: e.g. base pay increases, step increases, and contribution to health coverage costs – and all of these things need to be on the table and negotiated in concert so that the pace of property tax increases can stay within a range that has a chance of being supported by the people of our community.

There is one more knob we can turn of course – cutting the breadth of programs and services available to our kids. But note that this is dependent on the cost of labor as well. In almost all cases, program costs are cut by laying off the personnel associated with that program. The way this really works is that the youngest teachers in the district are laid off first so that more senior teachers in any discontinued programs can take the younger teachers' positions – a practice called "bumping." A highly effective young teacher could easily get bumped by a more senior teacher who has "retired on the job," as they say. This doesn't make sense to most of us, but that's what the labor agreement specifies, at the demand of the HEA and with the approval of the School Board. As long as the younger teachers continue to accept this provision in their union contract, that's the way it will be going forward as well.

So the point is simple – when you have an organization in which the operating expenses are primarily labor costs – 88% and growing our case – then negotiating the cost of labor is one of the key responsibilities of the governing body of the organization. Corporate executive pay has become insane not simply because those CEOs demanded the big bucks, but also because their Boards of Directors acquiesced to the demands of those CEOs. Those corporate Boards came to view their responsibility as being to keep the CEO happy, rather than to represent the interests of the shareholders. I've seen this happen first hand as a member of corporate Boards of Directors.

Our School Board has the same kind of responsibility, to first represent the interests of the people of our community, not be the friends of the administration or the union leadership. The next major action the Board has before it is to negotiate these labor agreements, and we need your input now, as well as your support when the negotiations get tough – which they almost surely will this time around.

Tell us what rate of property tax increases you would be willing to support in order to grant raises and increase benefits to our corps of teachers, staff and administrators? Will you vote to increase our taxes by 5 mills every three years? How about 12 mills every 5 years? What would be acceptable? Your answers will tell us what can be tolerated in terms of raises and benefits changes in the new contracts. What goal should we have for the average annual raise for an HCSD employee? What fraction of the health coverage costs should be contributed by the employees?

By the way, one of the things we learned via the most recent community survey is that 71% of the 500 people randomly interviewed were very wrong in their beliefs about what our teachers are paid. Those interviewed gave answers which averaged $47,770, while the district website reports that the average salary for a teacher is actually $68,058. In other words, the people of the community underestimate what teachers are paid by more than $20,000 (see Survey Question 19, page 9). We're not going to get valid guidance from the community until key numbers – such as teacher compensation – are more universally known.

If you want the Board to play hard ball and demand no raises for the employees in the next contracts – then you had better be willing to tolerate a strike by both the teachers and staff, as it would surely come to that.

Or if you want us to continue to be generous with raises, but won't support the levy necessary to underwrite such raises, then be prepared for significant programming cuts – on the order of what we saw happen in South-Western City Schools.

This stuff is all connected – you can't take a position on one thing without accepting the consequences on the others.

The time to make you wishes known to the Board is not when the next levy appears on the ballot in 2011.

It is now. Right now. Before the labor negotiations begin.


  1. Paul, ? With 4 of the board members endorsed and given campaign contributions by the HEA et al
    would not the scenario forthcoming be "we have to pay to maintain our
    excellence rating " and wont we see the usual its for the kids , and the first thing on the table will be busing, sports et al to force a positive vote again.
    I dont see Maggied, Teater and Whiting at least trying to hold the fort.

    Also, tallying up all of the supplemental contracts since last
    June is a huge chunk of dollars.
    Perhaps some restraint in that area could save some operating dollars.

  2. Rick: I don't know about the last election, but neither Andy Teater nor Lisa Whiting received direct contributions from the HEA. The HEA PAC spent about $2,800 for ads on behalf of Teater, Whiting and Courtney, with the contributions coming from the OEA. Their HEA endorsement also included a recommendation from the union leadership to vote for these three. The HEA endorsement alone didn't seem to help Chris Courtney all that much, since he came in 6th of the seven candidates.

    The Board needs to hear what the community wants, including a willingness to live with the consequences of that decision. It would be extremely helpful to get that direction now - by the time a levy gets put on the ballot, the choices will indeed be limited to what programs to cut vs how much to increase our property taxes.


  3. Paul, thanks for the update.

    I am hopeful that all of the board members stick together and simply hold the line on increases for at least a two year period. Every other entity private and public are laying off, cutting back, medical insurance skyrocketing in personal contributions. Days off without pay.

    The simple question is to bring into the open. The forecast of revenue cannot sustain any increases in benefits, salary or step increases for 2 years. Even then we will see a significant levy request every other year. It will be more expensive per 100,000
    than ever before. We simply cannot afford it. The last contracts have been very lucrative. The community passed the last levy. Time for some adjustments to the pay plan

    I hope some people show up at board meetings to state exactly this. I dont think if I said anything it would be welcomed at all and probably be dimisssed.

    thanks for your efforts

  4. Whatever the amounts of the levies, it's crucial that folks feel like we all are sharing the burden, which means teacher and administrative salary freezes. As one working in the private sector who has occasionally gotten no raise (our whole shop got no raise) or a paltry 1% raise, this is something that happens and teachers will have to suck it up. They'll have to accept that we're in a once-in-a-generation fiscal crunch.

    Talk about perfect storms - the Bush tax cuts are set to expire next year, the federal health care bill will likely raise health insurance premiums by healthy amounts and property taxes will be set to take off. Something has got to give.

  5. Paul,

    Am I reading the Salary Schedule correctly? It looks like a teacher in 2010 is making 7.27% more than they were in 2009.

    I decided to crunch some numbers while trying to keep an open mind. However, after looking at this and the average salary per day ($68,058 / 182 = $373.94 per day), I do not believe I will be able to support a levy that includes salary increases over the next couple of years.

    I would like to see a comparison of overall compensation between the average Hilliard teacher (including pension contributions, medical, etc) and the average Hilliard school district taxpayer factoring in the number of working days.

    While I do not begrudge someone for trying to earn an honest living, I do call into question the character of someone that does so in excess on the backs of a community that is already struggling.

    I was thrilled to see you elected to your current position. I pray the facts you lay out will be heard and absorbed by the educators who may have been overly compensated in the recent past and the community that supports them.

    Hopefully, the teachers union recognizes and appreciates the financial support they have received from the community over the last several years. I'd like to think such recognition would result in a willing pay freeze for the next couple of years. However, I know personal greed and sense of entitlement is a powerful temptation that will inevitably prevail. In light of that, I pray our board and community will pull together and take the measures necessary to bring teacher compensation more in line with the rest of the community.

  6. Eire: Exactly. I'm advocating only a recalibration of our rate of cost increases to the general economic conditions, and that has to include labor costs.

    Steve: For those teachers who are on a step year (which is about 70%), you are correct that they receive a 7.27% annual increase in each year of the current three year contract, which expires at the end of 2010. The prior contract, covering 2005-2007, had 7.95% increases. Over the past 6 years, a teacher who received both base pay and step increases would have seen total cash compensation increase 55%. A teacher who completed additional education would have a somewhat larger total increase - on the order of 66%.

    For teachers not on a step year, the increases in the current contract are 3% annually (it was 3.65% in the prior contract). However, the first year a teacher is not on a step is year 16, for which the 2010 pay would be $79,072 (assuming that teacher also has a Masters degree).

    The comparison you suggest would indeed be interesting. Do you know of a data source which would provide that information on the general population?

    Like you, all I ask is that the employees of the district have empathy for the challenges all of us outside the extraordinarily protected world of public education are facing in today's economy.

    And to the people of the community, all I am asking is that they engage now so that the deal struck with the teachers lines up with the size of the levy the community is willing to pass in 2011 (if we can wait that long).

    One of the worst things that can happen in our community is for those two things to be out of sync. That's when levies fail and programs/services have to be cut.


  7. From Sunday Dispatch

    Reynoldsburg teachers agree to a wage freeze in 2010 -11

    Good time for Hilliard to pass a one year freeze plus 1% total the next two years to keep the next levy down

  8. Rick:

    Remember that we can't "pass a freeze" - such things are a result of negotiation with the unions. While it is a remarkable thing that the Reynoldsburg unions agreed to such a measure, we don't know what else is in that agreement, or what long term impact it might have on their school district. It would be a grand thing for their school board to voluntarily release the actual text of the agreement to the public, so we can figure that out.

    I want to correct a statistic that I used in a comment above. Using some raw data provided by the administration, I have found that 756 (64.6%) of the 1,170 current HEA members will get a step increase for the 2010-2011 school year.

  9. Paul, understand we dont pass on a vote but with surrounding districts, cities, the state and other public sector groups having to take cuts, I am hoping we will not exempt ourselves.

    Would the board share with the public a proposal to start negotiations now instead of
    in the late fall?

    One thing for sure, "working to the contract" and having the graduating seniors again be subject to the same refusals from two years ago will not fly. Many will be on top of this and this has seriious ramificationns for the district. While the HEA and its membership might not care, I would submit the board should be
    forthright, strong, and committed that every graduating senior gets the proper signatures, etc to proceed with college !

  10. Rick:

    There is perhaps no activity which is more strategic - or more delicate - than the union negotiations. The way I feel personally about how the process should take place is well documented, but I am but one of five members, and the five of us will have to come to agreement on the approach that will be taken in this negotiation.

    This is the time for the public to speak up, and make sure all five members of the Board understand your desires.


  11. Paul, I am hopeful that the community will speak up. I would
    be glad to speak again during public participation, but not sure the other 4 would listen anyway.

    I am aware that this gets delicate,
    but it is also part of the problem that previous boards have negotiated all of the communities bargaining power away.

    You would think that the community would have some input, and yes the board is the representative, but
    given the last two contracts, not sure how that fits any longer.
    It seems we are not willing to draw the line in many many instances.

    Many of us cannot afford the
    upcoming multiple levies that are coming. The easy way it seems that the District and the HEA says is then move. Why is that ? The community has consistently supported the district financially

    As with the last work to the contract, the feedback I and others consistently got, was there was not much the district can do about the way some teachers acted regarding the college paperwork,
    et al situation.

    I would hope the board would go on record this time, and communicate fully to the community and to the HEA that the kids come first,
    job actions in the classroom preventing help to college bound seniors wont be tolerated.
    This should not be that big of a deal. If we cant get a commitment for something as simple and important as that, then what is to prevent another 5 to 7% raise and then tell us its for the kids.

    I would be curious how many applications we have on file
    for very qualified applicants to teach in our schools.

    I appreciate all you have done as everyone else does, for all of your hard work and dedication Paul
    We need some serious cost containment for the next 3 years so that we in the private sector can try and keep up.