Sunday, June 17, 2012


The Federal Reserve just published a report addressing the loss of income and wealth by Americans in the period between 2007 and 2010. It was quite a blow, as the Washington Post quoted in its story on the Federal Reserve report: “It’s hard to overstate how serious the collapse in the economy was,” said Mark Zandi, chief economist for Moody’s Analytics. “We were in free fall.”

According to the Federal Reserve, median family income in America fell 7.7% in the period from 2007 to 2010. Simultaneously, the median net worth of families fell 38.8%, largely because the collapse of the housing market wiped out most of the net equity folks had built up in their homes, with many now having mortgage balances greater than their house's market value.

During that same period, the compensation of the teachers in our school district looked like this:

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The data for this chart was taken directly from the collective bargaining agreements between the Hilliard Education Association (HEA) and the School Board, which can be found here.

This chart shows the 12 year salary history for three example teachers. One is a New Teacher who was hired in 2002 with a Bachelors degree and no experience, but who goes on to earn BA+150 and Master degrees during this span of time. Next is a teacher who in 2002 has a Masters degree and ten years of experience, and achieves Masters+15 status three years later. The third teacher reaches 30 years of experience by 2013, and has been Masters+15 status the whole time.

If you are not familiar with how the salary grids work, this article may help.

The new, mid-career, and end-of-career teachers would experience annual income growth over these 12 years equivalent to 7.4%, 5.3% and 3.2%, respectively. This reflects the design of the salary schedule, which gives larger percentage increases to the teachers who are just starting out.

Teachers and other public school employees haven't been completely immune to this recession of course. They've lost value in their homes as well. Less tangible to them are the losses they've taken in their retirement fund; I've been reporting about the woes of STRS for a long time now.

But it is fair to say that this new report from the Fed shows that this recession has been much harder in general on folks in the private sector than it has been on the teachers of our district, and most school districts around the country.

This chart depicts shows the inflation-adjusted growth in spending by all State and Local governments (ie - Federal spending is not included here) as compared to the growth in Gross Domestic Product over the past sixty years. It says the State/Local spending (which includes public school districts) has grown at twice the rate of GDP.
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Let's not blame this on the politicians and public sector workers. We elect politicians who promise us things without us caring that they've mortgaged our future to fund those promises, often by creating programs that employ vast armies of public sector workers.

There are many things I admired about Ronald Reagan, but I heard it once said that he invited the whole country to a great steak dinner, then bugged out without picking up the check. I think it might also be fair to say that Bill Clinton gave us a great ride, but it was paid for using frequent flier miles that had been built up during the Reagan years.

Now the frequent flier miles are all used up, and the credit card bill for the steak dinner is still hanging over our heads, not looking like it will ever be paid off. Meanwhile, we've kept putting lots of new stuff on the credit card, and have been getting the credit limit raised all the while to make sure we can charge even more.

It's a scary time.

Our teachers and staff recognized this, and their 2011-2013 collective bargaining agreement dramatically slows the rise in compensation costs compared to prior years. You can see the effect of this agreement in the salary chart above, with 2011-2013 showing essentially flat salaries. As I've said many times, I am appreciative of their understanding in this new reality.

The real question is: Where do we go next?

I'm not trying to ignite a dialog about what teachers are paid. As my friend Marc Schare says, some teachers aren't paid enough, and some are paid too much. Maybe we'll soon have a effectiveness-based reward system which both teachers and the voters will trust, and we can start to deal with this issue. But let's leave that discussion for another time.

The question I'm raising here is about how we're going to survive the next several years. We need to drop the political and emotional rhetoric, and talk about what will work for all the stakeholders in our community.

This may be a particularly tough recession to work our way out of, but I have confidence that we'll slowly get to a better place. On the way there, we'll have lots of gut-wrenching, emotional, and unfortunately hurtful conversations about what is fair, and who should pay for what. These will range from "pay-to-play" decisions at the level of local school districts all the way to figuring out how our nation's Social Security and Medicare/Medicaid systems are going to be kept viable.

We'll hear more of the "tax the rich" and "cut the size of government" rhetoric. We need to do some of both I expect. And we'll need to figure how to keep nudging our economy in hope of getting things going again.

By that, I don't mean we should repeat the ill-conceived first stimulus package that was intended to prime the economic cycle by giving money to the consumers, and expecting them to spend it. Instead, many used it to pay down credit card debt, and if they did spent it, it went toward consumer products typically manufactured overseas. Good for the Chinese, not so much for us. At least the money we borrowed to fund the stimulus came from China as well.

I do think it's appropriate for the government to stimulate the economy, but I think it should done via spending programs that put Americans to work at highly skilled jobs. Reagan used a massive military buildup to accomplish that. Good idea then, maybe not so much now.

Maybe the best place to apply leverage is with big public works projects, like repair and upgrade of our infrastructure. No, we don't need high speed rail. Other than the densely populated Northeast Corridor, which is already well served by passenger rail service, airplanes are a better form of public conveyance for America. That's the reason the passenger railroads disappeared in the first place.

But we do need lots of highways and bridges repaired. Our national power grid is remarkably efficient and reliable given the technology in place, but we can do lots better. Some major dams need significant repair, while others need to be removed. These are all jobs that pay well, and can't be sourced overseas. The people in those jobs will spend their income here, supporting local economies. If we're smart about our other national priorities, we can set our economy back on a growth path in a year or two.

In the meantime, we need to protect our local economy and our property values by keeping the desirablility of our school district high. That means that we need to continue to bear down and be more cost efficient in our operations, and maybe even decide to curtail or eliminate some course offerings, programs and services. We voters may have to pass a levy every once in a while to offset what I believe will be a continuing State policy to reduce funding to school districts perceived to be affluent, such as ours.

And if we ever want to give raises to our teachers and staff again, we'll likely need some new levy money to fund that as well.

Teachers and staff - our community respects you and appreciates the way you care about our kids. But we need you to continue to be cognizant as to how scary this economy is for folks who don't have the same degree of job security as you. It will get better, we just don't know when.

We'll be negotiating new labor agreements in about a year. I hope we'll all go into that conversation with tons of empathy and information, and a shared goal to protect our community.

Friday, June 8, 2012

Supplemental Materials for Board Meetings

I'm still hoping that one of these days, we'll get all the materials provided to the School Board members in preparation for the Board meeting published to the District website, in additional to the agenda. Until then, I'll make them available in this folder on Google Docs. There will be one folder for each meeting, with the folder name indicating the meeting date as yyyymmdd (so they can be easily sorted in chronological order). Therefore the folder for Monday's meeting is 20120611.

I would especially like to hear your feedback on the recommended changes to our policies, which is the body of local rules under which our school district operates. The full set of policies are available on the district website.

Sunday, June 3, 2012


You may have been following the debate about whether The Ohio State University should raise a pile of cash by leasing out its parking operations for 50 years. This week, the Dispatch reported that they had received a bid of $483 million - all to be paid at the commencement of the lease.

First off, I'm kinda blown away by that number. For those familiar with the concept of Present Value, this is the equivalent of being paid a little more than $30 million per year for each of those 50 years, assuming an earnings rate of 6% (which is well less than the earnings rate being assumed for the State Teachers' Retirement System). Even if you assume our current 0% earnings rate environment extends for another half-century (oh, I hope not!), then it's still like getting nearly $10 million/yr of clear profit.

My understanding is that the OSU parking operations generate little if any positive cash flow for the university, and I've heard it may be losing a couple million per year. But that may be the results of accounting treatments that include substantial depreciation expenses, which isn't real money, especially for a tax-exempt organization.

So on the surface, and without knowing all the details of the contract, this seems like a pretty good deal for OSU. One wonders what kind of modeling the bidder has done, and what kinds of assumptions have been made to make it worth paying OSU a half-billion dollars in cash today on the hope of making it back with a profit over 50 years.

Maybe the deal puts the responsibility on the new operator to maintain the pavement, gates, booths and all the other fixtures and equipment. Maybe they have to pay for the electricity to run the parking lot lighting. Could be that they will be responsible for the cost of removing snow from the lots in the winter.

Without question, a big part of their assumptions has to be that they will significantly reduce labor costs. I wonder how much that is in reality, as many of the times I've parked at OSU lately, the process was entirely automated. But maybe there are times and places when they have attendants on duty in the booths, although I've always assumed that these are usually students who work part time on the cheap. But maybe most of these folks are fulltime, and if so most likely unionized workers who are getting compensation and benefits some feel are unreasonable.

So, what does that have to do with us - a public school district?

It turns out that public school districts do a fair amount of outsourcing as well - using outside contractors to perform certain functions rather that employing inhouse staff. Perhaps the most common of those is transportation - getting kids to and from school. One of the largest of these operators is First Student, whose buses we see around central Ohio transporting kids for Columbus City Schools.

But there are a number of other functions which are sometimes outsourced, both in the public sector, and in private industry. My background is in the IT world, and that is certainly a field where outsourced resources are quite commonly used, especially since one can find skilled software developers in India or China who will work for a fraction of the salary demanded by an American-based worker.

All kinds of functions can be outsourced. The question is whether they should be.

One can come at that question from a purely financial perspective, and make decisions simply on the basis of which alternative - employees or contractors - costs less. In almost all cases, outsourcing will win.

But there's more to it than a simple financial comparison, and many of those factors are hard to quantify into dollars and cents.

In my three decades at CompuServe, our strategy was generally to do everything inhouse that we could. We purchased the license to manufacture our hosts/servers inhouse, at a facility we built in Dublin. Our communications switches/routers were designed, manufactured, programmed, maintained and operated by engineers and technicians who were employees of the firm. Our teammates mowed our own grass, plowed snow from our parking lots, and cleaned our restrooms.

Why?  Because our business wasn't so much about the technology as it was being a trusted service provider to our customers worldwide. Therefore, we wanted every person involved in the chain of delivery of that service to feel that they were part of one big team. It may not have been the cheapest way to get things done, but it promoted a sense of shared duty and responsibility - of family, as trite as that sounds. All you have to do is put out word that a group of CompuServe alumni are gathering at some pub, and the place is packed - more than a decade after the company ceased to exist.

I see that kind of spirit of team in our school district as well. Every Thursday afternoon when I'm at Hilliard Crossing Elementary, I see Tim and John, the custodians there, go down the hall with a tennis ball on the end of a pole, erasing all the scuff marks left on the floor by hundreds of pairs of little sneakers. When they're done for the day, the floor truly shines like a mirror, even though they know the next day it will get all scuffed up again.

Why?  One, because they're good guys who take pride in their work. But they also know that they're part of the team who are all there to do their part in educating the kids of our community. It's hard to put a price on that.

One function we did outsource at CompuServe was our food service operations. I think there's just something about food service operations that makes outsourcing a good choice. Maybe it's because of the high visibility and high intensity of the service. It could be because of the transient nature of many workers in this industry - it's just too much of a distraction for school administrators to make sure all the workers you need are showing up every day.

Whatever all the reasons, note that food service is the one major function we outsource in our school district as well. Aramark has been a good partner in that regard.

My CompuServe experience causes me to be generally opposed to outsourcing important function in our schools. I like it that our kids are transported by bus drivers who are part of our team, and often neighbors and friends. I think it's a good thing to have folks like Tim and John and all their teammates making sure our buildings are clean environments for both kids and staff. It's a good thing that we have an inhouse team who can take care of basic issues with our building mechanical systems.

For me, contracting for outside services makes the most sense when we have a temporary need for an extraordinary quantity of work, or when we have occasional need of certain special skills.

For example, if the IT department was asked to develop software giving us a certain valuable capability, and we don't have the skills or capacity inhouse to get the work done within the desired timeframe, then it makes sense for the IT group to contract with an outside software development company to get the work done. When the work is done, the cost for the extra capacity stops as well.

A few School Board meetings ago, the Board granted the Superintendent the authority to use the Educational Service Center of Central Ohio as the provider of substitute teachers, tutors, and various other roles. An ESC is a public entity defined by Ohio law as a provider of shared services to school districts, and is funded predominately by the fees it charges its member districts. So it's not a for-profit corporation, but rather a resource that allows public school districts to consolidate functions when and where it makes sense.

We'll see how this works out. There is concern that because we will be drawing from a larger pool of subs, our teachers might not have the same opportunities to request particular individuals for their kids. I don't know the nuances of the new system yet, but trust that we'll be able to work out the kinks.

As important as I feel the sense of team is when running a services organization, which certainly describes a school district, we can't ignore the economics. I think most for-profit companies would rather do everything inhouse too, but they have to be able to compete for customers on value, and as the Wal-Mart example has shown us, consumers may say they think it sucks that millions of American jobs have been outsourced to China, but the vast majority prefer lower prices over "Made in America."

If any segment of our school ecosystem feels they need to "win" economically - be that teachers, administrators, staff, school board members, suppliers, or taxpayers - then we'll lose as a team, and we will have failed each other. More functions will get outsourced, more labor actions will be taken by the unions, taxpayers will get angry, levies will fail, and property values will suffer.

More tragically, we will have failed our kids.