Saturday, June 25, 2011

Retreat 2011 - After Action Report

It was a good two days.

Long time readers of this blog know that I have been critical of the annual Board retreats, not so much because of what was discussed as much as what wasn't. Namely the long-term economic outlook.

I felt this year was different. After the routine matters were quickly dealt with Thursday evening, the rest of that session was devoted to discussing economics. I described to the group my "Four Knobs" approach to looking at fiscal structure - which is that once you set the goal for three of the four parameters:  spending growth rate, cash reserves, levy size and levy interval - the fourth is determined.

I suggested that the first 'stake in the ground' should be the interval to the next levy - and that it should be at least three years. There seemed to be general agreement that this was a good target.

No doubt, some will say that any more levies are too much. Others will demand evidence of  "cutting the waste" be presented before any levy gets their yes vote. We'll hear about school buses that always seem empty, or lights left on at the football fields when no one is there, and how we have too many highly paid administrators.

In truth, what we have is a school district which has evolved - from the very good, smallish and rather ordinary school district which was Scioto Darby Local Schools back when we moved here over 30 years ago - into a school district which is among the 10 largest in Ohio, offering a rich array of programming and services, and which excels in academics, performing arts, and athletics. We are one of a handful of the 600+ school districts in Ohio which has been rated by the State Board of Education as "Excellent with Distinction" three years in a row.

Attached to every one of those programs and services - added incrementally over many years - is a constituency.  Also attached is an expense stream.  We know that nearly 90% of our operating budget is spent on compensation and benefits. That's because every program and service is provided by a person. Or a team of people. Good people. Talented and experienced people.

The catalyst for Hilliard's rapid growth was the strife created by the Penick vs. Columbus Board of Education lawsuit in the late 1970s, which ended with the Federal court ordering the implementation of busing to achieve racial integration of the Columbus City Schools (a failed effort), which in turn motivated many families to seek housing in the suburban school districts. The suburban building boom started in the late 1980s, when the economy began heating up, and most of us were feeling pretty good about the economic future.

And so the student population of our schools boomed as well. Prior to 1988, the last new school building opened in our district was Britton Elementary in 1968 (which was being used as a "Freshman Building" when we moved here). Then in the period between 1989 and 2002, we constructed 13 new school buildings - a rate of one per year.

Each of those new buildings required a new team of teachers, staff and administrators. Many were teachers just beginning their careers, and consequently at the bottom of the pay schedules.

Those who were hired during this period of rapid expansion are now 20 or more years into their careers, and consequently are in the upper half of the pay grid, where there are no step increases. This is approximately 35% of the teachers.

Let's pause to recognize what the new collective bargaining agreements means to these folks: their last pay increase was January 2010, and they won't get another one any earlier than January 2014 (what happens after this contract expires is yet to be determined). In other words, our most experienced employees - the ones who were instrumental in building this District into what it is today - will have their pay frozen for four years, and by the way will also be making a slightly larger contribution to their health insurance coverage, about $60 more/mo for family coverage.

So our compensation costs have risen at the rate they have over the past 20 years largely because we have a huge body of employees who were hired young and have been since steadily marching through a fairly aggressive step schedule accompanied - until the last year - by 3+% base pay increases.

If our growth period as a district is over, then we could enter a time of much slower compensation growth as more teachers and staff  advance past the years when step increases are applied. Our average compensation would still be much higher than it was 20 years ago, but the year to year changes would be expected to be smaller.

Having smaller growth in compensation costs ties right back to the Four Knobs. That is, if the rate of compensation cost growth slows, it would allow for less frequent and/or smaller levies going forward.

Andy Teater made an important observation in this regard: that if many of our most senior teachers accept the early retirement incentive offer that was part of the most recent contract, then the teachers we hire to replace them will receive much lower pay (about half) than the senior teachers, but they'll also be receiving step increases for a number of years.

A school district with a stable population tends to also reach a stable cost of labor.  The number of teachers and other staff remains relatively constant, as does the distribution by length of service. In that circumstance, the year to year change in personnel costs is likely to be driven as much by rising health insurance costs than salary increases.

At this moment in time, we are not a rapidly growing district, but we still have thousands of acres of developable land within our boundaries, including most of the land surrounding Bradley High School. If and when the market for new homes takes off again, we'll again become a high growth district -- if our school district remains desirable. And remember, that if we aren't a place where people want to built new homes, we won't be a place where people want to buy our existing homes either. Low demand = low selling prices. Not good.

The decisions we - Board and Community alike - make over the next four months will set the tone for the future of our school District. The Board seems to be in agreement that we want to aim for at least three years before asking for another levy. We still have to settle on the levy size (and structure), and the rate in which will allow our spending to grow. We also need to decide what level of cash balance (call it the 'rainy day fund') we want to hold, and how quickly we want to get there.

The Superintendent calls our current situation a 'financial crisis.'  I cringe at the use of that word - it implies "out of control" to me.

It's really a decision point. We have to decide how to twist the four control knobs. For those who want to go after the rate of spending growth, I'll suggest that the teachers and staff have done their part by agreeing to go three more years without base pay increases.

That means that to further cut the rate of spending growth means reducing headcount (ie layoffs), which requires cutting programs and services. The common refrain is "Cut program X (which I don't care about), but retain program Y because it's important to me."  If you think this problem is easy, just observe all the people who have showed up to object about the cuts after the failure of the levy in May. As I said, every program and service has its constituency.

Or we can leave the rate of spending growth as forecasted, and pass a levy big enough to support it.

Or we can keep defeating levies and watch one of the top school districts in Ohio get disemboweled one program at a time.

There's only one stake in the ground right now: 3 years to the next levy.  What do you feel about the other three?

24 comments:

  1. Here's the problem with your scenario- voter's turn two of the knobs, one knob is out of order for three years, and the board is left holding the one that doesn't mean squat.

    Although the District does not directly control the size and intervals of passing levies, I think pinning down these numbers will build voter confidence and provide a foundation for a solid plan.

    Whatever we arrive at, we need evaluate ourselves against other high performing districts in Central Ohio and what they are charging in terms of property taxes.

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  2. 7.5 mills every 3 years.

    By my calculations, that works out to 2.5% annual growth in the school portion of my property taxes.

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  3. Indeed, the voters have the final say on two of the knobs: levy size and levy frequency, but they don't get to vote until the Board decides what to put on the ballot. It's not multiple choice (although I wish it was); there's one number put on the ballot - the millage - and the voters decide YES/NO.

    Deciding what to put on the ballot is the next task of the Board, and I sure would like to hear what folks are thinking.

    If I'm following you, the knob that's out of order is the rate of expense growth. That's not true. The new union contracts set the price of labor, but the Board can still adjust the number of people who are employed. In fact, that's exactly what the 'cut lists' that accompany levy campaigns are all about. If the levy doesn't pass, the Board will cut costs primarily by laying off teachers, staff and administrators.

    The cash balance knob is not without meaning either. It certainly cannot go below $0.00 in the current year. Whether or not we try to restore the 10% reserve which is policy is a matter to be decided, and it's not a freebee. For every dollar the cash reserve is increased, that's one less dollar of levy revenue applied to current expenses. In other words, to increase the cash balance, we have to decrease the rate of spending growth, or increase the size of future levies. Like I said, the four knobs are inextricably interconnected.

    As for comparing the property tax rates in other districts, you have to peel the onion back a couple of layers. By that I mean that the burden on the homeowners is determined not only by how much a district spends, but also by the makeup of its revenue stream.

    For example, Indian Hill schools down near Cincinnati operates at the 20 mill floor. But then their per-pupil property value is $657,609 compared to our $178,680. They raise $643/yr per pupil per mill compared to our $157 - and that virtually all residential property. Must be where the pro athletes and the P&G execs live.

    Princton City Schools, again near Cincinnati, raises $317/yr/pupil/mill, but then they are home to two huge employers: GE Aircraft (jet engines) and Ford Motor Company (transmissions). Consequently, their residents pay very low property taxes, as the commercial entities pay a ton.

    As for central Ohio, the property taxes per student for the Exc/Dist districts is as follows:

    UA: $12,296
    Grandview: $10,541
    New Albany: $10,086
    Dublin: $9,689
    Bexley: $9,224
    Westerville: $7,276
    Hilliard: $6,960

    A stat I came up with is "Students educated per Mill," which combines what we spend per student with our property values. Of the Exc/Dist districts, we come out like this (the bigger the number, the 'better' one could say):

    Westerville: 246
    Dublin: 232
    Hilliard: 211
    UA: 108
    New Albany: 77
    Bexley: 31
    Grandview: 18

    It seems to me that we compare favorably in both these statistics.

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  4. Thanks for the clear numbers!

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  5. Your property tax statistics are certainly insightful. But "effective rate" is the only one that matters. And we compare unfavorably in that one.

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  6. Paul, I think the very foundation of your argument is flawed.

    It's akin to McVey saying we can't cut our way out of this crisis.

    Yes, we can.

    And here's why (and I think you'll kick yourself here).

    Essentially, the employees haven't had a raise since 2010.

    Cutting current expenditures back to 2009 levels eliminates the deficit and requires no levy.

    So, since our deficit is significant over the next 3 years, but we know it isn't caused primarily by salary increases, but we know it IS caused primarily by compensation and benefits increases, there's only two possible reasons:

    1. Benefits increases. Yes, these have occurred, but they don't account for the difference, anywhere close.

    2. Staffing level increases.

    It should be pretty obvious where the problem is (and to your credit you've noted this).

    But these people didn't exist in 2009 so cutting them isn't going to have any kind of dramatic negative effect on our school district. (Caveat: If the administration simply opts to cut that number of staff but NOT the staff that were added, then obviously it could have a negative effect.)

    So I think the number (and details) I want to see, and you as a board member should want to see too, is precisely what positions have been added in the last 2 years, and let's start there and examine if any of them are actually necessary before asking the voters for more money.

    Oh, and your target needs to be 4-5 years, not 3. But that's another matter.

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  7. T ... Effective millage has meaning only when attached to a property value. If a comparable property are valued at 25% more in UA vs Hilliard, for example, then the effective rate in UA can be 20% less than Hilliard and generate the same dollar amount of tax.

    This was the crux of the DeRolph lawsuit many years ago - the claim that districts with low property values must tax themselves at very high millage rates to generate enough money to operate their schools up to the 'thorough and efficient' standard set by the Ohio Constitution.

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  8. M - There's a revenue component to the picture as well. In Dec-08, the Five Year Forecast projected $159.6m in revenue for FY12 - the year which starts in 4 days. Brian's most recent forecast shows $152.1m, a difference of $7.5m.

    You're right that $152m would cover the 2009 spending, and I suspect you're also right that the difference has been mainly in headcount. So what has happened between 2009 and now?

    How about the opening of Washington Elementary and Bradley High School?

    Granted, those teachers and staff weren't all hired anew the same years the schools opened - just as there wasn't magically 2,000 more kids in the district the day those schools opened.

    But there certainly were a number of new teachers and staff hired when those buildings were opened. Front office, custodial, transportation, athletics.

    And of course there were the utility/maintenance costs of the two new buildings.

    The Forecast also sets some money aside to pay for the Early Retirement Incentive Program. Our cash reserves are insufficient to pay the projected cost.

    Rather than assume that least necessary positions are the last ones filled, I'm suggesting that we'll have look more deeply into the array of programs and services offered, and perhaps decide that some are no longer affordable. Those may be programs that have been offered for years.

    It's an iterative process of course, and we have several more to do...

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  9. Paul- I understand what you are saying. But I'm not comparing my home to one in UA. I'm looking at Westerville / Worthington / Olentangy.

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  10. So are you saying Paul that you and the fellow Board members are currently looking at these "programs"? Will there be any opportunities for ANY community involvement?

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  11. ABM: No, there has been no discussion by the Board in regard to individual programs and services, other than my comments at the Retreat. As is appropriate, 'cut lists' are developed by the Administration based on their analysis and opinion about what should be cut first should the spending plan need to be reduced.

    I'm suggesting that the Board should spend a lot more time discussing these cut lists, and by all means allow the people of the community to weigh in before the list is finalized, and before the levy election takes place.

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  12. T-- here are the effective rates of the school levies (operating & bond) in force according to the Dept of Ed's 2010 CUPP report:

    Hilliard: Total=75.85, Effective=41.94
    Westerville: T=65.40, E=43.03
    Worthington: T=83.24, E=41.55
    Olentangy: T=64.80, E=37.44

    Olentangy has since passed a 7.9 mill operating levy and and a 0.5 mill bond levy, so their effective rate is 45.84.

    Worthington last passed an 'incremental levy' which will go up another 1.5 mills, making their effective rate 43.05

    Seems pretty comparable.

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  13. Paul -- Here's the problem. We can't comment on cut lists, or put forward alternatives when the administration doesn't publish any of the numbers, and refuses to release information after public record requests!

    Frankly, the administration needs to be brought into line by the board and be instructed to provide requested information within a certain time period. (They have it already, so it's not like they have to spend hours putting it together.)

    If you guys don't do this, the district is going to find itself on the wrong end of a lawsuit.

    As far as I am concerned, the administration's refusal to provide information in a timely manner is a deliberate stalling factor.

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  14. M - your point is well taken.

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  15. Ho hum...

    ------------------------
    The Upper Arlington school district will again delay asking voters to approve a levy in 2011, further breaking a nearly 20-year cycle of asking for a levy every three years.

    Administrators first decided to extend the traditional levy cycle by one year in June 2010.
    This year's extension, announced at a June 29 special meeting, will mark the fifth year since the last levy in November 2007, when voters approved a combined levy of 4.2 mils operating and 2 mils permanent improvement.

    District treasurer Andy Geistfeld said the decision to postpone the levy is the result of a group effort to decrease current expenditures and avoid future expenditures, thus preserving the district's fund balance. He said the district will finish fiscal year 2011 with revenue exceeding expenditures.

    "We don't know what the future holds," said superintendent Jeffrey Weaver. "But we do know what this year holds. Right now, we anticipate being on the ballot in November 2012."

    For more on this story, see the July 7 edition of ThisWeek Upper Arlington.
    -----------

    I suggest the board and the administration wake the hell up.

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  16. Okay, but according to UA's latest Five Year Forecast, they ended FY10 with a $42.5m cash reserve, which is equal to 57% of their annual budget (we have a history of dropping to about 5%, passing a levy to get us back to around 11-12%, then dropping off again).

    I suspect they've been putting levies on the ballot every 3 years just to get voters in a rhythm, and build their cash balance. Holding off a levy for another year is a piece of cake if you have that kind of cash in the bank. In fact, they're not projected to run out of cash until the end of FY15.

    Their spending rose 4.9% from FY09 to FY10, and is projected to increase at a CAGR of 3.6% through FY15. They will be deficit spending every year starting FY12.

    So I'm not so sure they've been any better than anyone else at holding expenses. They've just been better at getting levies passed.

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  17. Paul:
    In order to slow the growth in compensation, we need to realize that growth in benefits is going to consume more and more of the district personnel budget. As benefits are part of total compensation, perhaps the step tables need to be re-evaluated. Giving 4.15% steps every year for 15 years on top of their negotiated COLA is a bit excessive and higher than any other district in the area from what I've seen. I won't even bother mentioning the education steps which are even more out of line with other districts. As a taxpayer, I want to see a 5-year budget that shows sustainable growth going forward that doesn't exceed the typical taxpayer's ability to pay (i.e. keeps up with general increase in wages). I cannot vote for one that simply pauses every time there is a "crisis" and then continues unabated at unsustainable levels.

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  18. I agree that we'll need to look at the structure of the grid, and see what adjustments are warranted.

    We'll also have to figure out what the new budget bill means, as it requires districts who receive Race to the Top money, of which we are one, to implement a pay-to-performance system for teachers (see this document, page 49.

    However, since the new contract with the teachers' union will remain in force through 2013, we have a couple of years to develop and prototype such a system. I'm thankful for that, as there few if any public school districts in Ohio prepared to implement pay-for-performance.

    Of course, this all presumes that the Governor and General Assy stick by the pay-for-performance philosophy. I think part of what the unions are betting on is that Kasich will be defeated in 2014, and that the next Governor will be a Democrat who restores the pre-Kasich labor laws.

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  19. M said...
    Ho hum...

    ------------------------
    The Upper Arlington school district will again delay asking voters to approve a levy in 2011, further breaking a nearly 20-year cycle of asking for a levy every three years.

    Administrators first decided to extend the traditional levy cycle by one year in June 2010.
    This year's extension, announced at a June 29 special meeting, will mark the fifth year since the last levy in November 2007, when voters approved a combined levy of 4.2 mils operating and 2 mils permanent improvement.

    District treasurer Andy Geistfeld said the decision to postpone the levy is the result of a group effort to decrease current expenditures and avoid future expenditures, thus preserving the district's fund balance. He said the district will finish fiscal year 2011 with revenue exceeding expenditures.

    "We don't know what the future holds," said superintendent Jeffrey Weaver. "But we do know what this year holds. Right now, we anticipate being on the ballot in November 2012."

    For more on this story, see the July 7 edition of ThisWeek Upper Arlington.
    -----------

    I suggest the board and the administration wake the hell up.



    Actually, its you who needs to wake the hell up. The Hilliard district did just the above with the past levy. They were able to extend the last levy, one year further than expected.

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  20. M -- As I've said many times, the interval between the last levy and the next one was extended primarily through the use of $4.3 million of one-time Federal stimulus dollars and by drawing down the cash reserves. Had that Federal money not arrived, there would have almost surely needed to be a levy on the ballot last year.

    So I'm not clear whether you're yelling at me cause you think there shouldn't be a levy this November, or whether you think there should be.

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  21. Paul,

    I think Anonymous was directing at me. What Anonymous doesn't realize is that levies used to be at 4+ year intervals, so "stretching to 3 years" is an insult.

    To Anonymous -- most of us on here were asleep in the past. You'll wake up too at one point.

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  22. Paul,

    Thanks for pointing out the competitiveness of our effective school tax rate. I have always looked at the total rate, and then scrutinized its largest component.

    Just keep in mind that levy votes dont occur in a vacuum. Norwich Twp has been deficit spending in their fire fund for three years now. So they will be coming to the ballot soon.

    As long as my overall rate is among the highest, I will be extremely reluctant to increase any of its parts....

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  23. Paul,

    I think Anonymous was directing at me. What Anonymous doesn't realize is that levies used to be at 4+ year intervals, so "stretching to 3 years" is an insult.

    To Anonymous -- most of us on here were asleep in the past. You'll wake up too at one point.


    And gas used to be 1.50 a gallon. Times change. If you want quality education, a great place to live, then sometimes its going to cost a little more. I don't like paying taxes anymore than anyone else. But Hilliard Schools along with the community, are the reason I moved to Hilliard. They are a major reason why our homes are worth what they are. I invest in real estate and know how home prices work in the Columbus area. I hope something can be done to help with the taxes...but not at the expense of hurting a wonderful school system, in turn hurting home prices, then the community. Its a SLIPPERY slope!!

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  24. Property taxes are so extreme in the Hillard school district and are hitting some home owners really hard. We are at the point of selling our home but the values have dropped $50,000 below purchase price and then you have realitor fees. Know one wants to purchase a home in the Hillard School distrit who does not work for the union wages and has no children.

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