There has already been a list generated by the Administration and approved by the School Board which shows what will be automatically cut from programs and services if the levy should fail.
It seems like we should also be talking about what will happen if the levy issue should pass.
First, it might be worth reviewing what drives the size and frequencies of levies. I hope this diagram helps:
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- Size of the Next Levy: This has come to be viewed as the first knob that gets adjusted. Current thinking among those who advise on levy campaign strategy is that 6.9 mills is the largest amount that can put on the ballot and passed by a majority of the voters. This is pretty much the reason our current levy is 6.9 mills.
- Time Interval until the Next Levy: In other words, do we plan for the next levy to be in 1 year, 2 years, 5 years? The Time Interval and the Levy Size are directly related, meaning that - all other things being equal - the larger the levy, the longer it can be before the next levy has to be put on the ballot.
- Rate of Spending Growth (or Funding Cuts): As I have related many times in this blog, our rate of spending growth is virtually the same thing as the rate in which the costs of compensation and benefits increase, with compensation and benefits comprising nearly 90% of our budget.
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This year, we finally have to face the fact that the State of Ohio is going to take significant funding away from the perceived affluent suburban districts, and it's going to happen pretty quickly, as I described in The Other Shoe Has Dropped. From the perspective of the bottom line (ie "Excess of Revenue over Expenditures" in school budget language), a one dollar reduction in funding is the same thing as a one dollar increase in spending - they both reduce the cash reserves by one dollar. It means you have to find that dollar somewhere else in the budget.
- Amount of Cash Reserves: It doesn't matter whether you are driving a Ferrari or a Yugo, when your car runs out of gas, it goes at one speed: ZERO. Cash is like the gas for any organization. When it runs out, the organization comes to a grinding halt, and it doesn't matter whether you're talking about the doughnut shop on the corner or General Motors (although the Federal Govt seems immune to this!).
So we need to make sure our outstanding school system with a $170 million annual budget doesn't run out of cash. When the payroll is more than $12 million per month, it can happen in a hurry.
That's one of the reasons why our School Board enacted Policy DBDA, which states "The Board believes that maintaining a cash reserve balance of 10% of operating expenses is necessary in the interest of sound fiscal management." This policy was adopted in August 2006, and was obeyed in FY07-FY10.
However, if it were not for the one-time Federal Stimulus grant of $4.3 million, we would have run out of cash this fiscal year (an observation I made in 2009). We are certainly below the 10% cash reserve target. It was this one-time money and the decision to draw down the cash reservese that allowed the current levy interval to be stretched to three years, not because our spending went down (acknowledging that the teacher's union, support staff union, and non-union employees all agreed to work in calendar 2011 without base pay increases or step increases).
It's not so much the size of the cash reserves that determines the levy size, it's whether we are drawing down or building up the cash reserves. By drawing down the cash reserves, as we have been doing this year (and would have last year without the Federal stimulus money), then the next levy can be delayed. However, to rebuild the cash reserves takes revenue above and beyond the normal operating expenses, and someday we're going to need to deal with that.
Okay, now that we understand the controls available to us, what would the situation look like after passage of a 6.9 mill levy in May 2011?
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However I have made some significant changes to the Revenue projections used in the Oct 2010 Five Year Forecast:
- The Franklin County Auditor will reduce property valuations by 8%, meaning that a 6.9 mill levy will raise $15.4 million/yr rather than the $16.7 million/yr that has been reported in the newspapers (by law, the Five Year Forecast cannot show revenue from levies which have not yet passed).
- The impact of the change in Personal Property Tax Reimbursement will be a total of $17.6 million between FY12 and FY15, distributed as follows: $3 million in FY12, $6 million in FY13, $3.5 million in FY14 and $5 million in FY15. Note that this is above and beyond the reduction in PPT reimbursement already built into the Forecast.
- Next levy no earlier than 2015 (four years): In order to end FY15 with a zero cash balance, we would need to cut the growth in spending to no more than $2.2 million/yr. To put that in perspective, the Oct 2010 Five Year Forecast shows spending growing $4.7 million from FY11 to FY12, $9.3m in FY13, $7.3 million in FY14, and $8 million in FY15.
No Earlier than 2015 - click to enlarge
- Next levy no earlier than 2014 (three years): This doesn't help much, as calendar years and school fiscal years are offset by 6 months, meaning that a new levy contributes only half its annual value in the first year, which is the following Fiscal Year. In other words, the May 2011 levy, if passed, will not contribute any revenue until January 2012, which is in last half of FY12.
- Next levy no earlier than 2013 (2 years), and let's keep spending as planned in the Five Year Forecast: This is simply not possible. If we want to commit to waiting until 2013 before the next levy is put on the ballot, there must be
spending cutsa reduction in the rate which spending is forecasted to increase.
Why? Because if we don't cut spending, we'll run out of cash in FY13.
- So if we want to wait until 2013 to next put a levy on the ballot, and we don't want that levy to be any larger than 7 mills, how much do we have to cut spending? This is the key point I'm trying to bring to light - that we'll have to reduce the rate of spending growth to about $4.5 million per year - about half the rate dialed into the Five Year Forecast - in order to survive for two years until an additional 7 mill levy would have to be put on the ballot. It would look something like this:
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There are many more ways we could twist these knobs to generate other scenarios. All of them will tell the same story - regardless of whether or not the May 2011 passes, we have a lot more hard work to do. We simply cannot sustain the rate of spending growth at which we have indulged ourselves over the past decade or so.