Wednesday, December 28, 2011

Who looks at the financials? Any financials?

I suspect that most people who complain about White Hat have never examined the financials of their own public school district.  This isn't really about disclosure, or accountability.

It's about competition.

Monday, December 12, 2011

How Much is Enough?

On December 9, 2011, Colorado State District Court judge Sheila Rappaport, in the case of Lobato v. State of Colorado, issued a court order declaring Colorado's funding system for public schools to be unconstitutional, going on to say:
"Evidence establishes that the finance system must be revised to assure that funding is rationally related to the actual costs of providing a thorough and uniform system of public education. It is also apparent that increased funding will be required."
The Court has given the Governor and the state legislature until the end of the 2012 legislative session to come up with a fix.

Without even attempting to read or understand this case (I'm not a lawyer), I'll assume that that the arguments in this Colorado case have little difference to those raised by DeRolph v. State of Ohio, which was filed almost exactly twenty years ago.

DeRolph was the school funding case that made it to the Ohio Supreme Court, which declared the public school funding system then in use to be unconstitutional. Most people mistakenly believe the Supreme Court declared the use of property taxes to fund schools to be unconstitutional, but that's not at all what they said. Regardless, DeRolph is now moot, as the General Assembly has enacted two  different funding systems since then, and neither has been test by a lawsuit.

It looks like Colorado might be the next state to go down this road. Lobato will undoubtedly be appealed. If it isn't, and their legislature doesn't satisfy the Court's order, it will still raise the constitutional question as to whether the legislative branch in their state can be ordered to do anything by the judicial branch.

Both states have similarly vague, and not very useful constitutional standards in regard to public education. Ohio's Constitution talks about a "thorough and efficient system of common schools"  (Article 6.02), while Colorado's says "thorough and uniform system of public education."

It will be interesting to watch the Colorado case as it progresses. Lots of people would like to know how much a public education should cost and how it should be funded.

So how would we go about figuring that out - what Judge Rappaport called "actual costs" - and where should the money come from?

It seems to me that we first have to go back to the fundamental fact that 80-90% of the money spent on public education (88% in our district) goes to pay for the compensation and benefits of the teachers, staff and administrators who are employed by the school district, and most of that is spent on the teachers.

I'm not saying that's a problem. As long as educational services are delivered primarily by teachers in a classroom, that's where as much of the money as possible should be spent. Everything else should be viewed as support for what happens in the classroom, or as "extras" above and beyond the State requirements.

But how much should teachers be compensated, and how many of them should we employ (in relationship to the number of students)?

The notion of Governor Strickland's "Evidence Based Model" funding approach was that there are clear answers to those questions. The EBM specified how many teachers there should be, and how much they should be paid - at least at a minimum. It also specified how many folks we should have in key administrative and support staff roles, and also what they should get paid.

Here is a copy of our district's PASS report, the document which shows how a school district was funded under the EBM approach. Page 2 of the report spells out how many people we should have in specific job categories. For example, lines 6-12 detail the minimum number of teachers we should have in various categories. The State would then give a district $56,902 of funding per teacher, adjusted by the "Education Challenge Factor," which is essentially another measure of how affluent a district might be. Our ECF was .98509, meaning that the State's contribution would be adjusted to  $56,902 x .98509 = $56,054.

This $56,054 is supposed to cover both compensation and benefits. In our district, the average teacher compensation is $69,369 plus 35% in benefits, or $93,648. So the EBM would cover only 60% of the cost of one of our teachers. The other 40% was our local contribution beyond the State funding.

Of course, Gov. Strickland's EBM was never fully funded, nor was the system it replaced. In the case of Hilliard Schools, and most school districts like ours, the changeover from one system to the next had virtually no impact on the amount of funding we received from the State, due to the effects of the so-called Transitional Aid Guarantee.

Any change in the school funding algorithm creates winners and losers. Since the objective of such a change is always to get more money to the poorest of Ohio's school districts, the winners are usually those districts while the losers are districts like ours. The Transitional Aid Guarantee came to be to prevent there being any such losers - a matter of political expediency rather than good policy.

So if 80-90% of the spending in a school district is on compensation and benefits, is there any data which helps us figure out how many folks we need on staff, and what we should pay them?

How about if we go back to the philosophy of the Empirical (Augenblick) Method, which was the approach used from the early 1990s until it was replaced by Strickland's OEBM in FY2010?  Only this time, let's use only the 81 districts rated as "Excellent with Distinction" in 2009 as the sample set.

The Augenblick Method is to list the per-student spending of the school districts in the sample set, throw out the lowest and highest 5% or so to eliminate outliers, then average the rest. With this algorithm and using 2010 per student spending from the CUPP report, we get $10,026/student as the benchmark number, .

In other words, we don't know how exactly a district should or would spend the money, but it seems like with $10,026/student, any district should be able to achieve a rating of "Excellent with Distinction."

Yet the actual range is quite large. Throwing out the 4 high and 4 low districts (5%), the per-student spending still ranges from $14,733 at Sycamore Schools (Hamilton County) to $7,949 in Wausean Schools (Fulton County). So why can't Sycamore Schools get the job done at $8,000/student/year like Wausean - close to half the cost?

As said before, it's all about how many people the school district employs, and what they are paid.

At Sycamore, the ratio of Regular Education Teachers to Pupils is 17/1. At Wausean, it's 21/1. The average Wausean teacher has 24% more students in the classroom than a Sycamore teacher, yet they both achieve the same rating. So do the Wausean teachers get paid more for achieving the same result while having larger classes?

The average teacher salary in Sycamore is $71,137, while in Wausean it's $55,668, meaning Wausean teachers have 24% more students in their classes than Sycamore teachers, but get paid 22% less. So it's not class size or teacher comp which determines the rating on the State Report Card.

How about teacher experience?  The CUPP report gives the percentage of teachers with 0-4 years of experience, 4-10 years, and 10 or more years. For Wausean, those statistics are 14%, 19% and 67%, respectively. For Sycamore, it's 14%, 17% and 69% - nearly identical, and both skewed to the higher experience band. That would certainly suggest that experience makes a difference in terms of results, but doesn't explain compensation differences between districts (Hilliard's numbers are 12%, 22% and 66%).

I should stop here and remind folks that correlations are not the same thing as "cause and effect," and that merits remembering here. There are within this dataset school districts which achieve Excellent with Distinction yet have fewer than 25% of their teachers with 10+ years of experience. Twinsburg for example achieves this rating while having 60% of its teachers with 0-4 years of experience.

So is there anything we measure which seems to be a strong predictor of outcome? I'd suggest that there is, at least within the constraints of the data published in the CUPP report. That predictor is the level of poverty in a school district. Among the 81 Excellent w/ Distinction districts, the average and median number of students living in poverty conditions is 22% (stdev=13). As poverty goes up, performance goes down, and it doesn't matter that much what the per-student spending might be.

For example, Columbus City Schools spends $14,904 per student, second in our area only to Grandview Heights, which spends just $74/student more. Yet the Performance Index for Columbus City Schools is only 80 (2009 data) vs Hilliard's 101.5, which we achieve while spending $3,400/student (23%) less. The difference: 80% of Columbus kids live in poverty, while 21% of ours do (I suspect that number is surprising large to many in our community).

So how do we determine how many folks we employ in our school district, and what we pay them?

The best answer I can come up with is that it's all a matter of local choice.

Across Ohio, teachers are paid according to what their local union negotiates with the local school board, and it seems clear to me that local school boards in more affluent communities tend to settle the labor contracts at higher salaries than do those in less affluent communities. That's about it.

So it behooves a young teacher to get hired in an affluent district like ours, or one of the many suburban districts around Ohio. Presumably those districts can be very selective in their hiring, so only the most promising young teachers get a job. In our district, new fulltime teachers typically serve as substitutes for a year or more before being hired. It's an effective way to give them a 'try-out' before being invited to join the team, and I've been impressed with the new crop every year when we get to meet them. It must be a valued opportunity, as we have literally thousands of applicants each year for dozens of openings.

Does that mean the tens of thousands of teachers in the less affluent districts are all duds, because they couldn't find jobs in districts like ours?  Certainly not!  Many things will cause a young teacher to live in a less affluent community: family, spouse's job, lifestyle preferences, etc. And there are districts that achieve Excellent w/ Distinction in spite of having very low teacher salaries. Bloomfield-Mespo (Trumbull) is such an example, with an average teacher salary of $37,751, less than the starting salary in our district of $38,362.

And the 'how many' part of the equation is a matter of local choice as well. We choose locally the overall student-teacher ratio. We decide locally the breadth of programming we wish to offer, and how those programs will be staffed.

You may respond that YOU don't get to make those decisions. But that's a cop out. You elect the school board members, and you should hold us accountable for making decisions consistent with your wishes, understanding that there will never be 100% agreement on anything about anything.

Your input makes a difference. Input from a lot of you makes a big difference, and can change the direction of important decisions. We've seen that a couple of times this year.

It will seem like we're entering a 'quiet' time right now. We have a workable agreement with the teachers and support staff through 2013. With your passage of the levy, we are committed to not putting another levy on the ballot before 2014 - provided the State doesn't hammer us with another significant funding cut.

Indeed we can take a little breather. But I feel strongly that we soon need to start the community education and communications effort to prepare us for 2013, when we'll next be negotiating with the teachers and support staff, and for 2014, when we'll be voting on the levy to fund that new contract.

The basics of school economics aren't difficult to understand, but we have lots of people to educate.

Friday, November 25, 2011

School Choice and HB136

HB136 is currently working its way through the Ohio General Assembly.  This Bill creates the "Parental Choice and Taxpayer Savings Scholarship Program," also known as PACT. The core purpose of this legislation is to allow parents to redirect the money the State of Ohio sends to the local public school districts to properly approved private schools.

Some school boards have recently chosen to pass resolutions in opposition to HB136.  The Ohio School Boards Association, of which our School Board is a member, is lobbying in opposition to HB136.

I recently read through the Bill Analysis, prepared by the Ohio Legislative Services Commission, a body appointed by the General Assembly to render non-partisan, independent views on proposed legislation. The general notion of this legislation seems pretty good to me. And I can't believe what I believe about the importance of free markets and competition, or write what I have written about school choice, and be opposed to the principles of this Bill.

But it still needs some work. My friend Marc Schare, who is also current President of the Worthington School Board, submitted written testimony to the House back in April. I agree with much of what he said.

The Bill in its current form specifies that parents could apply to have up to $4,563* subtracted from the funding their local school district gets from the State and redirected to a scholarship account which could in turn be used to pay tuition and other expenses to an approved non-public school. The intention is that the school district would retain all the funds it raises from local sources - primarily homeowners and businesses - but that the money provided by the State could be used to pay tuition at a private school.

The problem, as Mr. Schare points out in his testimony, is that not all school districts receive $4,563 per student from the State. The amount of funding a school district receives from the State is determined to a large degree by the affluence of a community, as measured in terms of property value. By this measure, we are a fairly affluent community, and consequently our State funding was reduced to $3,741 per student in FY2010 (see CUPP Report produced by the Ohio Dept of Education).

This means that if a student were to take $4,563 with him to a private school, we would have to send along the $3,741 of State funding we receive, plus $822 that we have raised locally through tax levies.

Mr. Schare says this is inappropriate because the people of the community voted to be taxed that amount of money in order to fund their public school district, not to have it diverted to a private school.

I see his point, and agree somewhat. But here's where one's perspective is important.

From the perspective of folks with kids in the public school system, this sounds like their money is being taken away to subsidize kids in the non-public schools. From a practical standpoint, one of the more significant challenges with HB136 is that it allows PACT money to be withdrawn for students already attending non-public schools. So if we have 1,000 kids in our community currently attending non-public schools (I don't know the real number), it means we aren't currently allocating any resources to educate those kids, but we could still have as much as $4.6 million of our State funding diverted. Same number of kids, $4.6 million less funding. That's equivalent to about 50 teachers.

But from the perspective of the folks with kids in non-public schools, it means an end to having their tax dollars being taken to fund the public schools their kids don't attend. This has always been an issue with the families who send their kids to the Catholic schools for example - they feel like they're paying for both the public schools and their parochial schools. For these folks, HB136 seems pretty fair.

We also have to remember that it's unlikely that any of the votes taken to approve public school levies were unanimous. There might have been a fair number of people in the community who voted to NOT send additional funds to the public school district, but are required to do so anyway because the majority dictates to the minority when it comes to levies.

I recognize that this argument stands on shaky ground. The rule of our democracy is that the majority wins, even when the margin of victory is only one vote. This is one of the challenges of democratic capitalism - knowing when to let individual choices and appropriately regulated markets determine how resources are allocated, and when we should allow majority-wins elections to decide the outcome for all.

I prefer the former whenever practical.

That's my core reason for saying what I did in Food Stamps - that we should operate our schools like we do our food distribution system. Our society has set up a food production and distribution system which is the envy of the world, and one of the key drivers is the ability for any shopper to buy whatever food they want, wherever they want, and at whatever price they find acceptable. The competition for customers drives producers and retailers to create fantastic choices at prices the market will bear.

But instead we fund our schools like the Soviets ran their food distribution network - government control of what was produced and in what quantity, and where it was distributed. Their food may have been free or nearly free, but there were massive shortages and the food was generally of poor quality (no, I'm not saying our school district is of poor quality - we all know it's quite the opposite). And of course the black market thrived, but only for those with the means. The majority of the population just had to suffer.

We think food is a pretty important component of life, so for those who can't afford to buy sufficient food, we provide a taxpayer-funded public assistance program we call "food stamps," even through the little books of coupons haven't existed for a number of years.

We could organize our education system in the same way - most people would pay tuition to the institution in which they wish to enroll their kids during the years they were in school, and otherwise be off the hook. For those who can't afford a "thorough and efficient" education, as required by the Ohio Constitution, we would have a tax-funded scholarship program, akin to food stamps. No one who wants it would go without an education.

I recognize that such a radical shift in thinking is not in the cards, at least not for the near future. HB136 has some good ideas, but has not been sufficiently thought through, as was the case with SB5. It will further stress the public school districts without having practical, workable solutions to the real problems it will create.

* The actual amount of the scholarship available to a student is reduced as family income increases. The full $4,563 is available only to families whose combined income is less than 278% of the Federal Poverty Level,. For a family of four, this means the full scholarship amount is available only if the combined family income is less than $62,000.  No scholarship money is available when the combined family income is more than $95,000, so this isn't a way to help pay the tuition for rich kids at expensive private schools.

Thursday, November 24, 2011

Levy Passed, What's Next?

I'm happy that our community passed the levy issue, albeit by an extremely slim margin.

I've come to view levies as the mechanism which the School Board uses to facilitate a negotiation within the community. There is not now, nor will there ever be a time when every single voter in our community agrees on exactly how our schools should be run, or what it should cost. It will vary depending on whether the voter has kids in school, on the voter's financial status, on the voter's political philosophy, and a myriad of other personal factors.

So I look at a levy issue as more of a proposition, explaining what will be offered if the levy passes, and what will happen if it fails. If a majority of the voters accept the proposition, the levy passes. If not, it fails.

What should happen if a levy issue fails?  I think that when that happens, the School Board should adjust the proposition and ask again by putting a new levy proposition before the voters. I think this because not putting a levy on the ballot denies folks a chance to accept a different proposition.

That doesn't mean that if a levy fails I advocate running a levy at every single opportunity following until one finally passes. I think that would annoy the community, and unreasonably burden the emotional, physical and financial resources of the levy campaign team. I think there's a better way to go about this - more later.

In this case, the community rejected the proposition offered in May, but accepted the proposition offered in November, which included the commitment to not ask for more money until 2014 at the soonest (but we have to be realistic and say that we might have to revisit that if the State of Ohio makes further significant cuts to our funding).

As a result of the levy passing, here's what our Five Year Forecast looks like in graphical form:
click to enlarge
As has been the case for years, 88% of our spending is on comp and benefits, which is as it should be. It's also the only part of the budget which is growing materially. That's good too - it indicates that the 'overhead' part of spending is being held constant.

click to enlarge
Notice that the projected spending for Compensation and Benefits for future years is well less than it was projected to be just a year ago - by about $18 million in FY15. This reflects the terms of the new agreement with the unions for 2011-2013 - including the projected impact of the early retirement incentive program for the teachers and additional contribution toward the health insurance premium.

It also assumes a resumption of annual 4.15% step increases in 2013 (which is effectively 2.3% given the mix of teachers on and off the step years), but with only 1% base pay increases starting 2014.

Since the most significant of the budget, and the only part that's growing is comp and benefits, that's where we need to focus our attention. So what drives up the cost of compensation and benefits?

Clearly, the most significant driver is whatever gets negotiated into the teachers' contract in terms of the salary grid. If you're not familiar with how this works, I recommend that you read an article I wrote titled Teacher Salary History. Their current contract runs through 2013, and I don't anticipate engaging in negotiations again until then.

So in regard to teachers and staff, the labor rate is set, but that's only half of the equation. The other half is the number of teachers and staff we choose to employ. At the end of FY11, our district employed the equivalent of 1,716 full time employees, 1,117 of whom were teachers. The remainder includes 202 pupil and teacher support staff, 131 building and grounds maintenance personnel, 125 bus drivers and other transportation staff, and 108 administrators (source: 2011 CAFR, page 110).

So what determines the number of teachers we employ? It depends on the grade level. At the K-5 level, it's mostly about the number of students we want to have in each classroom. As you can see from the monthly Enrollment Report, the overall K-5 ratio is 23.6 students per classroom.

When you get to the high schools, the variety of course offerings also becomes a driver. Our high school catalog offers over 300 courses, although not every course is offered every semester. Some classes are pretty large, with 30+ kids, and some - such as our new Chinese foreign language offering - have single digit enrollment.

Overall in our district, the student-teacher ratio is 22.5/1, while the average for our region is 25/1, and that ranges from 18/1 in Upper Arlington and Bexley to 35/1 at Groveport-Madison.

If we increased our student-teacher ratio to 25/1, our need for teachers would diminish by 70, which could reduce our spending by about $3.5 million per year (assuming junior teachers averaging $40K+benefits). We have a unique opportunity to do such a thing in the coming year, with potentially a large number of teachers retiring to take advantage of the early retirement incentive program. It's an opportunity to adjust staffing levels without layoffs, and that must not be ignored.

In addition to their normal pay, many employees of our district also receive stipends and supplemental salaries. Once again, these rates are set in the union agreements, but there is a choice as to how many of these roles will be funded each year.

As is shown on the agenda for Monday's School Board meeting, we will be considering a resolution to authorize stipends for the 2011/12 school year for about 1,000 roles, ranging from $350 each for the 182 participants on the School Improvement Teams ($64,000 total cost), to $1,200 per semester for supervising the high school weight rooms (12 person-semesters/yr for Davidson, 3 each for Darby and Bradley), adding up to about $22,000 each year. The total outlay for all stipends will be more than $600,000 next year.

The resolutions to approve supplemental salaries are dealt with a couple of times during the year. A complete list of these are included in Appendix L of the teachers' contract, starting on page 94 of the Master Agreement. These are expressed as a percentage of the base salary for each teacher, ranging from 15% for the head football, basketball and wrestling coaches, as well as the head instrumental music directors, to 5% for an assistant drama director or an assistant middle school tennis coach.

Administrative contracts have terms of varying terms and expiration dates. You'll see these come before the Board for action at the appropriate times.

My opening statement was to describe levy issues as the way the School Board facilitates a negotiation within the community. I also think it's an extraordinarily inefficient way of accomplishing this task.

We have lots of things to talk about in regard to our community and our schools, and with the passage of this levy, we've bought some time to figure out a better way to get this done.

My suggestion is that we use a process that has worked pretty well for us over the past few years - a large committee (~100 members) of diverse viewpoints called together to deal with a challenging question. It has been used for adjusting attendance boundaries when Bradley and Washington were built, for looking at student housing alternatives, and most recently for developing an approach for Pay-to-Participate fees.

What do you think of that? Would you participate?

Wednesday, November 9, 2011

Election 2011 Comments

I'll write about my thoughts on the election when I've had a chance to digest the numbers, and we have a final tally on the levy. Meanwhile, feel free to post thoughtful comments here, but be forewarned that I'll not publish comments I find to be hateful, which make personal attacks, etc.

Sunday, October 30, 2011

Unfunded Mandates

One often hears the phrase "unfunded mandates" when discussing the economics of public schools. This is a disparaging term, meant to criticize an action taken by the government - usually the State government - to impose new requirements on a school district, but not providing the funding for implementation.

When drawn into such a discussion, my suggestion to folks is that they're concentrating on the wrong word. Most folks think it's the unfunded part which is the problem. I think it's the mandate which is the root problem. Here's what I mean.

One of the most recent examples of this was the requirement enacted in 2009 by the Governor Ted Strickland and the 128th General Assembly that all public school districts implement all-day kindergarten.

This was a big deal. According to a story that ran in the Columbus Dispatch, Hilliard City Schools had 640 kids who were in half-day kindergarten (of about 1,000 total kids enrolled in kindergarten). Here's how the math comes out:

We can consider 640 kids in school for half-days to be the same as 320 kids in school all day. With an average classroom size of 23.43 for kindergarten (as of the Oct 2011 enrollment data), 320 kids would require 27 teachers. Those teachers would each have 23 kids for the morning, and a different set of 23 kids in the afternoon.

To have these same 640 kids in all-day kindergarten, we would have to double the number of teachers, from 27 to 54.

While our average classroom teacher salary is $69,369, according to the 2010 CUPP report from the Ohio Dept of Education (plus 34% for taxes and benefits, or $90,000/yr total cost), if we were to hire 27 new kindergarten teachers, most if not all of them would be at the low end of the pay scale, around $45,000/yr. With benefits, the cost would be about $60,000/yr for each new teacher, or $1.2 million/yr.

The Dispatch story says our cost would be about $1.7 million/yr. I can accept this number, as in addition to these new teachers, we would have the cost of 27 new classrooms, probably in the form of leased 'modulars' that we'd have to park at every elementary school.

And so the cost of this "unfunded mandate" was seen to be $1.7 million/yr, because the State was telling us we had to do it, but wasn't backing it up with any new money.

Turns out it's a bit more complex than that.

For decades, the State funding model has used the number of students in a school district as the primary basis for determining the amount of State funding that would be granted. Actually the number used is called "Average Daily Membership," or ADM, and it is close to the number of students, but with some adjustments. For example, kids with disabilities are counted as a little more than one student, depending on the severity of disability. In this way, the State helps underwrite the greater costs of serving students with special needs.

In the case of kindergarten, each kid is counted as one-half student, reflecting the assumption that these kids would be in school for only a half-day, therefore creating half the cost burden of an all-day kid.

So with the mandate that all school districts be required to offer all-day kindergarten to all kids, the State did indeed create a funding stream to help support the mandate by simply allowing school districts to count kindergarten kids as a whole kid, rather than a half. This doubles the amount of State funding granted to a district for kindergarten. Does that sound unfunded to you?

But here's the catch:  for districts like ours, as well as most suburban districts in Ohio, the funding models had a mechanism called the "Transitional Guarantee," which was created to ensure that in the transition from one funding model to the next, no school district would see a dramatic reduction in its State funding. This guarantee existed in Ted Strickland's Evidence Based Model, and it existed in the model before that (to smooth the transition from whatever was before that model). One could say that the funding model used by Gov. Kasich and the 129th General Assy was nothing but a transitional guarantee approach - allocating new funding based on prior funding and not worrying so much about all the components of the prior two funding models.

For districts 'on the guarantee,' this change in the counting of kindergarten kids wouldn't have much impact on State funding. So from a practical standpoint, the requirement to implement all-day kindergarten would be unfunded for us - meaning we would have to bear the full incremental cost locally. That's the reason the School Board has opted to request waivers from this mandate each year. Fortunately, subsequent to the passage of the last budget bill by the 129th General Assembly, all-day kindergarten is no longer a requirement.

However, this still isn't quite the full story.

We have to step back and ask "where does the State of Ohio get the money it passes out in the form of State funding to school districts?"  Of course the answer is that most of it comes from us. According the Budget submitted by Gov Kasich, 80% of all State revenue (excluding that associated with the pass-through of Federal subsidy for programs such as Medicaid) comes from individual income taxes and sales taxes.

According to the CUPP report, the our school system gets back 41 cents for each dollar of State income taxes paid by the people of our community. One could say that this means that to get back $1.7 million per year from the State to fund all-day kindergarten, our State income taxes would have increase by $4 million.

So if we were mandated to implement all-day kindergarten, wouldn't it be better to fund it with a local tax that raises $1.7 million/yr (about 0.7 mills), than to be taxed $4 million more by the State?

Of course I'm oversimplifying things. Funding new things doesn't always have to mean more taxes. In these tough times especially, spending has to be prioritized, and that often means that new programs have to be funded by discontinuing other programs.

But the purpose of this article is to point out that often the most efficient way for communities like ours to fund new mandates is with local taxes. The real fight needs to be over whether the mandate should be enacted in the first place.

If we want to have all-day kindergarten in Hilliard schools, let the people of our community make that choice, and back it up with local funding. Nor do we want the State to be telling other school districts that they must have all-day kindergarten, and then funding it with our income tax and sales tax dollars.

Tuesday, October 25, 2011

Five Year Forecast: Oct 2011 version

At the regular School Board meeting on October 24, 2011, the Board, on the recommendation of Superintendent Dale McVey, voted unanimously to accept the latest Five Year Forecast as presented by Treasurer Brian Wilson. For the visual folks out there, here is the forecast in chart form:
click to enlarge
The yellow area in the chart represents the gap between spending and funding. By state law, the District cannot operate without cash reserves, nor can these forecasts - which must be submitted each May and October to the State Board of Education - show anticipated revenue from levies that haven't been passed. That means that we cannot in fact operate the district past FY12 (this year) without less spending than shown in this forecast, more revenue, or both. That's the reason we have a levy on the ballot.

If our 5.9 mill levy issue passes in two weeks, it would make the chart look like this:
click to enlarge
Now the yellow area - the revenue/spending gap - is smaller, but still there. That again means we need to have less spending, more revenue, or both. Let's say that the spending is left as Mr. Wilson projected; what size future levy is needed to close the gap?

Back in April, I wrote an article in which I described the four primary knobs we can turn in the budgeting process: 1) the rate of spending growth; 2) the interval to the next levy; 3) the size of the next levy; and, 4) the size of the "rainy day fund" we want to keep. 

So let's say the 5.9 mill levy passes. The Board has committed that it will be at least 3 years before another levy is proposed. Board policy is that the rainy day fund should be kept at about 10% of annual spending, and the Audit & Accountability Committee has recommended that we restore this level of reserves as well.

The spending plan in this forecast is a little unusual. In their current contract, the teachers have been offered an early retirement incentive package that the Administration forecasts will be accepted by 75% of those eligible. Combined with the three year base pay freeze, and the postponement of step increases until 2013, this actually makes our compensation expense go down in FY13. However in FY14 spending is forecasted to rise 2.3%, and then 4.1% in both FY15 and FY16 (it was 4.8% in the years FY03-FY09). 

Given those inputs, the size of the next levy would need to be 7.1 mills, which looks like this:
click to enlarge
So what if we lower the rate of spending growth?  Note that projected spending has already been reduced compared to the May 2011 Five Year Forecast (the dotted red line). No, I'm not getting caught in the semantics of claiming that there has been a spending cut because one forecast projects less future spending than the last forecast did. There has not been, nor is there projected to be, any year in which the total spending is less than the year before.

Nor am I at this time advocating spending cuts, although that will certainly happen if this levy doesn't pass.

But I think we can and must continue to consider ways to decrease the rate of spending growth. For example, if we lower the annual growth rates for FY15 and FY16 from 4.1% to just 3.5%, we can lower the size of the levy needed in 2014 to 6.1 mills, which would look like this:
click to enlarge
So how do we go about changing the growth rate in spending?  Let's look at how the money gets spent:
click to enlarge
As has been long clear to readers of this blog, 88% of our spending is for compensation and benefits. Our spending for compensation and benefits increases faster than the rate of student growth, and it increases faster than the rate of employee (FTE) growth. In other words, the average cost per employee for compensation and benefits is going up.

As you can see in the chart above, that growth rate has been substantially reduced compared to the Five Year Forecast published one year ago (the dotted line). That's because of the projected effects of the early retirement incentive program, and the very real effects of the base pay freeze and accompanying step delays (one step will be eliminated altogether). 

However, this is being offset by the increasing cost of benefits, in particular health insurance. Even though the teachers and support staff have agreed to pay 15% of the health insurance premiums (it was 10% in the prior contract, and before 2008 was 0%), the total new dollars we'll spend over the next five years on health coverage will be $6 million more than we spend on increased compensation.

Some advocate demanding that the teacher take pay cuts. I don't. That might have to be put on the table if things get really bad, but we're not there yet, in my opinion. The thing that could really nail us is having the State of Ohio further reduce our state funding. We cannot continue to ask the people and businesses of our community to keep filling the deepening hole created by a bad economy. If there are significant further reductions in state funding, pay cuts might have to become part of the solution to keeping our district solvent.

There are no easy answers. We'll all have to participate in finding solutions. I hope this article helps inform the conversation.

(Part 2)

At M's request, here are a couple of additional charts.

The first is a chart that shows what happens if the levy fails and the approved cuts are implemented. All other assumptions in the Five Year Forecast are kept in place:
click to enlarge
This shows that cutting $10.2 million from each year of future budgets extends the time until we are out of cash by just one more year. Without question, there would be discussion about putting a levy on the ballot again  in 2012. If we modify the goal to say that we want to get the cash balance to 7% by the end of FY14, then a 2012 levy of at least 3.6 mills is required, but the interval to the next levy would need to be only two years:
click to enlarge
To make the interval following a 2012 levy at least three years, the 2012 levy would need to be on the order of 5.5 mills.

There are an infinite number of permutations we could explore. but the point remains the same: there are four knobs to twist, pick three and you get the fourth.

There is no right answer. Some people in our community want the Board to spend less, whether that be cuts to academic and extracurricular programming (which reduces staffing needs), or by pay cuts, or both. Others are concerned that we might not be spending enough - that we are depriving the kids of opportunities by not spending more. There is no majority position, only a spectrum of individual opinions.

That's the way democracy works. Candidates run for office, and issues are put on the ballot. The winners get to choose how things go until the next election. If folks with extreme positions are elected, we tend to get legislation that brings extreme changes. 

SB5 is the current right-wing example. But we've already forgotten that not so many years ago, the left-wing prevailed, and we got all kinds of legislation that tipped the laws in favor of their views. 

This whip-sawing can't be good for Hilliard, for Ohio, or for America. We have to again learn how to communicate (listening is at least as important as talking), negotiate, and live with compromise.

Thursday, October 20, 2011

Moneyball and Education

I read a number of education-oriented publications and blogs, but have rarely come across articles that I thought would be of much interest to folks who come here. But this one by Rick Hess in the EdWeek blog made a point worth passing on.

I haven't seen the movie Moneyball, but I understand the premise. Baseball is as much a playground for numbers geeks as it is for athletes. All kinds of statistics are kept, reported, and memorized by the most left-brained of baseball fans.

The storyline in Moneyball is that one particular numbers geek suggests to a major league manager that the statistics that get all the attention, like batting average, home runs, and RBIs, are perhaps not the ones that are good predictors of future success in winning games. So he proposes using a different set of statistics to predict which players would be most valuable to the team, and how they should best be utilized.

Hess suggests that the growing infatuation with value-added measures and test scores might lead to the same kind of misguided assessment of effectiveness as do the high-visibility statistics in baseball. He's suggesting that in the effort to develop effective measurement systems for education system performance - whether we're talking kids, teachers, or schools - we need to accept that this kind of statistical analysis in the education domain is still in its infancy, and that we have a way to go before this body of research evolves to really meaningful statistics, like the ones the numbers geek derived in Moneyball.

Lots of folks would like to use the standardized test scores and other existing measures to determine all kinds of very important stuff, in particular the allocation of resources and the evaluation of teachers. SB5, if it withstands the repeal initiative, mandates merit-based evaluation of teachers, but conveniently doesn't say how it should be done.

Most teachers I've talked to don't have a problem with the theory of a merit-based system, they just don't trust that it will be administered fairly. Hess's article points out another potential flaw - using the wrong statistics to measure effectiveness.

I spent my career in cahoots with some pretty tremendous sales folks. One of the main challenges of my colleague, the Sales VP, was to come up with an annual commission plan for his sales team that motivated them to sell the right set of products for the right set of terms so as to meet the strategic goals of the company. The sales folks - as smart as they were - would most assuredly figure out how to maximize their compensation given whatever rules the Sales VP set, regardless of whether or not their efforts contributed to meeting the company's strategic goals. So the Sales VP had to put a great deal of thought into how to design the plan to get the behavior and results he was looking for.

We have to take the same kind of care if and when a merit-based system is put into use to determine teacher compensation. Otherwise there will be some unintended and expensive consequences, and we still might not achieve our strategic goals.

Sunday, October 16, 2011

Retirement Pickups: Correcting the Dispatch

The Columbus Dispatch today published a story titled "Is SB5 good for Ohio?"   SB5 = Senate Bill 5, the law whose fate is being determined by referendum (Issue 2) on the November ballot.

The story addressed a number of topics, including an often misunderstood concept regarding pension plan contributions called "pickup." Unfortunately, the Dispatch didn't quite get it right.

The first point to understand is that the teachers' pension program is not operated by our school district, but rather by a quasi-State agency called the State Teachers Retirement System (STRS). STRS was created by State law, and the State retains a certain amount of control over its operations. But the primary governance of STRS is handled by a Retirement Board, made up of five elected contributing teacher members; two elected retired teacher members; an investment expert appointed by the governor; an investment expert appointed jointly by the speaker of the House and the Senate president; an investment expert designated by the treasurer of state; and the superintendent of public instruction (ie the State Superintendent) or his designated investment expert.

The STRS pension fund gets its money primarily from contributions made by working teachers and by the school districts which employ them. The maximum contribution rates are set in the law, but may be set to lower numbers if the Retirement Board feels the fund can be kept solvent with smaller contributions (STRS is not solvent, by the way). Currently, the Retirement Board has the contributions rates set to the maximum amounts allowable by law: 10% of the teacher's salary paid by the teacher, and another 14% of the teachers salary paid by the school district.

Article 32 of the Collective Bargaining Agreement between the Hilliard Education Association (HEA, the teachers' union) addresses retirement system contributions. In this article, you see the use of the word "pickup," and it has confused many people over the years, including me. While the language of Article 32 is accurate, if you don't know that "pickup" is a code word in the world of public employee retirement systems, it's easy to misinterpret this section.

Here's what "pickup" means in the context of our contact with the HEA. It DOES NOT mean that the school district (ie we the taxpayers), is paying both the 14% employer and the 10% employee shares. Rather, it is a mechanism which allows the teachers to make their share of the retirement contribution with pre-tax dollars, in a method no different than that used by those in the private sector to contribute to 401(k) plans with pre-tax dollars.
Mechanically, it works like this:

  • Let's assume that the teacher has 10 years of experience and a Master's degree. According to the pay scale in their Collective Bargaining Agreement, this teacher would have a Base Pay of $64,525. Let's make it $65,000 just to use round numbers.
  • The employer's share of the contribution to STRS is 14%, or $9,100.
  • The teacher's share is 10%, or $6,500. This is deducted from the $65,000 base pay, reducing the take home by $6,500.
  • However, for purposes of the W-2, the teacher's gross salary is reported as $58,500. This is what makes it a "pre-tax" contribution.
  • STRS recognizes the whole $65,000 for purposes of calculating pension benefits.
There is another code-phrase which gets used in regard to pension payments: "Pickup on the Pickup."  This DOES mean that the school district pays both the employer and employee shares. This benefit appears in the contracts of our administrators, and it works like this (go here to see an example, and click "Read More..."):
  • Let's use the average administrator salary of $90,000
  • The administrator's share is 10%, or $9,000, but this is paid by the District.
  • This extra 10% is treated as income as well, increasing the total employer contribution to 14% of $99,000, or $13,860, and the 10% employee contribution to $9,900. This means $23,760 in total is paid to STRS, all by the school district. The administrator has no money deducted from the $90,000 base pay for retirement contributions.
  • The administrator's salary is reported on the W-2 as $90,000
  • For purposes of calculating pension benefits, the administrator's salary is reported as $99,000.
I hope this helps straighten out what goes on with retirement plan contributions in our school district. Please let me know if you have any questions.

By the way, the teachers and administrators do not participate in Social Security, neither making contributions, nor getting any benefits.

Monday, October 3, 2011

Reply to a Taxpayer

A retired gentleman who has been actively engaged in matters concerning our schools recently sent the members of the School Board a very thoughtful message describing why he was going to vote against the levy, Issue 17. The following was my response to him:

Thanks for your note. I'll respond, but please allow me to repeat the disclaimer that my response represents how I feel, and in no way represents the opinions of the other four Board members, or the Administration...

First, I absolutely agree with your economic analysis, and would extend it to say that our goverments have made unfulfillable promises to not only employees, but to the people of the country as well. It's going to take rare leadership and even more rare 'followship' for us to restore economic stability to our country. I'm reminded of a poster I once had which said "Lead, Follow, or Get Out of the Way!"

There is no one description that fits everyone in our community. Some are elderly, barely getting by, and having to make choices between utility bills, taxes and medicine. Some live in million dollar homes, and their tax bills are insignificant to them. More than half the households in our district have no school age children. Others live in extended households with many school age children. Increasingly there are families who were doing okay when both parents were secure in their jobs, but are now struggling after one or both of the parents have lost a job and remain unemployed. There are as many foreclosures in wealthy neighborhoods as in those of more modest incomes.

It doesn't matter whether an organization exists in the public or private sector - when revenue takes a dive, survival is threatened. It is crucial for the leadership to ascertain whether the situation is temporary, and can be weathered with temporary measures (e.g. spending down cash reserves), or whether a structural change has taken place, demanding commensurate structural change in the enterprise.

The American auto industry got this exactly wrong. They thought the "oil crisis" of the 1970s was a temporary situation, and that they could keep selling huge, expensive, unreliable gas-guzzlers once the oil situation resolved. Both management and labor misjudged the situation, creating an opportunity for the Japanese automakers to go from a tiny piece of the market to being the market leaders. Only after near collapse did the American management create world-class products, and the labor unions agree to comp structures which allow for competitive pricing.

Excluding the banking industry, which is still very much screwed up, American businesses have either been successful in restructuring to our 'new normal,' or they've gone out of business. It's been gut-wrenchingly painful, and the pain likely isn't over, but those who have taken the steps necessary to survive so far have a fighting chance.

It's time that the public sector face up to this situation as well. As citizens, and consumers of government services, we may need to be willing to accept a diminished level of service. The Post Office is likely to drop Saturday delivery. I think that would be a good move. I think they should raise the price of stamps as well - especially for junk mail, which is easily 90% of the mail we receive at our house. Are there other government agencies doing stuff we can live with less of, or without, so we can preserve those few things which are truly essential?

And just like the auto industry, we need to have a tough conversation about the number of people we employ in the public sector, and what they receive in compensation and benefits. Senate Bill 5 is a spectacularly clumsy way to start the dialog, but that doesn't mean the conversation isn't needed. Whichever way the vote on SB5 goes in November, we still need to have an honest, empathetic, and solution-oriented conversation with the public sector unions about how to align their expectations for comp/benefits with the capacity and willingness of the public to pay the taxes necessary to support those expectations.

We haven't yet had that conversation in our school district. Most people - whether taxpayer or district employee - don't even understand the issues. So the discussion remains mostly on an emotional level, and that's what this levy vote is going to be as well. With the teachers and staff freezing their base comp through 2013, steps through 2012, and increasing their health insurance contribution to 15% starting this year - had the State of Ohio not reduced our funding by $10m/yr (FY13 vs FY09), then we could have funded the district at our current spending level for three more years with a 2 mill levy, by my calculations. But with the deep State funding cuts, it's going to take the 5.9 mills we have on the ballot to keeps things as they are. Few folks understand this situation.

If this levy is defeated, we have to take $10m/yr out of the spending plan. That's not optional - we have insufficient cash reserves to just hold on until the next State budget and see how that one looks for us. So the Administration recommended, and the Board approved unanimously, a list of cuts which will take place if the levy fails. None of us on the Board want to see that happen, which is the reason I support this levy.

Some in our community are angry about this cut list. They feel the community - and our kids - have been taken hostage, and the 5.9 mills is the ransom payment. That's it not so much a 'cut list' as it is a 'threat list.' I understand that. It does feel that way if you don't understand the economics.

But if 90% of our costs are determined by how many folks we employ and how much we pay them, and if the 'how much we pay them' is set by collective bargaining agreements, then the only option available to the Board when spending must be reduced is to reduce the number of folks we employ. That results in a cut list exactly like what has been presented.

There are some in our community who feel the $10m/yr spending reduction can be achieved by having the teachers, staff and administrators take pay cuts. With ~1700 FTEs, that would be base pay cuts averaging $4,700 (+ 25% benefits), or 7.3%. Interestingly, this is the same percentage increase one gets with a 3% base pay increase and a 4.15% step increase (compounded), which were the terms of the 2008-2010 HEA contract. I am not advocating pay cuts at this time, but respect the reasoning of those who are. At least they understand the math.

So I go back to the point that we need to have a reasoned and empathetic conversation with all the stakeholders - parents, non-parents, business owners, and employees - and figure out a long term strategy for funding our schools. It can't be a static strategy - it looks like the Statehouse is going to swing to extremes from election to election for the foreseeable future. But there has to be some thought put into a few different scenarios so the people of the community and the employees know to expect X if Y happens.

We're not going to have that conversation until more folks understand the problem in economic terms, not just with their emotions.

Friday, September 16, 2011

The 1.7 Mill Levy

Conventional wisdom concerning school levy issues is that about 40-45% of the voters will always vote against any tax increase, and 40-45% of the voters will always vote to support our schools, regardless of the levy size.

I don't know if those numbers are real, but I suspect that they're not that far off. If so, it means that any school levy election is decided by two things: a) who decides to show up from the Always-Yes and Always-No groups; and, b) the 10-20% of the voters who are undecided.

I suspect that the reason the levy issue didn't pass in May was that the Always-Yes folks didn't show up in sufficient numbers. But then, hardly anyone showed up at all - fewer voters than we have students in the District.

I wish there weren't these huge sets of Always-Yes and Always-No voters. Neither represents healthy democracy in my opinion. It's the reason Congress has become so polarized, making it difficult and frustrating to work anything out. Consequently, the legislation they develop swings from one extreme to the other, passed in one term and reversed in the next. That's got to stop before it tears our country apart.

My consistent position over the years I've been writing this blog has been that we need to first educate the community about the basics of school economics and then collectively debate and negotiate until we arrive at a compromise position which an overwhelming majority of the voters - on the order of 80% - will support on Election Day.

Instead, we allow ourselves to come to Election Day without having had that period of debate and compromise, and consequently have to live with the unpredictability of an election of voters who make decisions based on ignorance and emotion.

So my goal for these many years has been help folks understand the key elements of school economics in the hope that more folks would engage in the debate, and in doing so, provide direction to the School Board as to what they want their School District to be, and how much they're willing to invest to make it so.

We still have a way to go, but I feel progress has been made - through the efforts of many folks. Today most people understand that we spend nearly 90% of our operating budget on the salaries and benefits of our team of teachers, staff and administrators. There's nothing wrong with that. In fact, we should want most of the money spent on the people who have the most direct contact with the kids.

More of us now understand that when we have discussions about the need for more funding, it's really about how many people we want to employ, and how much they will get paid. It's not about paper clips and stadium lights. It's about people. The purpose of levies is to expand the staff and/or to pay them more.

But this time around, there's something different is going on, and it's significant: A radical decrease in State funding.

It didn't matter who was elected Governor or who controls the Statehouse, the Governor and the General Assembly were going to have to deal with a budget shortfall in the biennial budget on the order of $8 billion. That shortfall wasn't so much due to excessive spending growth as it was that the US economy tanked, reducing significantly and rapidly the personal and corporate incomes which are the primary basis of tax revenue for the State of Ohio.

Education represents one of the three primary spending categories for the State of Ohio; the other two being Medicaid and the operation of our prison system. So there was no question that the State would need to consider making cuts in these three categories to have any shot of closing this huge deficit.

That's the reason the Governor is seeking to sell some of the prisons and turn them over to private contractors. I'm not saying that it's the smart move - only that it had to be an option on the table. Likewise, some tough choices might still have to be made in regard to Medicaid.

Education took its share of cuts and more. Every school district in Ohio receives some amount of funding from the State of Ohio, inversely proportional to the affluence of the school district, as measured by its collective property values. By that standard, Hilliard City Schools comes out on the more-affluent end of the spectrum, and consequently receives a smaller portion of its funding from the State - about 34% in 2010 (according to the CUPP Report published by the Ohio Dept of Ed).

Still, we shouldn't complain - Olentangy spends only 80% of what we do per pupil (because they have lower personnel costs, because their teachers are younger), and still gets only 16% of their funding from the State. Compare that to Hamilton Local Schools which receives 66% of its funding from the State, equal to 1.5x the per-pupil State funding (in dollars) that we receive.

The Governor and General Assembly did indeed choose to balance their budget in part by cutting State funding to public school districts, taking more money from the affluent districts than it did the poor ones - and I don't disagree with this approach.

Our share of the bill is on the order of $10 million per year, calculated by comparing the amount of State funding we received in FY09 to what we are projected to receive in FY13.

I should note that I included the accelerated phase out of Personal Property Tax reimbursements in this calculation. While Personal Property Taxes are technically a local tax in that the revenue is collected from local businesses and distributed the local school district, the tax rate - indeed the very existence - of PPT is set by the state government rather than by local levy vote. That makes it a state tax in my opinion.

So what's this stuff about a 1.7 mill levy?

It's simply this - at the new valuations of all the properties in our school district, 1 mill of new taxes will collect about $2.375 million/year of revenue. Divide that into $10 million, and you get 4.2 mills.

The levy issue the School Board has put on the November ballot is 5.9 mills. That means only 1.7 mills of that money will be used to fund spending growth. The rest just replaces the State funding that has been lost.

People have asked me why - if 90% of our spending is on compensation and benefits, and the teachers and staff have accepted a salary freeze until 2013 - do we need any new funding at all?  The answer is that our current spending is already greater than our current revenue, to the tune of $3.3 million in FY11, the equivalent of 1.4 mills. So the 1.7 mills is needed to cover that and to preserve a 8% cash reserve, which is still less than our 10% goal.

If the community votes to deny this levy, then there is no choice but to reduce spending by at least $10 million per year. The 'cut list' presented is how that spending reduction would be implemented. We'll also go to a Pay-to-Participate fee schedule that I'm sure will deny opportunities to some kids in our community.

I for one would not like to see that happen. That's the reason I'll be voting in favor of this levy. I hope you will consider doing so as well.

Monday, September 5, 2011

Hilliard Comprehensive Plan

Let me start by apologizing for the length of this article. I'm still learning how to be more concise, but my training is in engineering and business, not journalism. I think this is important stuff, and hope you have the patience to wade through what this 30+ year resident of our community has learned in the past six about community economics. It certainly woke me up, and I hope it motivates you to action as well.

Whether you live within the boundaries of the City of Hilliard or not, as a member of the Hilliard City Schools community, the City's new Comprehensive Plan should be of interest to you.

But the first thing to clear up is that the City of Hilliard and Hilliard City Schools are two distinct and separate government entities. The Hilliard City School District is not 'owned' by the City of Hilliard, nor does the Mayor or the City Council have any more authority over the schools than they do any commercial entity within the City's boundaries. The Board of Education of Hilliard City Schools is an independent, elected legislative body, chartered to operated a public school district under the laws and regulations of the State of Ohio.

The boundaries of the Hilliard City School district were set by the Ohio Board of Education many decades ago, and have not been expanded since. In fact, the area served by our school district has shrunk in the past 20 years under the terms of the Win-Win Agreement which specifies, among other things, that when undeveloped land in a suburban school district is annexed to Columbus, that land automatically transfers to Columbus City Schools. The best example of this is the large tract north of Hayden Run Rd, between Cosgray and Avery, which became part of Columbus City Schools when it was annexed to Columbus a couple of years ago.

City and township boundaries have been shifting more or less continuously since the start of the suburban housing boom in the 1970s, which was triggered by the 'White Flight' that followed implementation of court-ordered busing to achieve racial desegregation in Columbus City Schools.  Although our school district has always been comprised of the entire City of Hilliard and some or all of Brown, Norwich, Franklin, Prairie, and Washington Townships, some of the land that was in the townships has been since annexed into the Cities of Columbus and Dublin.

The whole purpose of the Win-Win Agreement was to keep these parcels in our school district after annexation into the City of Columbus. This was desired by the homeowners who built homes on these annexed parcels (I was one of them!), and also by the real estate developers who knew that if their land was reassigned to Columbus City Schools, its value for home building would be about zero.

I first became involved in local politics when I was invited to participate in the development of the 2005 Comprehensive Plan for Brown Township (warning: 50mb document!). It was then that I came to understand the connection between the development policies of municipalities and the economics of school districts.

This is it in a nutshell: Local school districts are funded by three sources: a) property taxes on farms and residences within the district; b) property taxes on commercial property within the district; and, c) grants from the State of Ohio. Therefore:
If the funding from the State of Ohio, and the taxes generated by new commercial property do not grow at the same rate in which the school district's spending is growing, the incremental funding burden falls fully on the existing homeowners, businesses and farmers in our community.
Before anyone starts yelling at me, let me say that I do acknowledge that raising taxes isn't the only way to align revenue with spending. We have to be willing to dig into the spending side too. But let's address that in a later article  - this one is about the effects of a city's development policies on a public school district.

Because of the current state of our economy, we haven't had to worry about new residential development for the past few years. It wasn't so long ago that we were opening a new school every year. For now the growth pressure is off. Our student census grew from 15,029 kids in 2007 to 15,635 as of last week, an annual growth rate of just 0.6%.

But if we wait until housing demand heats up again to talk about the City's development policies, it will be too late. I think we need to talk about this now - while the Hilliard City Council has this new Comprehensive Plan under consideration.

The largest remaining tract of land suitable for residential development lies west of Alton-Darby Rd, between Hayden Run Rd to the north and Roberts Rd to the south. Much of this land is already owned by large home builders, notably Homewood Homes and Planned Development.

In 2000, the City of Columbus placed this tract in an "Environmentally Sensitive Development Area," and refused to extend water/sewer service into the area until all the municipalities in the Big Darby watershed came together to develop a common agreement for how this area would be developed.

That argreement is the Big Darby Accord, and includes all the land between Alton-Darby Rd and Big Darby Creek. I've never quite figured out all the political maneuvering associated with the crafting of the Big Darby Accord, but I know that it was a time of frustration, especially for the developers who wanted to open this tract to homebuilding while the market was hot. I've always suspected that the abandonment of the Grener Property near Homestead Park as the site for our third high school (the school district still owns this land by the way), and the selection of Emmelhainz property was the result of such maneuvering.

The Brown Township Comprehensive Plan specifies that this land to the west of Alton-Darby Rd is to be developed in a 'conservation' style, meaning that the typical rural development pattern of single family homes on 5+ acre lots would be abandoned, and instead homes would be arranged in to dense clusters surrounded by substantial open space.

The Big Darby Accord repeated this specification, and I'm happy to say so does Hilliard's new Comprehensive Plan (see Chapter 5). It says that the development density will be one home per acre, but with 50% open space. This means 100 houses can be built on a 100 acre tract, but all the homes must be concentrated on 50 acres, and the remaining 50 acres left as open space.

What we don't know is if the economics of this will work out for the developers. After all, they have much experience that tells them that people are willing to buy fairly expensive homes sited at 2-3 to an acre, and entry level homes packed in at 4-6 homes per acre. Why would they ever want to leave 50% of their land undeveloped?

It's going to take developers who are willing to try something new, and a city government willing to stick by its guns, even if the developers start crying that this conservation development isn't working for them.

So why do the rest of us need to care which kind of development approach is used?

Because it is one of the primary drivers of future revenue demands, for both the schools and the municipalities!

The average new dwelling in our school district will add 0.8 new school age kids to our school population. Since we currently spend $11,475/kid to run our school district, the building of a new house adds $9,180 in new expense (yes, I understand the difference between fixed costs and variable costs). If the average new home costs $200,000, then it will generate roughly $5,000 in property taxes.

Who funds the other $6,475 $4,180?

It's not the State of Ohio. Even before the State got into its own budget mess, the incremental funding for new students had been approaching zero. In the current biennial budget, the funding from the State of Ohio has gone down - substantially. It's one of the key reasons that there's a levy on the November ballot.

Nor are we seeing much new revenue from commercial sources. There has been some, notably the construction of the building housing BMW Financial. But we haven't seen much of that lately, and one of the most promising projects, the Hickory Chase retirement community, flamed out before it was ever occupied, and is currently $1m behind on its property taxes.

So the answer is that the $6,475 $4,180 has to be picked up by the rest of us - the current homeowners and business owners in our school district.

The deal the City of Hilliard has with the City of Columbus allows the construction of 2,000 new dwellings in the tracts along Alton-Darby Rd. That means 1,600 new kids times $6,475 $4,180, or $10.4 million that we have to subsidize. This would require 4.4 2.8 mills of new property taxes.

If the developers chicken out on the conservation development approach and convince the Mayor and City Council that they need to go back to their old way of doing things and the City of Columbus is convinced to provide the necessary water/sewer service, then we could potentially see 10,000 homes built on this tract.

That would mean 8,000 new kids, and $52 $33 million in subsidy required, or 22 14 mills!

I'll admit that I'm engaging in a little sensationalism. The housing market isn't going to heat up all that quickly, and the City of Columbus is unlikely to provide additional water/sewer capacity to the area until they are assured that someone else will pay for the necessary new main pipelines, water towers, and sewer pumping stations.

But we - the people of the community - got caught sitting on our hands during the last housing boom. We ended up with crowded schools and rapidly escalating property taxes as a result.

It will happen again during the next rise in housing demand if we don't pay attention to what the Hilliard, Dublin and Columbus city governments intend to let happen within the boundaries of our school district.

Another thing we need to pay attention to is the use of Tax Increment Financing, or TIFs, by the City of Hilliard. This is a mechanism made available by the State of Ohio to municipal governments. It allows the municipality to redirect the property taxes on a new development, whether commercial or residential, to fund infrastructure projects in the municipality.

This would be all well and good if the redirected property tax revenue would otherwise go to the city anyway. But it doesn't - it's not their money!  Rather it's the key revenue source for the local school district and other agencies. In our community, that includes the Norwich Twp Fire Department, which provides fire/safety services for many of us.

So many of us on the School Board were alarmed when the City of Hilliard granted a TIF to Schottenstein Homes for their new residential development at the corner of Alton-Darby Rd and Roberts Rd. That TIF was used to fund the construction of the new realignment of the Roberts/Alton-Darby intersection.

In other words, revenue was taken away from the school district to pay for a road. The last I checked, public roads are the responsibility of the City or the County - not the school district. Several members of the School Board let the Hilliard City Council know that we objected to this use of our revenue. I made comments during the City Council meeting when this TIF was being considered, stating that this was a bald political maneuver - allowing the City to get a new road at the expense of the School District, essentially making the School Board be the bad guys for raising taxes.

The Norwich Township Trustees also spoke at this City Council meeting, making substantially the same point.

In their new Comprehensive Plan, the City of Hilliard makes it clear that they intend to continue using TIFs. TIFs aren't a new thing for the City of Hilliard, but they are being configured in a new way. The law says a municipality may redirect up to 75% of the property taxes without permission of the affected school district. In the past, TIFs have been like the one granted to BMW Financial, in which the School Board gave the City of Hilliard authority to grant a 100% TIF, but the TIF agreement specified that the school district would  receive 100% of the revenue it would have otherwise received.

This one for Schottenstein Homes is different. The City granted a 75% TIF - which it can do without permission of the school district - for the multi-family part of their development, but will not attempt to keep the school district whole. This is why I say that the school district is funding the new Roberts Rd connector. I recall hearing the City leaders state that the multi-family part of this Schottenstein development would be for folks aged 55+, like their Tremont Club development, and therefore would not be bringing new kids to the school district. That made the TIF a little more palatable.

But those plans have apparently changed. Instead, Hilliard Summit is to be an apartment complex without age restrictions. The web site even shows a photo of a couple with young children. So it seems to me that not only is the school district losing out on critical new funding, there is also the potential that a number - maybe a large number - a new kids will come from this development. In today's real estate market, more families are choosing to rent rather than buy a house, and upscale apartment complexes in desirable school district may be in high demand.

So the school district might get double-screwed in this deal:  no new tax revenue and more kids. And that means even more tax burden on the rest of us as we subsidize the cost of educating those kids.

As much as I've complained about the City of Hilliard in this article, the City of Dublin has its own strategy to protect its economics at our expense. At a meeting last year at Bradley High School, a representative from Dublin's planning department told us that Dublin's master plan keeps all new commercial development in the Dublin school district, and puts only residential development in the Hilliard school district. So we get the kids, and they get the commercial revenue. Thanks for being good neighbors.

By the way, their school district's service facility and bus garage is within the boundary of our school district, as is Upper Arlington's. In both cases, they're occupying valuable land zoned for commercial uses, but as government entities, pay no taxes to our school district. Meanwhile, they preserve their own commercial land for revenue-paying businesses.

The City of Columbus is often painted as the bad guys in these matters. But we have to remember that while there has been about the same amount of residential development in the Columbus part of our district as there has been the Hilliard part, the amount of commercial development in the Columbus part has been double that in Hilliard. That whole huge retail zone at the intersection of Hilliard-Rome Rd and Trabue/Renner is in our school district, and it is contributing a substantial amount of funding to our operations.

A couple of new members will be sworn onto the Hilliard City Council this January - Nathan Painter and Joe Erb. Nathan was a member of our school district's Audit and Accountability Committee, and through that process had the same kind of awakening I did to the realities of the school district economics, and the role the municipalities play in helping create economic sustainability for the schools. His voice on the City Council will be vital.

But it is also vital that you understand and speak up about these things. Our school district can't raise new revenue by any means other than asking you to raise your taxes. Only a municipality, like the City of Hilliard, can control how and at what pace our community develops. If they make sure that there is plenty of new commercial development to subsidize the cost of all the kids that come with new residential development, then our school district has a chance.

If however, the City of Hilliard just allows thousands of new residences to be built without corresponding commercial development, the tax burden on all of us will continue to escalate. Or the breadth and quality of programs offered in our school district will continue to diminish. The only winners will be the real estate developers and their friends.

Meanwhile, if the City of Hilliard wants any more new roads or water lines or sewers, let them raise taxes to pay for them and quit using the school district as a piggy bank.

Wednesday, August 17, 2011

Special Board Meeting to Discuss the Cut List

(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 MONDAY, AUGUST 22, 2011 at 5:00 P.M. located at the Hilliard City School District Administration Annex, 5323 Cemetery Road, Hilliard, Ohio.  The meeting will be a work session held in regular session to discuss regular business as deemed necessary by the Board of Education and any other business that may be lawfully considered.  The regularly scheduled meeting will be held immediately following the special meeting and will begin at 7:00 P.M.

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.

August 17, 2011

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

Wednesday, August 10, 2011

The Cut List

At the Aug 8 School Board meeting, this draft "cut list" was presented by the Administration to the Board.  It is the Administration's top-level recommendation of what should be eliminated from programming and services should the operating levy issue fail in November.

I'll write more about this as soon as I have the opportunity, but wanted make sure all of you saw it.

Again, this is a draft version - the final version will be determined after further information gathering and discussion by the Board. I'd certainly like to hear your thoughts before that discussion takes place.

Please keep your comments civil and productive. I'd also like to impose this rule: If you want to see something taken off the list, then make a recommendation for what programs/services of approximately equal cost should take its place. And please indicate whether you have any "skin" in your answers (ie you now, or will likely have a kid involved in whatever you advocate keeping/cutting).

It would also help if you post your comments using a unique moniker. Just click the pull down arrow in the "Comment as:" box (an example image only shown here, scroll down to actually post a comment)...

... and select "Name/URL", then in the dialog box that comes up just fill in the "Name" box with something unique (and tasteful!). You can leave the "URL" box blank.

Looking forward to hearing from you.