Thursday, September 27, 2012

Supplemental Material for the Sept 27-28 School Board Meeting

Here is the set of material we have received for the School Board meeting which will take place Thursday evening*, and all day Friday. In addition to the normal business of the Board, which will be dealt with during the Thursday evening session, this is also the Annual Retreat, where we spend extra time discussing matters of a more long-term and strategic nature.

In preparing for this Retreat, I asked for two sets of data to be prepared. One set contains a record for each certified and classified employee of the district, and the other a record for each section for each course offered in our high schools.

I've prepared a few reports from these datasets, and have uploaded them here. I'm not trying to draw conclusions from these data, but rather am using them to drill down to a deeper understanding of the dynamics that drive our District. In particular, I'm trying to learn about how the expansiveness of our high school course catalog is affecting the student/teacher ratio, which plays a significant part in the economics of our district. Our extracurricular programming has received a lot of attention during levy campaigns because of the perceived cost. It may be time to review the academic programming as well.

I'm not saying that we need to have cutbacks in either academic or extracurricular programming. Only that it's appropriate that all programming be reviewed periodically so that the community can make a decision about the taxes they're willing to pay to support these offerings. As always, your respectful feedback is always appreciated.

One of the most important matters we'll be dealing with in the regular session is item 12A, the Permanent Appropriations Resolution. This is a resolution which by Ohio law must be enacted each year by every public school Board of Education. It serves two primary purposes: 1) it authorizes the agencies which collect taxes on behalf of the school district to transfer those funds to our control; and, 2) it is the spending authorization granted by the school board to the Administration in order to run the district.

This resolution is accompanied by the Budget, which contains more information about how the Administration proposes to spend the money. I have some additional questions regarding this Budget, which I communicated to the Administration and my fellow Board members via this memo.

I'm looking forward to this year's Retreat. The Superintendent has planned a different structure this year which I expect to be oriented much more toward the 2020 Plan, the core of our Strategic Plan.

You may have already seen the news that the Ohio Department of Education has released preliminary results of the State Report Cards for the 2011-2012 school year. Our Districts is expected to receive a rating of "Excellent with Distinction" for the fifth year running.

'Well Done' to the teachers, staff, administration, kids, parents, community residents and our business partners for this achievement!

* If you plan to join us for the Thursday evening session, note that the meeting will be held at the Support Services Facility, 2140 Atlas Street, starting at 6pm. The Friday session will be held at the Central Office Annex, from 8am to 3pm.

Tuesday, September 18, 2012

Board Meeting Changes


Notice is hereby given; the regular meeting of the Board of Education of the Hilliard City School District on Monday, September 24, 2012 has been canceled.

September 18, 2012

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


(RC 3313.16)

Notice is hereby given that that there will be a SPECIAL Meeting of the Board of Education of the Hilliard City School District, on THURSDAY, SEPTEMBER 27, 2012 at 6:00 P.M. located at the Hilliard City School District Support Services Facility, 2140 Atlas Street, Columbus, Ohio. The meeting will be 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 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.

September 18, 2012

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


(RC 3313.16) 

Notice is hereby given that that there will be a SPECIAL Meeting of the Board of Education of the Hilliard City School District, on FRIDAY, SEPTEMBER 28, 2012 at 8:00 A.M. located at the Hilliard City School District Administration Annex, 5323 Cemetery Road, Hilliard, Ohio. The meeting will be 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 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.

September 18, 2012

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

Friday, September 14, 2012

Time Bomb: Lengthening the Fuse

This article is part of a long discussion about the solvency of the State Teachers Retirement System. Other articles can be found here.

This week, the 129th General Assembly passed Substitute Senate Bill 342, the long-awaited legislation to make changes to the State Teachers Retirement System (STRS) in hope of restoring solvency to this huge and important pension plan. Similar bills were passed in regard to the other state employee retirement systems. Now they go to the Governor for signature. I presume that will happen without further debate.

The independent Ohio Legislative Services Commission provides analysis of proposed legislation, primarily so the legislators can understand what they're voting on, but also so the public may review and give comment. Here are some of the most significant changes, as I understand them*:
  • The employee contribution rate to STRS will be increased by 1% each year starting in July 2013, from the current 10% of salary until it reaches 14% of salary (in 2016). The employer contribution rate will remain at the current 14%.
  • After July 2017, the STRS Board will be allowed to reduce the employee contribution rate to less than 14% if the Board's actuary determines that doing so will not harm the solvency of the system. This presumably would happen when their investment portfolio is enjoying extraordinary returns (more on this later).
  • Under the current scheme, the basic retirement benefit is 2.2% of the Final Average Pay (average of the last three years of employment) times the number of years of service. However, there were 'kickers' that engaged for a teacher who completed more than 30 years of service.

    The big kicker was that a teacher retiring with 35 years or more of service would receive 2.5% of FAP times the years of service, rather than 2.2%. This works out to 87.5% of final average pay. Many of our teachers will retire at the top of the pay scale, which is currently $90,855, making the annual pension for those who retire with 35 years of service be $79,500.

    These kickers are being eliminated effective August 2015. Afterward, as I understand it, a teacher retiring with 35 years of service would receive 77% of FAP, which is $70,000 in the case of a teacher with an FAP of $90,855. This nearly $10,000/yr difference will motivate every teacher who hits 35 years years of service in 2015 or before to retire before August 2015. According to data I've seen, there are about a dozen such teachers in our district. Many of those who would have been eligible retired last year via the early retirement incentive program.
  • After August 2015, the FAP will be calculated with the final 5 years of salary, rather than the final 3. This is significant only if salaries are increasing rapidly, and if that is the case, the 5 year averaging will tend to make the FAP be smaller than it would be with 3 year averaging.
  • Starting next year, the the annual Cost of Living Adjustment will be reduced from 3% to 2%. Those retiring before July 2013 won't get the first COLA for one year. Those retiring after July 2013 won't get one for 2 years. Those retiring after August 2013 won't get COLA for 5 years.
  • Permits, but does not require STRS to pay up to 90% of the monthly basic Medicare Part B premium.
  • Permits, but does not require STRS to offer long-term care coverage.
  • Allows 'double-dipping' to continue, but the retiree forfeits two months of retirement benefits.
  • The option to choose a Defined Contribution Plan continues, even though almost no one does this any more. If an employee shifts from the Defined Contribution Plan to the Defined Benefit Plan, STRS is permitted to, but not required to, shift some of the employer contribution made under the DC plan to the DB plan. As I understand it, the choice to switch must be made by the 5th year.
The increase in contributions and the reduction in benefits - both which largely affect only those yet to retire - may be helpful, but a key problem remains:  the assumption that the investment managers will be able to generate returns averaging 8% forever. Last year, according to their own investment reports, their return was only 2.34%.

The STRS management tries to make that look less onerous by 'smoothing' the reported return over 4 years. That seeks to hide a basic piece of investment math: if you lose 20% of your money in one year, you have to earn 25% in the following year to get back to where you were, much less generate the 8% CAGR you need to average over the long haul. Here's an illustration:
click to enlarge
If you start with $100 in 2002, then apply the actual annual earnings rate achieved by the STRS investment managers, then in 2012 you would have ended up with $196, which is a respectable 7% compound annual growth rate. However, the STRS actuarial assumption is 8%, and if they had earned 8% every year since 2002, the $100 would have grown to $216. In other words, the fund has about 9% less money in it than they were counting on.

This week, Federal Reserve Chairman Ben Bernanke announced that the Fed was going to try to keep interest rates near zero for the foreseeable future. This might be great news to the borrowers in this world, but it's a nightmare for those who intend to generate income with interest-bearing investments, notably those traditionally recognized to be the safest of all - US Treasury Bonds.

The most basic principle of investing is that risk and return are inversely related. If one wants little risk, one has to accept little return. To get greater return, greater risk has to be taken. So if the least risky investments generate essentially zero return, then for STRS to achieve 8% return, lots of risk will need to be taken.

Yet most teachers I've talked to are risk-adverse. After all, STRS offers a Defined Contribution Plan in which the contributions are the same as with the Defined Benefit Plan, but with the DC plan, the teacher gets to decide how to allocate their contributions among a variety of investment options, in the same way most 401(k) DC plans work in the private sector. Virtually all STRS members selected the DB plan anyway, leaving all the investment decisions up to professional investment managers who they expect to invest in a manner that generates a respectable return, but also protects them from 'losing their nestegg.'

Of course, when the real estate and stock markets tanked 2007, the investment managers just said "hey, we lost less than most people," even though it was tens of $billions of the teachers' money - a result which directly led to this reduction in future benefits. Nonetheless, the investment managers have been given the green light to pursue investments that they hope will generate 8% returns in a 0% interest rate climate. More return - more risk.

So what happens if the the risks they take don't work out?  This Time Bomb hasn't been disarmed, it's only been given a longer fuse. Even without another stock market crash, the STRS managers will be hard pressed to build a portfolio of investments that will reliably return 8% for decades. What if they never get there? Where will the money come from to pay for even this newly reduced level of benefits if the investment managers don't meet this aggressive goal?

Again, it should not be the taxpayers. We will continue to pay the 14% employer contribution, and then it's up to the STRS managers to decide how to balance their contribution, the benefits they expect, and the risks they want to take. If they win big on the investments, this new law allows all the benefits to accrue to them, such as the reduction in employee contribution (ie there would be no reduction in employer contribution). If that's the case, they lose big, then they can't expect the taxpayers to keep them whole.

* STRS Members: DO NOT rely on anything I have written or said to make decisions about your own retirement planning. Please consult with your STRS representative.

Friday, September 7, 2012

Supplemental Material for Sept 10, 2012 School Board Meeting

Here is the supplemental material for the September 10, 2012 School Board meeting.

The primary item is a set of policy updates being submitted to the Board for our consideration. You might wonder where all this stuff comes from.

One of the official committees of the School Board is the Policy Review Committee. Its members include several administrators, principals, an HEA member, and two members of the School Board, who are appointed at the annual organizational meeting, held in January. This year, those members are Lisa Whiting and Heather Keck.

As a member of the Ohio School Boards Association (OSBA), we periodically receive a set of recommendations from their legal/policy staff as to the policy changes they believe local school boards should - and sometimes must - implement, primarily triggered by changes in Ohio and Federal law. This is a valuable service in my opinion, as it would be very expensive to maintain inhouse staff, or retain private counsel, to keep up with all the stuff happening at the Statehouse and in Washington DC.

Our Policy Review Committee considers those recommendations, and others that may arise locally, then decides which ones apply to us, which ones should be implemented verbatim, and which ones should be modified to fit our local circumstances. Their recommendations are submitted to the Superintendent for his further review. He then submits his recommendations to the School Board for action.

The policy of the School Board is to put the recommendations on the agenda for three successive meetings, and then at the third meeting to take action to accept some or all of the recommendations. The School Board may also decline to take action on some of the policies, sending them back to the Policy Review Committee for further review.

One of the policies being submitted to the School Board in this batch is a substantial update to Policy DC, which deals with Taxing and Borrowing. I'm still trying to absorb what all of it means, but I am in particular agreement with Section III, Paragraph D, which says "The District shall not employ derivative products."

We've seen a couple of local districts get burned by using a derivative instrument called a "synthetic interest rate swap."  Brian Wilson, our district's Treasurer, was wise to keep us away from these complex financial products. This policy makes it clear that we won't even consider them in the future.

Policy EAGC is being changed so that rather than the district buying cell phones for certain administrators, then trying to restrict their personal use, we'll start giving those administrators a phone allowance to compensate them for official use of their personal phones, and then we don't have to care about personal use. This is sensible, and the approach used by many private sector employers.

Policy GCBE limits the amount of unused vacation a management team member can carry over and accumulate. Again, something that is commonly seen in private industry.

Policy IGDJ would be changed to require all paid coaches to view a course on concussions. Seems like a very good idea.

Changes to IGDJ and IGCF would make it clear that students who are home-schooled, or attend a community school would be allowed to participate in HCSD athletic programs provided such students are enrolled on a part-time basis in our schools.

Policy JHCCB would be amended to excuse a child from tuberculosis testing under certain conditions, including religious convictions. I'll be interested in hearing Lisa Whiting's thoughts on this, as she is a registered nurse, and on staff at Children's Hospital. My concern is similar to the 'free rider' situation in regard to vaccinations, which is that the only reason it is relatively safe for a parent to forego vaccinations for their kids is that nearly all other kids do get vaccinations, significantly reducing the opportunities for disease transmission. It's an interesting ethical discussion. Our policy JHCB already allows for the excusing of students from a standard array of vaccination, so in this regard, JHCCB is merely being aligned with that policy.

Let me know if you have any thoughts I should take with me to the School Board meeting. Or you can communicate with any or all of the Board members directly - our email addresses are on the District website.

Thursday, September 6, 2012

Westerville Levy Repeal Effort

Another of the blogs I regularly scan is "10th Period," written by Stephen Dyer, currently the Education Policy Fellow at Innovation Ohio, a left-wing organization. He recently posted an article commenting on the ruling by the Franklin County Board of Elections to remove from the November ballot an issue to roll back some of the school property taxes in Westerville, filed with the assistance of the 1851 Center for Constitutional Law, a right-wing organization.

I'd like to give rebuttal to a couple of Mr. Dyer's assertions:
  • "HB920 effectively cuts the amount of revenue raised by millage over time."   Not true. The effect of HB920 is that the dollar amount a levy collects on a piece of property remains constant regardless of changes to the appraised value of that property over time. Consequently, a school board that wants more revenue needs to go before the voters and ask for it, which I think is a good thing. During the rise in property values that accompanied the housing bubble, most public education professionals lamented that their revenue didn't automatically rise too. Of course, when the real estate market tanked, HB920 kept the school property tax revenue from collapsing as well, unlike the case of the many municipal and state governments which are struggling through the steep decline of income tax based revenue.
  • " In a nutshell, HB 920 cuts levy rates when property values rise, effectively keeping the amount any levy raises at the same dollar figure, regardless of inflation...."  This is phrase which has been used by the public education community for years. It makes a false connection between inflation and property values. Inflation is a monetary event triggered when a central bank expands the money supply faster than the pace of the economy warrants. We haven't had much inflation for many years - certainly not enough to explain the rise of real estate prices during the housing bubble. That was a supply-and-demand event, and it was the collapse of demand that popped the bubble. 
  •  "...That means districts' property tax levies lose value as the community's property gains value."  Again, the property tax levies never lose value - the revenue they generate remains constant regardless of changes in property values (with a few exceptions).
  • " It is incumbent upon the General Assembly to severely restrict this antedeluvian section of the Ohio Revised Code that allows outside ideologues to potentially undo a vote of the people so easily."  I don't know that this tax repeal effort was initiated by "outside ideologues."  The and Taxpayers for Westerville Schools organizations are local entities that have been around for a while - the former for 3-4 years. But nonetheless, even if the 1851 Center did jump into the fray in support of their broader agenda, how is that different from having money and other resources come into Ohio from all over the country to help repeal Senate Bill 5 last year?
I suppose this is the way politics works in America these days. Each side seeks to create sound bites with just enough truth mixed into distortions and sometimes outright lies in order to hopefully sway ignorant and apathetic voters. The collective amount of money expended in the process has become astronomical.

And if they don't like how that strategy works out, they turn to the courts in hope of winning on a legal technicality, which I believe further erodes trust in the democratic process.

I have no problem with the legal battle going on right now in regard to this repeal issue. There is a valid argument as to the meaning of the language in the context of the legislative intent of the General Assembly when the repeal process was written into law. It's now up to the two sides to make their case to the Ohio Supreme Court, and the accept what the Court decides. From a layman's perspective, I predict that the Court upholds the decision of the Board of Elections.

If that happens, I hope Taxpayers for Westerville Schools makes another run at this, taking more care with the technicalities. They did after all manage to get nearly 5,000 signatures on the petition, meeting the standard for putting an issue before the people of their community.

I'm not saying that I hope they are successful in their repeal effort. This is a local matter to be settled by the people of the Westerville school district. I have no standing in their fight.

All I'm saying is that the game shouldn't end on a penalty. The Taxpayers for Westerville Schools folks owe it to the 5,000 signators to straighten things out and get the issue put before the voters, even if it means going out and getting 5,000 signatures on a new petition.

Mr. Dyer doesn't allow comments on his blog, but your respectful comments are welcome here.