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 6^th grade kids pay $30/yr. At 7^th grade it bumps up quite a bit, to $73, adding on fees for Arts, Social Studies and Physical Education uniforms. The 8^th 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 8^th 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.

New Layout

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

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 20^th and 23^rd years. After the 23^rd 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 15^th 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 15^th 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.