Friday, December 17, 2010

Coming Soon - The Levy Decision

NOTICE: If you read the article titled "More Millage Math" prior to January 8, 2011, the calculations I had performed showing the effective percentages increases of various levy amounts were incorrect. An updated chart has been posted, and the numbers in that article have been corrected, as shown by strikethroughs. I apologize for my error.

The following is the text of a message I sent on Saturday, Dec 11 to the other members of the School Board, the Superintendent and the Treasurer. I paraphrased this message in my comments at the Dec 13 Board Meeting as well, as reported in the Hilliard Northwest News:
Fellow Board Members, Dale, Brian:
I see that we very appropriately have a discussion of the next levy on the agenda for Monday's meeting. I believe this discussion should begin with a presentation by the Administration which details at a minimum:
  • The recommend levy size
  • The planned interval until the next levy will placed on the ballot
  • The cash reserve goal (current policy sets this goal at 10%)
  • What adjustments will be made to spending to achieve the parameters above, in particular:
    • Projected compensation growth rates (since this is approaching 90% of our budget
    • Changes to programming and services
It is not appropriate, in my opinion, to make a decision of this magnitude simply on opinions as to what we think the 'market will bear.' Before we ask the people of our community to increase their annual investment in our school district by millions of dollars, we need to look carefully at the numbers and be sure we understand them. As I recommended at the last meeting, I believe it would be beneficial to do so with the help and counsel of the Audit & Accountability Committee, even if that means we need to schedule a special meeting.
I have attached another set of scenarios which may help us understand the dynamics of levy sizes, levy intervals and expense growth. I'm happy to explain any of these if you have questions.
Paul Lambert
While all the Board members made comments at the meeting, there was no discussion that led to determination of any of the parameters I listed above.

I used the phrase 'what we think the market will bear' in my message because, lacking any evidence to the contrary, I believe this will be the factor the Board uses to determine the levy amount. The Superintendent commissioned a community survey to be performed by Saperstein Associates over the Thanksgiving weekend. Central to this survey was to gauge public sentiment on a hypothetical 6.9 mill levy. As you can read for yourself from the results of this survey, fewer than half of the respondents were supportive of a levy of this size.

Then again, fewer than half of the respondents were opposed to a levy of this size either.

So now the Board needs to figure out whether to put 6.9 mills or more on the ballot and prepare for a very tough campaign, or to reduce the levy millage in hope that this would make passage more likely. This is the reason I believe this will be a 'what the market will bear' decision rather than one based on analysis of the financials.

Of course, reducing the levy millage has consequences. One might be to increase the frequency of levies. The prevailing thinking is that a 6.9 mill levy now would have to be followed by another levy in two years. Is the community willing to just make that an annual levy cycle?  I'm sure that's a non-starter.

The preferable solution is to reduce projected spending. There are couple of ways to accomplish that. One is reduce programming and services; the other is to keep all the programming and services but reduce the unit cost (eg cost per participant).

This survey says there isn't much interest in reducing the major programming (Question 17). In spite of the overall levy sentiment being 50-50, the clear majority of respondents (60%+) opposed reductions to gifted services, tutoring for struggling kids, sports, or performing arts.

That leaves us with lowering the unit cost of programming.

Because nearly 90% of our budget is spent for salaries and benefits, reducing the cost of programming means reducing the number of people assigned to a program and/or reducing the future compensation of those people (see current supplemental salaries by program). That doesn't necessarily mean pay cuts, but it would likely mean reducing the size of raises, both base pay and steps (see article on the structure of teacher pay).

Once again, I suggested that we engage the Audit & Accountability Committee to help us think through the numbers. As their charter says, "the purpose and intent of the committee is to assist the Board in a financial advisory role..."  I don't know when that role is more important than when the Board is making levy decisions.  Nor do I know of another group of citizens who understands the economics of our District better than this Committee. However, the majority of the Board does not share my belief that the A&A Committee should be engaged.

And I wish I knew of a way to involve the unions in this level of strategic planning without putting us into negotiations mode. It just seems kinda nuts to tackle this situation without the benefit of the wisdom of the couple of thousand people who are at the 'tip of the spear.'

At this point, I am not prepared to vote in favor of putting a levy of any amount on the ballot. I simply do not understand the implications for programming and services associated with any levy amount, least of all the 6.9 mills that is being used as the trial balloon. A levy of 6.9 mills in 2011 followed by another 6.9 mills in 2013 will not fund the expenses projected in the Five Year Forecast.

So what has to change in the Forecast assumptions?  I haven't a clue. Seems like we should figure that out before we decide on the size of the levy, not after.

Wednesday, November 24, 2010

More Millage Math

NOTICE: If you read this article prior to January 8, 2011, the calculations I had performed showing the effective percentages increases of various levy amounts were incorrect. An updated chart has been posted, and the numbers in this article have been corrected, as shown by strikethroughs. I apologize for my error.

First, allow me to begin by saying "Thank you" to all the members of the community who participated in the Breakfast with the Board last Saturday. There were great questions and lively discussion, lasting well past when the session was formally concluded. Most of the conversations were about the cost of running our school district, what Ohio's budget crisis is going to mean to school funding, and how large the next levy will be.

I hope two things were achieved during this meeting:  1) that folks learned some things about school economics that they didn't know before; and, 2) that the members of the Board heard how much the people of our community love their schools, yet are still concerned about the ever-increasing financial burden of funding its operations.

We are rapidly nearing the time when the School Board will need to vote on the two resolutions required by law to put a levy on May ballot. There is a regular School Board on Dec 13 (@ Horizon), then the next two will be Jan 10 and Jan 24. The first of those resolutions will likely be on the agenda on Jan 10, and the final resolution on Jan 24, in order to meet the deadline for filing with the Board of Elections.

I've recommended to my fellow School Board members that we schedule a working session soon for the sole purpose of having an in-depth examination and discussion of various funding and spending scenarios, leading to the selection of the millage rate that will be on the ballot. I have also recommended that the Audit & Accountability Committee be invited to participate in this discussion, allowing the School Board to benefit from their talent and wisdom, especially since they have spent the last two years working hard to understand the economic underpinnings of public schools.

My last article included a chart that I constructed to help me understand the implications of various levy sizes. I've enhanced that chart a bit, and make it available to you - with the disclaimer that it is accurate to the best of my knowledge, but is NOT an official publication of Hilliard City Schools. Before making your decision about how to vote on the levy - whatever size it may be - read the official ballot language, and ask Treasurer Brian Wilson to clarify any questions you might have.

That being said, you may find the chart here. Directions for use:

  1. Pick a levy amount between 4 and 10 mills from the first column
  2. The second column shows the amount the annual property tax will increase for each $100,000 of market value (as determined by the Franklin County Auditor). For a 6 mill levy, this number is $184/yr. So if your home is appraised at $250,000, a 6 mill levy would cause your property taxes to increase $460 ($184 x 2.5).

    By the way, this calculation would be the same for every school district in the State. In other words, a 6 mill levy would increase the annual property tax by $184/yr per $100,000 regardless of whether the levy is in Hilliard, Dublin, Toledo or Chillicothe.
  3. The third column shows the total amount of new revenue the District would receive should the levy pass. Looking again at the row for 6 mills, this shows that a 6 mill levy would raise approximately $14.6 million per year of new money for the District.

    This number does vary from district to district, depending on the aggregate property value. Again, the math isn't mysterious.  The total value of all real estate in our District is about $2.4 billion, and 1 mill is a tax equivalent to 1/1000th of the value of a piece of property. So a 1 mill levy raises approximately $2.4 million per year in our District.
  4. The next columns attempt to create a sense as to what various millage amounts equate to in terms of annual rates of increase. In actuality, when a levy passes our tax bill increases in one step, and remains at that level until additional levies are voted in, or existing levies expire.

    So if the School Board said to the community, "we recommend that you approve a 6 mill permanent levy, and estimate that, given our assumptions as to funding and spending, we will not need to ask you for another levy for 3 years"  -  you would scan across to the columns for 3 years, and note that this is equivalent to a 2.6% 3.6% annual increase in just the school portion of your property tax, and to a 1.6% 2.6% annual increase in your overall property taxes (The school tax is approximately 64% of your total property tax bill. The actual fraction depends on which city or township you live in).

    Of course, if our assumptions are off, and the Board has to come back to your for more money in 2 years instead, it would be like raising the effective annual rate of increase to 3.9% 5.5% on the school portion of your tax bill, or 2.5% 3.6% overall.
So how much does the District need, and how many mills will you be asked to pay?

There is simply no mathematically correct answer to that question - it's a matter of opinion. You are welcome to look at the current Five Year Forecast, as well as a bunch of scenarios I've constructed for examining various configurations of levies vs a couple of spending rates.

Very soon, the period of theory, opinion, analysis and discussion will end, and the School Board will reach a decision as to the levy amount.

If you have not expressed your views on this matter, please do so right away. We would love to have you come to the next Board meeting and speak to us directly, but if you cannot, send a letter, or an email and make your voice heard.

Wednesday, November 17, 2010

Millage Math

At our last School Board meeting, Treasurer Brian Wilson presented a couple of simple charts showing what the district's future cash balance is projected to be given three different levy scenarios: 6.9 mills, 8.9 mills and 9.9 mills. He developed these scenarios by starting with the most recently approved Five Year Forecast and dropping in the revenue stream that would be generated by these various levy amounts.

Of course, this is from the perspective of the school district. What would these various levy amounts and funding periods mean to you, a homeowner or business owner in our district?

Here is a chart that I hope helps answer that question:

You read it this way:

  • Each row is for a different millage amount, from 4 mills to 10 mills. I'll not insult your intelligence by tacking a ".9" onto the numbers as though you don't know 6.9 mills is pretty much the same thing as 7 mills.

  • If you pick the row for say 6 mills, the "$Incr" column shows that this would increase your property taxes by $184 per $100,000 of market value, or 7.9%.

    So if the Auditor has said your home is valued at $250,000, you would multiply the $184 by 2.5 and arrive at $460 for the amount your taxes would increase if a 6 mill levy were passed.

  • The columns show what the effective annual percentage increase is based on how long the Board tells you it will be until yet another levy is placed on the ballot. If the plan is to wait for three years before asking the community for more money, then a 6 mill levy is equivalent to increasing your taxes at an annual rate of 2.6%.

    But if the district spends the money faster than forecasted, or the revenue - notably the state funding - is less than expected, then it might later be decided that another levy is needed in just two years. If that's the case, the effective annual rate of increase rises to 3.9%
You can also 'work backwards' using this chart.  For example, if you decide that you're not willing to have your property taxes increase at an effective annual rate greater than say 3%, look for numbers close to 3% on the chart, and see what combinations of levy millage and years yield about 3%.

It looks like something between 4 and 5 mills on a two year cycle would be about a 3% annual growth rate.

Or 7 mills on a three year cycle.  Or 10 mills on a four year cycle.

I hope this helps you gauge the impact of various levy sizes on your property taxes.  The decision as to the levy amount that will be on the ballot is going to happen in December or January.  If you wait around until April, the only choice you'll have is whether or not to vote for the levy.

If you want to influence the Board as to the levy amount, you'll have to speak up now. The Breakfast with the Board this Saturday, November 20, from 9am-10:30am at the Central Office Annex is a great place to make your voice heard. Come any time during the hour-and-half gathering, speak your mind and leave, or stay the whole time if you like.

Just don't be silent and expect things to come out the way you want.

Sunday, November 14, 2010

The Political Language of School Finance

In the Columbus Dispatch story published following our November 10 School Board meeting, the closing line was this:

"The district also shaved $6.5 million in expenses through staff reductions, department budget cuts and efficiency improvements since 2008."

I believe this quote merits further explanation to make sure the folks of our community understand what it means.

It does not mean that spending decreased over this period. In fact, it went up every year. The actual numbers for Total Spending over the past three years are this, as reported in the latest Five Year Forecast:

FY08: $146.4 million
FY09: $149.6 million (+2.2%)
FY10: $157.2 million (+5.1%)
Three year Total: $453.2 million

So what does the use of the word "shaved" as in this Dispatch story mean?  

It is an indication of how much actual spending was below an earlier forecast. Specifically, the Five Year Forecast published in December 2008, after the passage of our last operating levy, depicted the following:

FY08: $146.4 million (actual)
FY09: $152.2 million
FY10: $161.0 million
Three year Total: $459.6 million

Therefore $6.4 million less was spent during 2008-2010 than had been forecasted in Decmber 2008. This is where the "shaved $6.5 million in expenses" comes from (please excuse the rounding differences).
So one way to talk about "savings" or "cuts" - the way reflected in the quote reported by The Dispatch - is to compare what was actually spent vs what we had thought we were going to spend, given the assumptions made at that time. From that perspective, spending was indeed around $6.5 million less for this period than what we had planned.

However, in absolute terms, our spending increased at a rate of 3.6% per year even after all of those programming cuts and staff reductions had been made.

Looking forward, the latest Five Year Forecast shows annual spending increasing from $157m in FY2010 to $191m in FY15, a compound annual growth rate of 4.0%. During that period, Compensation & Benefits costs are projected to increase 4.45% per year.

I leave it to you to decide whether there has in fact been a "savings" when spending grows, but at a rate less than forecast. The objective of this article is to point out that the word "savings" is ambiguous, so don't assume that what you read or hear reported is the same thing you are thinking. Ask follow-up questions until you fully understand what is being said.

Thursday, November 11, 2010

My Comments at the Board Meeting Regarding the Next Levy

The Columbus Dispatch chose to distill my comments at last night's School Board meeting down to a tiny sound bite that left the reader with no idea what I'm thinking.  Below is the full text of my comments.
I have spent the last two days at the annual Ohio School Boards Association annual conference attending every session I could that dealt with school economics. The primary question on everyone’s mind – from all across the State – was how much the Governor and General Assembly are going to cut the funding to schools. There was no question about if there would be significant cuts, and no one thought it would be less than 10% - the number Brian has used in the Five Year Forecast we just accepted. More than a few thought it would be more.

Assuming that we all agree that we desire to maintain the excellent quality and breadth of programming and services offered by our school system, it seems that we have two primary things to discuss.

First is whether we want to stick with this assumption of a 10% state funding cut, or perhaps increase it, and what kinds of contingencies we want to put in place in case we are wrong. A big part of this is deciding how aggressive to be in raising our cash reserve back to 10%, as is Board policy. That’s not free – it will take mills to achieve this.

Secondly, this has to be a conversation about the cost of compensation and benefits for our excellent team of teachers, staff, and administrators. Comp & benefits consumed 87% of our operating budget last year, and is projected to reach 89% of our budget by FY2015. We can and must continue to seek ways to save money in the other 12% of our budget, but there will be no way to work our way through these economic times without dealing strategically with comp & benefits.

It is a time when both sacrifice and investment are necessary. When we next put an operating levy on the ballot, we will be asking the already stressed homeowners and businesses of our district to increase their investment in our schools. It will be burden on them, and they will not be inclined to support a levy unless convinced that it is absolutely necessary – after we have taken steps to minimize spending.

And recognizing the base and step freezes the whole body of employees have agreed to for 2011, I believe we also need to ask the employees of our district to continue to share in the investment necessary to preserve all the great things they have achieved over the years. We can use all kinds of euphemisms in this discussion, but the question comes down to how many people will be employed, and what will be the collective cost of their compensation and benefits.

I reject the notion that the only tool available to us is the broad axe of layoffs and the attendant cutting of programs. I attended a discussion this week about Early Retirement Incentive Programs. I don’t know that such a program would make any sense for our district or for our employees, but it seems like we need to run the numbers and find out.

And there are no doubt many other options to explore if we can do so in the spirit of coming together to solve a shared problem in what is soon going to become a statewide climate of fiscal warfare. 

It can be done.

Thanks to all those who attended this session, and especially those who came forward during the time for public participation. I hope that many more attend the Breakfast with the Board on Saturday morning, November 20, at the Central Office Annex. Come any time between 9am and 10:30am and let both your school leaders and other community members know what you think about a levy on the ballot this coming May.

Saturday, November 6, 2010

Time to Start Dealing with the Hard Stuff

While the School Board has not yet had a discussion about when the next operating levy will need to be presented to the voters, I expect that the decision will be made to put a levy on the ballot in May 2011. The question will be the size.

The first of these discussions is on the agenda for the Board meeting scheduled for 7pm next Wednesday, November 10, 2010 at Darby Creek Elementary School. I believe that this is one of the most significant topics that must be dealt with by the School Board, and getting the opportunity to be part of this discussion is frankly one of the primary reasons I ran for a seat on the Board. There is a time for public participation at the beginning of each Board meeting (see the agenda for the rules). I hope many members of the community take advantage of this opportunity, especially on this topic.

There are at least two ways to approach the problem of determining the levy size:
  1.    The “Pricing” Approach:  Proponents of this approach think first about maximum size levy the community is likely to bear. In other words, how large can a levy be and still garner a simple majority of the votes on Election Day? How the money will be spent is secondary to those of this mindset.

  2.    The “Cost” Approach: Proponents of this approach believe that the levy amount should be determined after making decisions about how we are going to change our spending in the coming years, and making assumptions about what may be altered in our revenue sources.

It should be no surprise to readers of this blog that I come from the second school of thought.  This requires an iterative method of analysis, because as is the case in every budgeting exercise in which I have participated over the past 30 years, the first pass never makes sense. Perfectly reasonable assumptions about how much we would like to spend, and plausible projections about where the money would come from, inevitably lead to revenue requirements that are ridiculous to consider. So you have to adjust the spending forecast downward, reexamine the revenue projections, and tweak the parameters until something reasonable emerges.

So what are the levy parameters?  First and foremost is the size of the levy that will be next be on the ballot – presumably in May 2011 in our case.  But that’s not the end of it.  The expected size and timing of the following levy are also part of the decision.  There are all kinds of choices, but generally these things are true:

  •            Given a particular spending assumption, the smaller the levy now, the larger it will likely need to be next time
  •            The sooner we plan to put the next levy on the ballot (the shorter the interval), the smaller both this and the next levy can be.
  •          Conversely, the longer we want the interval to be until the next levy, the larger both this and the next levy must be.
Then there is one other element which affects levy size and timing – the condition of our cash reserve.

While spending tends to increase at a constant rate, the portion of our revenue that comes from property taxes rises in large steps each time a levy is passed, then stays relatively constant until the next levy is passed.  In the first year or two after a levy passes, the revenue is greater than the spending, and our cash reserves increase. Then at some point, spending rises above the income and the cash reserves are drawn down.  This phenomenon is just like what occurs in your personal checking account. You spend a little money every day, causing your account balance to gradually decrease. Then payday comes along, and in one step, your account balance jumps back up, and the cycle repeats.

So we get to decide whether we should be trying to live hand-to-mouth as a school district, allowing the cash balance to get as low as possible, or whether it is better to keep a little money in reserve so we have some ‘wiggle room’ to deal with the unexpected.  On August 14, 2006, the Hilliard School Board adopted Policy DBDA, which states that “maintaining a cash reserve balance of 10% of operating expenses is necessary in the interest of sound fiscal management.”  I wholeheartedly agree with this. It is not good a good thing to have nothing in reserve.

The ‘unexpected’ stuff on our horizon is indeed scary. I’d go so far as to say terrifying. It didn’t really matter who was elected Governor this week, the State of Ohio is in deep doo-doo from a fiscal standpoint, and there are going to be spending cuts of a magnitude such that no one or no program will be unaffected.

A story ran in the Nov 6 edition of The Columbus Dispatch which addresses this topic. The story lead says it all: “Ohio school districts got some hint this week of the hole the approaching budget tsunami might blow in the budgets. It could be big. State aid to school districts and charter schools could drop more than $1.1 billion over the next two years if funding is reduced by 10%.”

So what is the effect on our community if the new Governor and General Assembly decide to cut education funding by 10%?  That would decrease our State funding by more than $5 million per year, the equivalent of about 2 mills of local property tax revenue. Just to stay even. Note that the $8 billion gap in the upcoming biennial budget represents 16% of current spending by the State. So if education gets hit with only a 10% cut, a disproportionate amount of the cuts will have to come from Medicaid, the prison system, and property tax relief programs (e.g. the Homestead exemptions). There are no easy choices.

But carrying this picture to the next step, it is not necessarily true that even if the Governor and General Assembly decide to make a 10% cut across all education budget lines, that the impact will be spread evenly across all school districts. Let’s face it – the folks at the Statehouse believe districts like ours have the local capacity to fund our schools however we want, so it is not hard to imagine that the impact of a State funding cut would be distributed in proportion to the perceived wealth of a school district. That is, the more wealthy the district, the deeper the cut.

The above-noted Dispatch article reports that “some local school leaders are preparing for cuts of 10 to 15 percent.”  Our District Treasurer, Brian Wilson, baked a cut of 10% into the just-approved Five Year Forecast. We may be being optimistic.

One way to prepare for such cuts is to put a little extra money in the piggy bank to give us some time to react when we find out what the real depth of the cuts will be. For that reason, I advocate having a part of our next levy dedicated to maintaining a 10% cash reserve.

Here comes the hard part.

Readers of this blog also know that we spend nearly all of our budget on the compensation and benefits of our great team of teachers, staff, and administrators. The current Five Year Forecast shows the FY2011 portion to be 88%, growing to 89% by FY2015. There are no doubt a number of nice-to-have budget items that we can reduce or eliminate, still a little efficiency to be gained, and there’s a lot of that which has taken place over the past several years.

But it’s now time that we have to talk about compensation and benefits.

I am not at this time advocating pay cuts. But we may have to cross that bridge if the State of Ohio really sticks it to us as the State leaders try to figure out how to dig Ohio of this mess. In fact, I believe that any radical reduction in State funding has to come paired with the authority to bring the employee unions back to the table to renegotiate their collective bargaining agreements as needed to keep our district solvent.

Over the past several weeks, I have developed a number of spending/levy scenarios that I could use to try to understand some of the many options the Board might consider (copies were sent to the other Board members, Superindent and Treasurer, as well as to the members of the Audit & Accountability Committee).

None of them are pretty. Scenario #1 shows that to fully fund the spending indicated in the Five Year Forecast with a levy in 2011 and then again in 2014 (3 year interval), the levy would need to be on the order of 11 mills.  I’m quite sure that’s a non-starter, so something has to be adjusted.

Scenario #2 shows that if we drop the levy interval back to 2 years (2011, 2013, 2015), the size of the levy would still need to be on the order of 9 mills.  I don’t think that would fly either.

In fact, Scenario #3 shows that if we passed a levy every year, it would take nearly 6 mills each time to cover the spending as has been forecasted.

Clearly we have to start looking at reducing the rate of spending growth, and that means the rate of compensation and benefits growth. Scenario #4 shows comp+benefits growth limited to 2% per year, adjusted by the forecasted growth in students. A 2% annual growth rate in comp+benefits is about what it takes to cover the current step increase schedule as long as base pay continues to be frozen. With a three year levy interval, the size would need to be 8 mills in 2011 and 2014.

That’s still a pretty big gulp. It’s maybe something the community would have bought into had we spent the last few years better educating our community about school economics – something I’ve been harping about for a very long time. But I don’t think there’s much of a chance of passing an 8 mill levy given the general lack of understanding about these matters.

So Scenario #5 also looks at limiting comp+benefits growth to 2% per year, but assumes that a levy is passed every two years. In that case, each levy would have to be on the order of 6.5 mills. Scenario #6 looks at an annual levy schedule, and shows that it would have to be 4 mills each year.

Scenario #8 asks this question: If we wanted levies to be no more than 5 mills, and no more frequent than every three years, what is the rate of comp+benefits cost increases that can be supported?  The answer is 0.6% - essentially frozen at today’s cost. No base pay increases and no step increases. We would also have to talk about how to apportion increases in health care costs.

I reject the assertion that the only choice available to us is to fully fund the Five Year Forecast as presented, or to suffer programming cuts. However, this is exactly the choice that has been presented to the community in the past.

There is another range of solutions that involve examining ways to preserve staffing levels and programs (which are nearly synonymous) yet lower costs. One of those is to look at the possibilities for lowering our per-headcount cost.

You might wonder how I can reconcile that with my statement above that says that I am not at this time advocating pay cuts. To understand my thinking, perhaps this chart will help:

click to enlarge

This is a histogram showing how many HEA members were in various base pay bands as of January 2010. You’ll notice that 55% of the HEA members are paid $70,000/yr or more, and 32% are paid $80,000 or more. Is it possible that we could, jointly with the HEA, create a buy-out program which could make sense for everyone, allowing highly paid teachers to be replaced with teachers at the beginning of their careers (and there are lots of them looking for jobs right now)?   The State Teachers Retirement System doesn’t make this easy, but there are changes on the horizon for STRS that may open a short-lived window that could motivate teachers near retirement to be willing to accelerate their retirement given the right deal, which would also have to be one that makes sense for the school district. We have to run the numbers and find out.

The conversation this time around has to be more involved than “pass the levy or we’ll cut extracurriculars and busing.”  The discussion at the next Board meeting will be a start.

I hope you will come and participate.

Monday, November 1, 2010

Tomorrow's Levy Votes

With it being likely that the Hilliard School Board will place an operating levy on the ballot in May, it will be interesting to see what happens with the several school levies which will be on the ballot tomorrow:

New Permanent Levies: (last forever)
  • Bexley: 6.5 mills   PASSED with 60% of vote
  • Gahanna Jefferson: 6.8  FAILED  getting 49% of the vote
  • Grandview Heights: 3.9 mills plus a 2.0 mill Permanent Improvements levy PASSED with 65% of vote
Renewal Levy: Madison Plains, 8 mills, expiring after three years (keeps collecting at current effective rate) PASSED with 56% of vote

Replacement Levy: Pickerington, 8 mills, permanent (a prior levy expires, but is replaced with a new one which lasts forever)  FAILED  getting 49% of the vote

Bond Levy: Groveport Madison, $114 million (to be collected at approximately 6.7 mills for 38 years) FAILED  getting 45% of the vote

Bexley's levy passed by a considerable margin for a school levy, but Bexley is an affluent community and generally gives the schools what they ask for.  Same thing for Grandview Heights.

Madison Plains passed their renewal, which keeps their tax burden the same (ie - their taxes would have gone down had the levy failed). Notice that they put a time-limited levy on the ballot again, meaning that the taxpayers will in three years again have a voice whether to keep sending this amount of money to their schools. I think that increases accountability and forces better communications. Good for them.

Interesting that neither Gahanna nor Pickerington passed their levies. Those communities are much like Hilliard - rapidly growing, relatively affluent bedroom communities without much growth in their commercial tax base to help fund the schools. That means the homeowners are bearing all the burden of growing personnel costs.

The question now will be how the leadership of those districts will deal with the defeat of the levy.  Will they just grit their teeth and try again to push it through?  Will they punish the community with program cuts and service cuts?  Will they approach their unions to see if they can get concessions that will allow a smaller levy to be put on the ballot?

Thursday, October 28, 2010

Fordham Institute: Unraveling Constant School Spending Growth

I encourage you to read this excellent article from the Fordham Institute. It succinctly summarizes the key economic issues affecting Ohio's public education system. Our community needs to be talking about this in the next couple of months, before the Board decides - in January - if an operating levy will be on the May ballot, and how large it will be.

We are rapidly running out of road down which to kick the can....

Monday, October 25, 2010

New Five Year Forecast

At tonight’s meeting, the Board of Education approved an update to the Five Year Forecast as published by Treasurer Brian Wilson. Click here for a copy.

I consider the Five Year Forecast to be one of the most important documents published by the Treasurer. It gives the Board, Administration and Employees – and the community – insight as to how the Treasurer sees things going from an economic perspective. Money isn’t the most important thing for a school district to be concerned about, but it’s the gas in our tank. No matter how good the race car, the driver, and the crew, you can’t win the race if you run out of gas.

The fuel strategy is critical for an auto racing team. They have to figure out how to run fast enough to have a chance of crossing the finish line first, but yet not run so fast so as to burn fuel at a rate that forces them to make pit stops for gas too frequently, which costs time and position. It’s impossible to win a race without a good fuel management strategy.

Same thing with a school district and money. Our financial strategy has to be a combination of management of the rate in which we consume cash, the frequency in which we can ask for more (via an operating levy, which takes an emotional toll on the community), and yet staying near the head of the pack in terms of the quality of the educational experience enjoyed by our kids.

Here are the comments I made in regard to this most recent forecast:

Tonight, we are considering the approval of a Five Year Forecast to deal with a technicality* associated with executing the 1 year extension of the contracts with the Hilliard Education Association and OAPSE.

The Board still needs to have a discussion about whether there will be a levy on the ballot in May – I believe there will need to be – what size that levy will need to be, and how it will be structured.

While projected growth in student population is always a concern, I believe that in this next levy cycle the two factors that will be most significant in our planning are – first – how funding by the State of Ohio may change, and – secondly – the pace in which we will allow our spending to grow.

We have little control or even influence over how the leaders of our State will choose to deal with a revenue vs spending gap that is on the order of $8 BILLION in the next State budget. We hope to learn more about how the wind is blowing during the annual meeting of the Ohio School Boards Association in a couple of weeks.

But the rate in which we allow spending to grow IS something we can address within our community. It’s largely a conversation about compensation, benefits, and headcount, and will require all of our stakeholder groups – parents, employees, homeowners, businesses, and the municipal governments – to engage in a well-informed, empathetic and respectful dialog about how to go forward in an economic and political climate that seems destined to shift more and more of the public school funding burden to the suburban communities.

I look forward to having that conversation. The Breakfast with the Board which Lisa has organized is a great opportunity for the people of our community to ask questions and make their views known.

* The technicality is that Ohio law prohibits a School Board from signing a multi-year agreement which spans a year in which the Five Year Forecast projects a negative cash balance. In the prior Forecast, this was the case with FY12, because the one year contract extensions signed by the two unions reach into FY12. Therefore a slight adjustment has been made so as to show the FY12 year end cash balance to be zero.

Friday, October 22, 2010

Breakfast with the Board

(RC 3313.16)

Notice is hereby given; there will be a SPECIAL meeting of the Board of Education of the Hilliard City School District on SATURDAY, NOVEMBER 20, 2010 from 9:00 A.M. until 10:30 A.M. located at Hilliard City Schools Administration Annex, 5323 Scioto Darby Road, Hilliard, Ohio. The meeting will be informal conversation in which community members are invited to sit down with board members in a casual setting to share ideas, express concerns or ask questions concerning the school district and no further business will be transacted.

The meeting is called by Brian W. Wilson, Treasurer/CFO of the Hilliard City School District Board of Education, at the direction of the President of said Board.

October 22, 2010


Brian W. Wilson, Treasurer/CFO
Hilliard City School District
Board of Education

Monday, October 11, 2010

OAPSE Contract Extension

At tonight's meeting of the Hilliard Board of Education, the Board voted unanimously to accept an agreement with the members of OAPSE* that will freeze their base pay and step increases for calendar year 2011. During the discussion of the motion, I thanked the OAPSE members for joining the HEA in taking a 'time out' while we all wait to see how our state leaders - whomever they turn out to be - figure out how to deal with the state budget disaster looming before us.

Well done to Superintendent Dale McVey and his team for leading this process.

* Ohio Association of Public School Employees, which in our district 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

Tuesday, September 28, 2010

Teacher Contract Extension

If you have not already done so, I recommend reading an earlier article I posted titled "Teacher Salary History," to help understand some of the terms and concepts used in this article.

At the Board of Education meeting held Monday, September 27, 2010, the Board passed unanimously a resolution authorizing President Andy Teater and Superintendent Dale McVey to sign an extension to the Master Agreement between the Board of Education and the teachers' union, the Hilliard Education Foundation (HEA). The terms of this extension are straightforward:
  1. The current base salary of $38,362 will remain in effect through December 31, 2011, an extension of one year.
  2. While HEA members have already received their step increases for the 2010-2011 school year, the step increases for the 2011-2012 school year will be delayed six months – until December 31, 2011.
  3. All other provisions of the 2008-2010 Master Agreement remain in effect.
As is obvious with the vote being unanimous, I voted in favor of this contract extension, reading the following into the record:
I would like to say thanks to the members of the Hilliard Education Association for agreeing to this one year contract extension at no base pay increase and a delay in the next step increase.

It has taken many years of hard work and community support to build one of the finest school systems in our State. Hard work on the part of the teachers, students, parents, staff and administrators, and financial support from all those – homeowners and businesses alike – who have continued to generously fund the mission of this district.

This is a time of great uncertainty for our school district, our community, our State and our Country. I suspect that nearly all of us know a neighbor who has lost their job and is struggling to avoid losing their home as well, often at the expense of their already-battered retirement savings. Many more have seen their pay reduced – enough to force unpleasant changes to their lifestyle.

And we have a state government that is seemingly clueless as to how they will deal with a mismatch between revenue and spending that is reportedly on the order of $8 BILLION over the next two years. Balancing the state budget will require spending cuts of a magnitude that are not easily comprehensible.

Without question, the State will solve some of its problems by decreasing its funding to districts like ours – districts which most members of the General Assembly view as having more than enough local financial resources to cover any reduction in state funding. I'm sure we all took note when at the dedication of Bradley High School, Governor Strickland thanked us for constructing that building without benefit of state money. The people who run our State think there is more money where that came from.

The state budget situation is going to hurt us in the wallet – we just don't know how badly yet. While we wait to see what happens after the November elections, I appreciate that the HEA understands the situation, and is willing to stand by until the funding picture becomes clearer.

A year from now, we'll be right back at the table with the HEA, trying to decide whether to tack on another year of extension to the 2008-2010 contract, or whether it is time to dig deeper into the relationship and negotiate a new master agreement. What will we know then that we don't know now?

For one thing, we'll know the outcome of this November's elections. Will Governor Strickland be reelected, or will John Kasich be our new Governor? Regardless of who is elected, they'll have the same immediate budget crisis to fix. No matter what strategy the next Governor might have for generating new revenue, I have little doubt that the Governor and General Assembly will have to implement drastic spending cuts. Forecasting revenue gains is an exercise in speculation; spending cuts are definite and immediate.

What will happen at the Federal level?

Hilliard City School is slated to receive a one-time shot of $1,856,748 from the Education Jobs Fund legislation passed by Congress in August 2010. If the Democrats hold power in Washington, will there be more of this kind of funding coming down the pike? If the Republicans take the majority in either or both of the houses, will it be the end of such Federal largess?

I'm assuming what some will call the worst case – that neither the State nor Federal governments will be sending any money our way in excess of our current funding. In fact, I'm relatively confident that our State funding will continue to decrease in the next few years.

This will bring great financial pressure to our school district, and will force us to strip away all the ancillary conversations and deal with the central equation:

The amount we must pay in local property taxes is directly determined by the compensation and benefits negotiated into the contracts with our teachers, staff and administrators.

The next big issue we all must deal with is balancing our own budget for the school district. While FY2011 looks to be generally okay, the Five Year Forecast paints a picture every bit as scary as of the State's budget. As it stands, the Forecast shows an accumulated deficit of $55 million by the end of FY2014 (the year ending June 30, 2014).

To cover that solely with new local taxes, and with no reductions in forecasted spending, would require a levy on the order of 7.6 mills to be passed in May 2011 in order to end FY2014 with zero money in the bank. To restore a 10% cash reserve, as is Board policy, the levy would need to be 10 mills.

Even if we held spending to FY2011 levels (the year we're in right now), we would still need approximately 1.75 mills just to run out of money at the end of FY2014. To end FY2014 with a 10% cash reserve requires a 4 mill levy this May – if we were to hold spending at FY2011 levels for the next three years. This is because we are already spending more than we take in – to the tune of $5 million this year.

The implications of that statement are clear: for there not to be a levy on the ballot in May, we would have to cut annual spending by at least $5 million – more if we think funding from the State is going to diminish, and I do.

I accept that there will be a levy on the May ballot. The question is how large it will be.

This is where you come in. You have to participate in the discussion of what this school district is going to look like in the coming years, and how much we are collectively willing to pay to make it so. Central to this will be the parameters of the collective bargain agreements with the unions representing the teachers and staff of the district, as well as the administrative contracts.

Sitting at home fuming over newspaper and blog articles won't help. Bitching about things with your neighbors doesn't cut it. Comments made on this blog article are helpful, but we frankly don't hear from enough folks – a small fraction of the total number of readers.

You need to come to Board meetings and speak during the time for public participation, write letters to the Board, submit letters to the editors of our weekly newspapers, and rally your neighbors to do the same. Your elected representatives serve you best when we understand what you want.

Democracy is not a spectator sport...

Tuesday, September 14, 2010

Issue 4 – Levy for the Columbus Metropolitan Library

Item F2 on last night's Board of Education agenda was a resolution "that the Board of Education support Issue 4 for the Columbus Metropolitan Library." I voted NO on this resolution, which passed by a 3-1 vote (Board member Dave Lundregan was out of town on business). During the time for discussion on this item, I read the following statement into the record:

While I am both a user and fan of the Columbus Metropolitan Library System, I cannot support the levy they are bringing to the voters this November as Issue 4, which would triple the amount of property taxes collected from Franklin County property owners. My reasons are as follows:
  1. The forecast provided by Mr. Losinski indicates that the intention is to grow the spending for Salaries and Benefits at a rate of 4.7% per year - for the next 10 years. Of the $90m of new spending planned over the next 10 years if this levy passes, $85m or 95% will be applied to salaries and benefits.

    While I believe that it is appropriate to raise enough money via additional property taxes so that the employees of the library system could be awarded increases in salaries and benefits over the next 2-3 years that are in alignment with the general condition of the economy in our region, a CAGR of 4.7% for ten years for salaries and benefits is not in alignment with our current general economic conditions.
  2. Mr. Losinki's forecast also shows their reserve balance rising from $5 million in 2011 to a peak of $37 million in 2016. I understand how levy funding works, building a surplus in the early years which is drawn down in later years as spending continues to increase.

    But in this case, the library system management is asking the taxpayers to trust the library system to hold tens of millions of dollars of taxpayer money, and consume it at the pace and for the purposes they are committing to right now. As honorable as I believe the library system's leadership to be, things change, and future leaders could easily decide to spend the money differently, or more quickly, and would not need voter approval to do so. It will very hard to not spend that $30 million reserve when it's just sitting there, which would leave future years underfunded and generating the cry for still more tax money.

    As challenging as levy campaigns may be, I believe that it is better to ask the taxpayers to fund a maximum of the next 3-4 years, and then see what things look like when we get there. I feel this is especially the case when the public entity is asking for a permanent levy, as is the case here, rather than one which will automatically come up for renewal at some point in the future.
So I reiterate that I am a fan and supporter of the Columbus Metropolitan Library System, and would support a levy that funds a lower rate of growth for personnel costs, and fewer years of operation. The future is too uncertain to make this kind of commitment right now, in my opinion.

So if the Library is asking simply to replace a 2.2 mill levy we're already paying, why do I say that this vote would result in a tripling of the amount of property taxes we pay to the Library?

It has to do with a state law – ORC 319.301 – commonly referred to by the education community as "HB920," which says that once a levy is passed, the amount of tax it collects on pieces of property that existed at the point in time when the levy was passed will never go up. It is enacted by adjusting the "effective millage" of a levy downward when the County Auditor increases the assessed value of a piece of property (owners of property constructed after the levy passes also pay this effective rate).

That has happened with this levy. When it was originally passed in 1986, it collected $67.37 for each $100,000 of property value. In 2010, that same levy is collecting $22.97 for each $100,000 of property value.

But that doesn't mean the amount of money being collected has gone down!

If you had a home valued by the County Auditor at $100,000 in 1986, you paid $67.37 in property taxes to the Library due to this levy. And in 2010, you will still be paying $67.37/yr to the Library. However, your property will have increased in value (in the eyes of the County Auditor) to $295,000. Without the protection of ORC 319.301 (HB920), the amount you would be paying to the Library annually would have increased to nearly $200/yr without you having any say in the matter.

When an expiring levy is replaced, as is the case with Issue 4, the prior adjustments are wiped out, and the millage rate is restored to full value. Therefore passage of this levy will increase your property taxes from $22.97/yr per $100,000 of current value to $67.37/yr per $100,000 of current value.

The library is also asking for an additional 0.6 mills, bring the total new tax rate to $85.75/yr per $100,000 of current value. So I was understating the situation by saying it would triple the amount of money going to the Library system. It's actually 3.7 times the current rate.

The Library system also wants to end the practice of asking for levies which have to be renewed every so often. This request is for a "permanent levy," which means that, if it passes, it will collect $85.75/yr per $100,000 of 2010 property values forever.

Here is the source data I used to make my analysis. It was provided by Patrick Losinski, the Executive Director of the Columbus Metropolitan Library.

Any questions or comments about my vote?

Tuesday, September 7, 2010

How much money did we get?

Here's a cool website that came to my attention via Colleen Grady over at the State of Ohio Education blog:

I've not spent any time looking at it yet, but will include it on my list of favorite links to the right.

Wednesday, August 18, 2010

Anderson Meadows TIF – What I Really Said

The Board of Education and Administration of Hilliard City Schools has been paying a great deal of attention to a residential development in the City of Hilliard called Anderson Meadows, which is being planned for the northeast corner of Roberts Rd and Alton-Darby Rd. Part of this development would be single family homes and the rest would be multi-family housing, similar to the Tremont Club on Davidson Rd.

The Hilliard Northwest News covered the City Council meeting this week during which this development was discussed. However, their story didn't adequately describe the situation, in my opinion.

It's not that the development itself is of particular concern; it's that the City of Hilliard is asking the developer to front the cost of the realignment of the Roberts/Alton-Darby intersection, with the promise that the developer will be reimbursed through the redirection of property taxes that will be collected on this property.

Such an arrangement is called Tax Increment Financing, or a "TIF."

That may sound like a reasonable way to finance this road project, until one takes note that the property tax revenue the City would be redirecting is not the City's revenue in the first place. While the City of Hilliard does collect a small amount of property taxes – about $50 per year for each $100,000 in market value – the City's primary revenue source is the income taxes paid by people who work in the city limits.

However, property taxes are the key source of income for the school district, which receives about 64% of our property tax dollars. The townships and county agencies, who collectively receive about 30% of our property tax dollars, also receive most of their funding from property taxes.

So if this piece of property were appraised at a market value of $10 million (I don't know exactly what the post-development value will be – this is a guess for illustration purposes only), if 75% of its property taxes are redirected via a TIF, the City loses $5,000/yr of property tax revenue, but gets a significant new piece of infrastructure (the road realignment) for free.

However, the school district would lose out on $150,000/yr in property taxes – money that should go towards the operation of the school district, but would instead be applied to the cost of this road construction project.

The first draft I saw of the proposed TIF for Anderson Meadows would have redirected 75% of the property taxes to the TIF. This 75% is a magic number. The Ohio Revised Code 5709.40(B) requires a municipality to gain approval of the School Board if the TIF is for a residential development and the amount is more than 75%. But up to that limit, the City is allowed to redirect however much it wants regardless of the wishes of the School Board.

After hearing objections from both the Norwich Township trustees and the Hilliard School Board, a second version of the TIF was drafted: one that would keep the school district whole – a so-called "Non-School TIF," but which still would have redirected funding away from the township and county agencies.

But at its recent retreat, the City Council members came up with other variations. One that seems to be of interest to them is to create two TIFs, one for the single-family home portion of the development, and one for the multi-family home portion. The single-family portion would get a non-school TIF (no redirection of school taxes), while the multi-family portion would have a TIF applied that redirects 75% the funding for the schools, the township and other agencies.

The logic of this is that the single-family homes are likely to house school age kids, so the property taxes should be allowed to flow to the school district to help fund the cost of educating those kids. And since there will not likely be any school age kids in the multi-family section, a redirection of school taxes for this section is apparently seen by the Council members to cause no harm.

But this is flawed logic.

It doesn't matter whether or not a new piece of real estate generates school age kids. The point is that it generates revenue that should be used to ease the property tax burden on the rest of us. In fact, the best kind of new real estate development is the kind that generates property taxes but no kids – such as commercial developments or retirement communities.

Let's make it clear: This road realignment project, if it goes forward, is going to be paid for with taxpayer money. The only question is which elected officials are going to get the blame for raising your taxes. The use of a TIF allows the Mayor and City Council to shift the burden to the School Board and the Township Trustees.

Norwich Township Trustee Chuck Buck told the City Council that he and the other Norwich Township Trustees feel that TIFs are bad public policy, and don't think they should be used in this way. Instead, he suggested that if the City wants this road project, they should put a bond levy on the ballot and let the Hilliard taxpayers decide if they were willing to pay for it.

I think this is a wise suggestion, and I completely agree with Mr. Buck.

Council President Brett Sciotto replied that it was the Ohio General Assembly which granted municipalities the right to use TIFs. Mr. Sciotto is technically correct, but that doesn't mean the City should use one in this manner.

So, bottom line:
  1. Do I personally oppose the development of Anderson Meadows? No.

    I am a real estate investor myself, and do not wish to impede the ability of a developer to make an honest buck in this horrible economy. But that development project cannot profit the developer at the expense of the taxpayers of this community, at least not without their consent.
  2. Do I think this road alignment project is a good thing? Yes.

    I've lived west of this intersection for more than 20 years. It will be nice to see the 'jog' finally taken out. Too bad it won't be a roundabout – it's a great place for one.
  3. Do I think it should be paid for by redirecting money away from the school district, the township, and other county agencies, forcing those political entities to be the 'bad guys' by asking voters for more tax money? Absolutely not.

    Each of these political entities has its role in our community, and depends on the funding sources created by law to carry them out. It is not the role of the school district to fund road improvements.
If you agree with me, please let Mayor Schonhardt and the City Council know as soon as possible, as they will bringing this resolution back before the council at their meeting next Monday, August 23 at 7pm. Better yet, come to their committee meeting at 5:30pm, prior to the full Council meeting, and let them know in person how you feel.

Saturday, July 31, 2010

Fee or Tax?

This article was prompted by a recent posting by Colleen Grady of the State of Ohio Education blog.

It won't be long now before school opens for the 2010-2011 school year. Of the many traditions which will be carried out in the first few days, one troubles me: the imposition of fees on our students and their families.

At the May 24, 2010 Regular Meeting of the Board of Education, resolution 64-10 was passed unanimously, authorizing the Administration to collect a long list of fees for various academic courses. I voted in favor of this resolution not because I think these fees are a good thing, but rather because I couldn't see any way before the start of the school year to replace the approximately $1 million that is collected through the fee program. However, during the discussion time for this resolution, I made the comment that I wish such fees didn't exist, and that I would like to see the Board and Administration explore a budget that does not require such fees.

No student in our school district escapes fees. The PreSchoolers each pay $15/yr, and Kindergarten through 6th grade kids pay $30/yr. At 7th grade it bumps up quite a bit, to $73, adding on fees for Arts, Social Studies and Physical Education uniforms. The 8th grade fees aren't so much, but kid have to pay to take foreign languages (from $14 for French to $22 for German).

At the high school level, the fees a student pays are directly related to the courses scheduled. The fee amounts range from $4 for Astronomy to $120 for a course called "Liberal Democracy in America" (see High School Program of Studies, page 58, and the Kenyon College syllabus for the course).

Across a population of 15,000+ students, to collect $1 million/yr in fees means about $60/kid. But about 70% of our students are in kindergarten to 8th grade, where the fees are $30-40/yr. This means the high schoolers are each paying on the average somewhere around $140/yr in fees.

Here's my problem with these fees: We're either a public school system, or we're not.

I'm not so sure our current system of organizing and funding public schools is the best we can do, but it's the system we have right now. It goes pretty much like this:
  • Public school districts are granted an exclusive service territory by the State government. Every square inch of Ohio is part of some public school district. Where you live determines which school district you are a part of. The only way you can change your assigned public school district is to move.

    This is my first point of concern. Elizabeth Warren once said that one of the reasons Americans have pushed themselves so much into debt is that the price of admission to a good school district is an expensive house. I think this is a profound observation, and more people need to hear and understand it.

    It is no longer legal in America to segregate or discriminate based on race, creed, color, age or gender, but we can and do certainly discriminate based on wealth. By the way, before you hang any particular pejorative labels on me because of that statement, please understand that I believe that appropriately regulated free market capitalism is the best way to address most economic questions. Less government, not more.
  • If you have a child of compulsory school age, you are required by law to send that child to the public school or a chartered nonpublic school (e.g. parochial schools).
  • However, only the public school districts have the authority to levy taxes to fund their operations. Public charter schools are eligible to receive State funding. Chartered nonpublic schools receive no tax-originated funding.

    If you own property, you pay property taxes to the public school district. If you are a renter, your landlord pays property taxes on the property you live in and passes the cost on to you. A number of public school districts also levy income taxes on its residences. You can't opt out of these taxes by claiming you don't have kids, or that your kids attend a chartered nonpublic school.
  • The State of Ohio collects income taxes, sales taxes, commercial activity taxes, etc a redistributes some of that money to all the public school districts in Ohio.

    This topic is substantial by itself. For the purposes of this article, let's leave it that this money is redistributed from districts with high recognized land values to districts with low recognized land values.
The net of this is that everyone lives in a public school district and everyone pays taxes to operate them. Like it or not, that's what we've got right now.

So I don't understand the purpose of these fees which are levied on students. It seems to me that they are just an additional tax levied on only those with kids. So which is it: everyone chips to operate our public schools, or only folks with kids? Seems like we have a little of each. We collectively allowed this tax to sneak into the system, misdirected perhaps by having them labeled as "fees" instead of "usage taxes."

Here's my point: if a primary argument for having a public school system is to ensure that all kids get an equal opportunity based on ability, then doesn't the levying of these fees/taxes violate that objective? It seems that if there is just one case of a kid being denied the opportunity to take a class or participate in an activity because of inability to pay the fee/tax, then we have failed to live up to this core principle. This must be an actual – not hypothetical – concern: in the December 2009 issue of the Hilliard Bradley Bulletin, the Bradley PTO announces the creation of a "Benevolent Fund" with the following mission:
"The Benevolent Fund has been put in place to offer financial assistance to Bradley students in need. These funds will be made available when no other community resources are obtainable. Our goal is to help our students whose needs have fallen through the crack." Specifically, it says that money from the Fund may be used to: "help pay other fees that may prevent a student from an opportunity for success here at Bradley High School."
The bottom line is that I think we should end the practice of collecting academic, athletic and activity fees, and instead fold these expenses into those which are paid via our normal tax-supported revenue sources. If the current fees total $1 million per year, we would have to raise our taxes by four tenths of a mill to cover the amount ($13/yr per $100,000 of home value). Or we could reduce other expenses by $1 million (remember that 88% of our expenses are compensation and benefits).

What are your thoughts? You can let me know via comments here, or you are welcome to send an email.

Tuesday, July 20, 2010

New Layout

Hope you like the new layout. Maybe a little easier on the eyes.

Sunday, July 11, 2010

Teacher Salary History

As readers of this blog well know, the labor agreements between Hilliard City Schools and the unions representing most of the employees will expire on December 31, 2010. The compensation terms negotiated into the new agreements will be the major factor in determining the size and timing of the next operating levy. Actually, because our labor agreements typically span several years, they may well determine the size and timing of the next two levies.

It may be worth a moment to review the compensation structure defined in these labor agreements. I'll focus on the agreement with the teacher's union – the Hilliard Education Association (HEA) – as it has the simpler structure of the two agreements (click here for a discussion of the OAPSE agreement).

As the illustration above shows, the compensation structure can be thought of as three-dimensional. For each year, a base salary is set: in 2008 for example, the base teacher salary was $36,160. This represents the salary that would be paid to a teacher with a Bachelor's degree and no experience.

From there, a grid is developed in which the columns represent greater levels of education for the teacher, and the rows represent years of service. The HEA agreement has columns for Bachelor's Degree, Bachelor's Degree and 150 total credit hours, Masters Degree, and Masters Degree plus 15 additional credit hours. As one works across the columns, the 2008-2010 HEA Agreement specifies that the salary goes up 6% for each educational level.

So in 2008, a teacher starting with a BA and no experience would have been paid $36,160 – the base salary. If that teacher had a BA with at least 150 total credits hours, the pay would have been 6% more, or $38,330. If that teacher had a Masters degree, the salary would have been another 6% more, or $40,499. And finally, if that teacher had a Masters degree plus 15 hours of additional credit, the salary would have been $42,669 – another 6% more.

Note that the degree requirements for each column are not uniform across all school districts. Some have more columns, and some grant additional compensation for higher levels of education, such as Masters plus 30 hours, or a PhD/EdD. Nor is the size of the increase granted for each educational level uniform. Ours happen to be 6% for each level, but other districts have smaller or larger increases specified in their contracts.

The rows specify the additional salary paid to a teacher for years of service. These are customarily called the step increase. As is the case with the columns, step increases are uniquely defined in each school district. The HEA contract is pretty simple – an additional 4.15% is granted each year through 15 years of service, then again in the 20th and 23rd years. After the 23rd year, there are no further step increases, meaning that the only way for our more senior teachers to receive a salary increase is to add to their educational level, or to have the base pay increase. Currently, about 65% of the HEA members receive step increases – the other 35% are in a year of service in which no step increase is specified.

As far as compensation is concerned, the practice here in Hilliard has been to change only the base pay from year to year, and to leave the steps and education increases alone. The amount that gets negotiated for the base pay increase is typically all that has been communicated to the public in the past. Here is what those increases have been for the past several years:

2003: 3.75%
2004: 3.75%
2005: 3.50%
2006: 3.65%
2007: 3.65%
2008: 3.00%
2009: 3.00%
2010: 3.00%

It is important to note that the base pay increase and step increase compound to arrive at the final salary for any particular year. For example, a teacher with ten years of experience in 2003 became a teacher with eleven years of experience in 2004. Using the historical numbers above, a teacher with ten years of experience in 2003 would have been paid 8.06% more in 2004. Taken directly from the contracts (available here), the 2003 pay of a ten year teacher with a Masters degree would have been $51,187. In 2004, that same teacher – now with eleven years of service – would have been paid $55,310, an increase of $4,123.

One more example: A teacher with a BA and 7 years of experience in 2002 would have been paid $38,991. In 2010, that same teacher would have 15 years of experience, and would be paid $70,598. This is equal to annual raises of 7.7% in each of the years between 2002 and 2010.

Ohio's current teacher licensing requirements mandate that a teacher must begin graduate studies no later than the fifth year of teaching, and must earn a Masters degree by the tenth year. So let's modify this scenario to take the educational level into account as well. Assume once again that the teacher in 2002 had a BA and 7 years of experience. Then in 2004, the teacher would reach the BA+ level. That would have meant that in the 2004 the teacher would have received the 3.75% base pay increase, the 4.15% step increase, and the 6% increase for advancing in education. This would put the teachers' 2004 pay at $46,333, or 14.5% over 2003.

By the 15th year of service in 2010, this hypothetic teacher would have a Masters degree, and the salary would be $79,072. During the span of years between 2002 and 2010, this teachers' salary would increase at an annual rate of 9.24%.

Because the entire pay grid is derived from the base salary, when the base salary increases, so does the maximum salary. In 2002, the maximum salary was $69,092. For 2010, the maximum salary is $90,362.

The chart below depicts the base pay, maximum pay, and two scenarios. The line labeled "Typical" is for a teacher who would have had a BA and 7 years of service in 2002, and reached MA+ level in the 15th year, 2010. The line labeled "New" is for a teacher who began the first year of teaching in 2002 with a BA, and reaches BA+ in 2010.

click to enlarge

One other compensation change which needs to be mentioned relates to the cost of health insurance. In the 2008-2010 contract, the union employees agreed to pay part of the premium for health insurance. Prior to 2008, the employees made no contribution at all to the cost of health insurance. For 2010, their contribution is 10% of the actual premium, or $122.10 per month (capped at $135.52/mo) for family coverage.

Teachers do not participate in Social Security, and instead have their retirement benefits paid by the State Teachers Retirement System. Contributions to fund STRS are made by both the teacher and the school district with the teacher is working. Currently, the teacher contributes 10% of their salary, and the school district contributes another 14%. The fiscal stability of STRS has been called into question, and the proposals being made to 'fix' the system include an increase to the contribution rate for both employers and employees. The timing and amount are yet to be worked out, but the proposals suggest that the employer – the school districts – and the teachers will each be asked to contribute an additional 2.5% of salaries on a schedule to be phased in over five years.

Overall, the benefits for employees add another 34% of salaries.

In May, Treasurer Brian Wilson updated our Five Year Forecast. In constructing this forecast, he assumed that there would be no base pay increase for the years 2011-2013. However, the total salary expenditure for  the current employees would still increase 2.3% each year due to step increases, assuming the current step formula is used. In 2011 - the coming school year - he assumes there will be a net reduction of $700,000 in salaries - presumably through layoffs. For 2012 and 2013, he is assuming that we will add a net $200,000 in new employee salary dollars each year. In 2013, an additional $1 million in new salaries are assumed to be required to hire sufficient teachers to provide full-day Kindergarten, as mandated by state law.

Adding on the cost of benefits, and Mr. Wilson forecasts that our total cost of compensation, which was $131 million in 2009, will rise to $155 million in 2013 - an increase in annual spending of $24 million.

The levy math is straightforward: Each additional mill of property taxes generates $2.4 million more money for the schools, and costs $30/yr for each $100,000 in home value. If our spending is going to increase by $24 million/year, then by 2013 we'll need 10 mills of additional property tax income - or $300 more for each $100,000 in home value - to fund it.

However, we can't wait until 2013 - the Five Year Forecast shows the District running out of cash in 2012, and so as has been reported in the news, an operating levy request is very likely to be on the ballot in 2011.

On top of this, there are real concerns about the stability of our funding from the State of Ohio. We already know that the State will be reducing our funding by $12 million/yr as they phase out the reimbursement for the elimination of Tangible Personal Property tax. Replacement of that alone would require 5 mills of new property taxes. Our FY10 and FY11 revenue includes close to 1 mill worth of funding each year from the Federal stimulus money. That too will have to be replaced if we want to spend at forecasted levels.

There has been no time in recent history when the fiscal future of our school district was less clear. As a community, we need to figure out how much we're willing to pay in additional property taxes to fund the operations of our schools.

If your answer is zero, then please offer suggestions for what needs to be cut to reduce spending. Opinions without basis in fact or understanding don't help. For example, one thing I hear often is a variation on this theme: "What about all those big school buses that run past my house carrying only a few kids?"  I tell people who say this that if they followed those buses a little further, they would be completely empty!  Designing a transportation system that moves thousands of kids from their neighborhoods to all the various schools in a reasonable period of time while keeping costs minimized is a complex task, and I think our transportation team is pretty good at what they do.

To be sure, there is always a way to reduce spending in a budget as large as this. But when nearly 90% of the spending is for salaries and benefits, any real cost reduction has to come from reducing pay increases and/or employing fewer people. This is why the upcoming union contract negotiations are so critical to the health of our school district.

Adding to the challenge, the State of Ohio may yet surprise us with further funding cuts. We should begin to think now how we will apportion this risk among the stakeholders of our district, including students, employees, suppliers and taxpayers. No one group - e.g. the taxpayers - should bear the full weight of this risk alone.

Sunday, June 20, 2010


The opening presentation of this year's annual Board Retreat was that of the Board's Audit & Accountability Committee.

The Board established the Audit & Accountability Committee in the Fall of 2008, during the period leading up to the vote on the 6.9 mill Permanent Operating Levy, which was passed in November 2008. The members of the Committee were named in February 2009, and they have been working very intently on their assigned mission, meeting much more often than is specified in their charter.

The Committee's latest report touched on five areas:

1. Assessment of the 2009 State Auditor's Report and Management Letters
2. Benchmarking Analysis of Costs – Update
3. 2010 Five-Year Forecast – Review and Recommendation
4. Strategic Performance Objectives and Measures
5. Compensation Expense

Three times in their report, the Committee said that the past rate of operating expense growth in our school district is "not sustainable" going forward:

Page 2: In conclusion, while the Audit and Accountability Committee commends the District for reducing costs per student for 2009, the past expense growth rate significantly above CPI rates is not sustainable.

Page 3: The rate of growth in costs is simply not sustainable nor supported by current economic factors.

Page 5: As we indicated in our previous report and again in this report, the current rate of expense increases is unsustainable.

They closed their report with this statement:

In summary, compensation expense is the driving force of education costs in all districts. In HCSD compensation currently comprises over 87% of total District expenses. While it is important that the Administration continually watch all costs, compensation expense for Administrators, teachers and support staff is the only expenditure that "moves the needle". As the District works through the difficult economic circumstances and the strategic matters raised in this report, we recommend that all employees of the District participate in the development of solutions. Equitably sharing the duty of implementing solutions, financial and otherwise, will be important to community acceptance.

This is a wise and accurate summary, in my opinion. There is no single cause for the fiscal challenge in which we find ourselves, nor is there an easy solution. While it is indeed true that compensation costs make up most of the budget, and that our costs have been going up at a rate much greater than is typical in our current economy, there are other significant factors at play as well.

The most significant of those 'other factors' is the fiscal maelstrom in which the government of the State of Ohio finds itself. Ohio is not alone. The cover story of Time Magazine this week (Vol 175, No. 25) is titled "The Broken States of America." The writers examine the growing number of states that, if they were private sector industries, would be inclined to declare bankruptcy in order to shed the obligations accumulated from a generation-long spending spree. Those obligations cannot be met without implementing incredibly severe cuts in current and future spending, and raising taxes to a point that could choke off our fragile economy.

Because so much of the State's revenues come from personal and commercial income taxes, when the global economy took a dive, the revenues of the State of Ohio fell dramatically as well. Regardless of the pro-education promises Gov. Strickland made as a candidate, there just isn't enough money coming in for the State to honor all those expectations. The State must cover the ever-growing cost of Medicaid, as well as run the corrections system, which are also primary consumers of State funding. The result has been a manipulation of the public school funding formula such that districts perceived to be 'wealthy,' as is ours, have been left to fend on their own.

In plain English, that means that 100% of the incremental costs of running our school district are being fully borne by the property owners of our community – homeowners and businesses alike.

There are those who argue that the solution is obvious: radical reductions in the rate in which salaries and benefits are rising. The A & A Committee report says it clearly – only the compensation cost component of our budget is large enough such that a change in the rate of growth will make a real difference. I have certainly saying this for a very long time as well.

But we must acknowledge that there are other viewpoints. As one of the School Board's representatives to the A&A Committee, along with Dave Lundregan, I observed their discussions on this point, which are summarized in this statement on page 2:

"The District and community must remain cognizant, however, of the effect on the quality of education provided to students in taking any measures to reduce the growth in costs."

In other words, this isn't a dialog concerning only cost management. We are proud of what is accomplished in our schools, sometimes with national recognition, as was just recently the case with our being named one of 174 "Best Communities for Music Education" in the country. As we go about solving the fiscal problems that face us, few want that to come at the expense of the quality of our schools.

One of the key tactics Gov. Strickland has used to reduce expenditures at the State level has been to lay off one in twelve State workers, in addition to reductions in work hours and mandatory furloughs. This is hardly what one would expect from a Democratic governor, but like our schools district, it is just about the only real choice he has.

And so that brings us to the economics of our school district. As I have written here many times, there are only three knobs that we can turn to adjust our finances:

1. How much more do we want to increase our local property taxes?

As you can see from the following chart, we taxpayers have voted to raise our property taxes at a rate just over 7% per year - since 1975.

click to enlarge

However, as time has passed, the interval between levy requests has shortened. While through most of the 1970s and 1980s, levy requests were seven years apart, we have passed new Permanent Operating Levies in 2000 (4.3 mills effective), 2004 (8.1 mills effective), 2008 (6.9 mills effective) and will have another one on the ballot in 2011. The size is yet to be determined.

2. How much do we want to pay our teachers, staff and administrators?

I have written much about teacher compensation – this article might be a good place to start. According to the CUPP Report generated by the Ohio Dept of Education, our classroom teachers in 2009 had an average salary of $64,703, which ranked 29th highest in the State among 614 districts.

Is that too much, too little, or about right? There will be no unanimity in the answer by any camp – neither teachers, staff, administrators nor the voters. Nonetheless, it will be negotiated this Fall, in secrecy, to a definite answer which will be expressed in new union contracts for teachers and staff, and individual employment contracts for administrators.

If you want to have any influence over this answer, you need to speak up now – right now – before negotiations commence. After negotiations end and the contracts are ratified by the unions, the only decision point remaining will be whether or not the School Board accepts the contracts.

3. To what degree will we accept cuts in programming, services, and staff?After the union contracts have been negotiated and signed, and the vote taken on next levy, the only knob remaining is how many people we employ.

As pointed out by the A&A Committee, the only class of expenditures we have that will 'move the needle' is personnel costs. There is simply no way of enacting millions of dollars in spending reductions without layoffs. And because the union contracts specify that employees are laid off starting with those with the least seniority – and therefore the lowest pay rates – it can require a large number of them to be laid off to reach a cost reduction target.

For example, my analysis suggests that to reduce spending by $1 million/yr, at least 30 employees would need to be laid off (15 FTE). To reduce spending by $10 million/yr would require on the order of 200 to be terminated.

At those levels, painful choices will have to be made. Which extracurricular programs and elective offerings will have to be eliminated? What services will be discontinued? How many more kids will we have in each classroom?

Reaching an acceptable balance of these three factors is quite frankly the most important task our community must undertake in the next few months.

In most ways, our schools define our community. The perceived quality of the schools is why we have chosen to live here, and is a significant factor in the preservation of our property values. Simultaneously, the compensation level we agree to for our school employees is the primary determinant of our property taxes, and every increase makes it harder for people to afford to live here.

I suspect that for things to work out, the school employees will have to accept less than they might like, and the voters will need to accept that they might need to pay more than is comfortable.

We can reach a reasonable agreement if the people of the community engage in the dialog, and the conversation remains respectful and empathetic.

Do you think we can do that without work stoppages, threats of strikes, name calling (on both sides), punitive program cut lists, and all those things which draw our children into the fray?

If it's really "all about the kids," let's show them how the people of one of the best school districts in the country figures out these tough problems. Wouldn't that be a wonderful gift to them – to show them how a community successfully deals with these situations, versus the 'scorched Earth' outcome we see in so many other places.

After all, we're going to leave them plenty of tough problems to solve when they grow up…