Friday, May 24, 2013

Supplemental Materials for the May 28, 2013 Meeting of the School Board

Here are the documents provided to the School Board in connection with our upcoming meeting, to be held at 7pm on Monday May 28, 2013 at the Central Office Annex.

Twice each year, in May and in October, Treasurer Brian Wilson brings to the School Board an update to the Five Year Forecast. Here is his new forecast in chart form:

click to enlarge

Last October, the forecast showed our cash balance at the end of FY2017 (June 30, 2017) to be negative $28 million. The new forecast shows this number to be negative $19 million. This is a good thing. But why the charge?

First some quick reminders:

Our revenue is derived primarily from two sources: 1) local property taxes collected from the homeowners and commercial property owners in the school district; and, 2) funding provided by the State of Ohio. The local property tax collection changes only when new properties are constructed, or when the voters of our district approve an additional tax levy. Because of a law passed in the 1970s - commonly known as HB920 - the property tax collected on an individual piece of property is not allowed to change just because that property is revalued by the County Auditor. I think this is a good thing by the way, although many - especially those in the education community - tend to disagree.

The more variable part of our revenue is the funding from the State of Ohio. Both Governors Strickland and Kasich promised to toss out our the school funding system of their predecessors and replace it with something better. They each achieved half of their goal, dumping the old system but leaving us with what could generously be called incomplete ideas.

That means that while the local property tax revenue can be projected with very good accuracy, all we can do is make guesses about what the state revenue will be. Treasurer Wilson consults with his peers in other districts and advisors from organizations like the Ohio Association of School Business Officials (OASBO) to seek the best information he can, but what we actually get still hinges on the political process.

This new forecast projects total revenue to be about the same as with the October forecast, but with some adjustments as to the sources. Mr. Wilson feels our local property tax collections will be a little less than the October forecast because new construction growth has been less than anticipated. However, this is somewhat offset by higher personal property tax collections on utility infrastructure, primary due to substantial investments made by American Electric Power.

Another source of revenue which has dried up over the years is interest earned on the cash reserves we maintain. While there may be many benefits to our economy in keeping interest rates near zero, one consequence is that those who count on interest as income (including retirees like me!) are being affected. Not that long ago, our annual interest income was over $1 million. Now it's a tenth of that.

For now, the positive seems to be that the State of Ohio is returning more of the state income taxes we've collectively paid, increasing slightly the funding to our schools. In this forecast, Mr. Wilson increased our projected annual state funding by more than $1 million each of the five years.

Taken together, these component changes are expected to cause our revenue to increase over the next five years at a compound annual rate of 0.8% - essentially flat, as the chart above shows.

On the spending side, our major expense is, and always will be, the compensation and benefits for our team of teachers, support staff, and administrators. This is 86% of our expense budget, and 92% of our incremental spending.

Between FY03 and FY10, our spending for compensation and benefits increased at a compound annual growth rate (CAGR) of 5.6%, while enrollment increased at 1.9%, meaning our cost of comp and benefits per student rose 3.7% per year.  This is reflected in the slope of the red line in the chart above.

From FY11 through FY13, the rate of the spending growth for compensation and benefits was moderated by changes to the collective bargaining agreements with the unions representing the teachers and staff. This included base pay freezes, the elimination of one "step" (see this article for a detailed explanation of our compensation system), and early retirement incentives. As I have said before, I appreciate the contribution our teachers and staff made toward stabilizing our fiscal standing during a scary economic period for our country and our community - which is not yet over.

For the next five years, this forecast shows compensation and benefits growing at a rate of 4.1% while enrollment grows only 0.2%, which puts the cost of comp and benefits per student on a growth rate of 3.8%

Add it all up, and it means that we are projected to spend $34 million more than we take in over the next five years.

That sounds scary - and it certainly should not be trivialized. But it is the way things work in the public school domain. Revenue tends to remain flat, partly because of HB920 and partly because the State of Ohio doesn't generally feel any political pressure to send more money each year to districts they deem to be affluent, which includes us.

Meanwhile, our costs increase to a small degree because of additional programming and services, often mandated by the State of Ohio, but mostly because of the increased cost of compensation and benefits for our team. 

And it's becoming less a product of the former, and more a product of the latter. In FY03, the mix was 75% compensation and 25% benefits. By FY15, the proportion will change to 70% compensation and 30% benefits. In dollars, it means benefits costs are growing annually by nearly the same amount as compensation. This is a concern, and something we'll have to address with the help of the teachers and staff.

So what does it cost to fund this forecast - which is to say, how many more mills of property taxes would we have to pay to maintain our policy of a cash balance of 10% of expenses?

By my calculations, based on the assumption that 1 mill of property taxes raises $2.3 million of new revenue, then a levy of 6.4 mills would have to be passed by the voters in 2014 to fully fund this forecast.

I think that's too much. Remember that our community shot down a 6.9 mill levy request in May 2011, and just barely passed - close enough to require a recount - a 5.9 mill levy in November of the same year. 

If the proposal the 2014 edition of the School Board decides to put before the voters is for another 5.9 mills, what has to change in the forecast?

By my calculations, we would need to reduce the total spending in FY14 through FY17 by $2.9 million, which could be achieved by reducing the FY15 budget by $275,000, the FY16 budget by $1 million, and the FY17 budget by $1.6 million. This reduces the rate of spending growth for FY15-FY17 to 3.7%, from 4%. It would look like this:

click to enlarge
I think this is doable. It would require some difficult conversations, and some hard decisions. But I think it can be done. Therefore, I'll be voting to not accept the forecast as presented, and will ask Dr. Marschhausen, Mr. Wilson, and my fellow School Board members to begin the dialog to revise our plans.

I'll also call you attention to the first reading of a batch of policy changes. I've not spent time with this document yet, and won't comment until I do. I encourage you to read the excellent synopsis of the proposed changes prepared by the Policy Review Committee, and let me or other Board members know if you have feedback.


  1. You also note an unusual item on the agenda: Item F3 - which is to adopt a policy as mandated by changes to Ohio Revised Code 3301.0712(3)(a) implemented by SB165 of the 129th General Assembly.

    This was the Bill which requires all Ohio high school students to study the Declaration of Independence, the Northwest Ordinance, the US Constitution, and the Ohio Constitution.

  2. I'd say you're absolutely right, a levy that high has no chance of passing.

    I'm curious about this statement:

    "For the next five years, this forecast shows compensation and benefits growing at a rate of 4.1%"

    What exactly is that 4.1% growth going to? Am I right in assuming that much of it is in pay increases for staff? As you've talked about before, staff contracts have guarantees for rather generous increases, factoring in cost of living & step increases. Inflation mostly has been low in the last 4-5 years making those raises even more generous.

    I'd say this needs to be addressed. I'd say much of the community has not gotten raises like this. In many cases jobs have been lost or raises have barely kept up with inflation, if that. I've personally gotten one raise in the past 5 years and fortunately it was large enough to compensate from the losses that inflation had taken from my buying power.

    A contract with more reasonable cost of living increases, ideally tied to inflation, would be more fair to the taxpayer without penalizing the staff.

    In my view the generosity of these contracts, out of proportion to the economic times, is the elephant in the room that needs to be addressed.

    1. This forecast assumes a resumption of step increases, which 4.15%, but only for the teachers with less than 15 years of experience, so the impact is about 2.6%. It also assumes 1% annual base pay increases. In other words, this forecast shows about half the teachers getting 5.15% annual increases, and half getting 1% increases.

      As I mentioned, the cost of benefits is rising nearly as many dollars per year as compensation. Comparing FY13 to FY17, the annual cost of compensation is projected to increase $12.1 million, while the annual cost of benefits is projected to increase $11.9 million.

      My guess is that you'd find that your employer's cost of benefits are similarly rising. It's a major concern for employers large and small across the county.

      In many cases, the only affordable option for the employer is to change the design of their benefit package, such as raising co-pays and deductibles.

  3. Paul, something very simple for the board to look at.
    The increasing levels of compensation for supplementals

    The stipends are totally ridiculous, some employees getting 4 and 5 stipends throughout the year adding up to significant dollars. Weight Room at 1200 safety patrol
    1,000 and the list can go on. NOT to say there should be zero compensation, but the facts are you cant be as busy as you say you are if you are doing 4 or 5 supplemental contracts, and really not one description of what they do. We had over 800,000 dollars in one allocation and the board seems not to care. We can eliminate the deficit by reducing this expense in half easy. Betting we could save 2.4 million over 3 years

    1. Thanks for the comment Rick. Everything has to be on the table, but we need to make decisions carefully and with empathy as well.

    2. Paul, you are correct, but somehow we never really see any empathy for the tax payers by the staff, do we? Thy just expect us to continue ponying up the money for 5.15% raises...

    3. We need to stop viewing this economic process as some sort of morality play, where there are good guys and bad guys, and right and wrong.

      I'm hoping we all - employees, leaders, and community members - just treat it as a negotiation among heterogeneous groups. There will necessarily be some degree of disagreement, and as is the case with any really well done negotiation, no one gets everything they want.

      The question is whether we can get to that point without tearing the community apart. The leaders in Strongsville - on both sides of the table - failed in that regard this Spring.

      I think we can do better.

  4. I would agree, the us vs. them isn't productive. However, there needs to be an acknowledgement that while most of the community suffered through job losses, little to no raises, benefit reductions and significant increases in benefit contributions, the staff benefitted from the previously written contracts that guaranteed generous raises for the first 15 years of employment. Having a productive dialog as a team together working toward the health of our schools will be helped greatly if those who have fared well thus far through the economic crisis recognize that it was the sacrifices of those who were hurting that made it possible.

    Frankly, the arrangement you describe above where you significantly beat inflation for 15 years and then fall behind after doesn't seem fair to the staff either.

    The teachers & staff are the backbone of the school system. They should be taken care of fairly. Trying to balance the budget on their backs isn't going to feel fair to them. However, that's our biggest expense and trying to cut everything out of the remaining 15% is not possible either. Over the years I think the board has trimmed that about as tight as they can.

    Frankly, from where I sit, they've had it quite good. A generous 5.15% raise every year just because the calendar flipped? I've not had that kind of raise in my 20 career ever unless it came with a job change or followed several years of no raises. I hope to see an acknowledgement of that by both the staff & the board and move to a contract that's fair to both the staff and the taxpayers.

    1. Of course there are well-developed rebuttals to each point you make (e.g. Teacher pay starts out low compared to others with similar education, these raises are just catch-up).

      The folks who negotiate these things for a living - on both sides of the table - have a playbook of well-developed tactics, often meant to generate an emotional response in the groups not in the negotiating room.

      That's what I mean about getting caught in a right/wrong, good guy/bad guy trap. Let's skip the theater and just work our way through reasonable and acceptable alternatives.

  5. Pure and simple we have had a lack of leadership in the HCSD when we address salary and benefits. Dale McVey or any of the board presidents the last 15 years. Either McVey or the board is guilty. You pick it!

    We like many other districts go into the levy contract cycle. The school speak make me ill. If you think we have a great school district, measure against leaders in the nation and world, not poor districts within OH.

    When the number of voters without children outnumbers voters with children and school employees this will stop. Until then the cycle will go on!!!

    The note from the board to respond to newspaper is another cause for illness. When we say we need the money for repairs. Well what about resources diverted from repairs to the ILC.

    Dales replacement will have to live with the Dale/Board path, I wish him well.

    The end is near and nothing can be done or will be done until we become a 2nd rate district. When this happens remember the leaders of the district (board presidents and vice presidents and Dale McVey.

    1. You are certainly welcome to state your opinion, although I wish you would do using your own name, and not from behind the cloak of anonymity.

      By the way, there are already more voters without kids in school, and it's been that way for many years. It's about a 40/60 split with/without. Interestingly, that's the same ratio for the current School Board: two of us have kids in school, three of us don't.

      Yes, there is necessarily a levy-contract-levy-contract cycle. Since levies are our only means of increasing revenue - at least that's the case as long as the various Governors and General Assemblies keep dorking with the school funding formula - and comp/benefits are almost all of our expense, one could argue that these two elements should be tightly linked. That is: levy passage = raises; and levy failure = no raises.

      But there's enough other variability in the system that I fear this would be too restrictive, handcuffing the leadership at times when flexibility is needed. Judgement calls have to be made along the way, by all constituent groups.

      It is the responsibility of the voters to elect School Board members who they feel will go through the decision process in a way that reflects what the voters would do. That means the School Board members should look at the totality of the situation and, using the information available to them, figure out which of variety of solutions would best represent the wishes of the majority of the voters.

      It might require argument and compromise. And in almost all cases, there will be those who think the Board made exactly the wrong decision. But hopefully, the Board will have made a decision that the majority will find acceptable, accepting that every decision will have its critics.

      If not, then the public has the opportunity every two years to replace two or three of the Board members.

    2. One correction: Levies are not the only method available. School Districts can levy an income tax too.

      And while that may not be ideal, I believe currently the only way we can move forward is a combination of property taxes and income taxes. The current property tax-only method HCSD uses is close to breaking point, if it hasn't already passed it.

      It is high-time the apartment dwellers started to contribute directly to the school district's coffers; maybe then more members of the community would realize how precarious a position we are in.

    3. M is correct. In fact, ORC 5748.01 grants a School Board the authority to put either of two kinds of income tax levies on the ballot.

      One form would count as income pretty much everything that shows up as AGI on the Federal tax return. The other is typically called an "earned income only" tax. This form excludes certain types of income, notably Social Security Title II income (see ORC 5747.01 for a complete list of exclusions).

      M suggests that apartment dwellers don't contribute to current property tax levies. That's not true - the owner of the rental property pays property taxes, and that expense is captured from the tenants in their rent payment. However, since the property value per student for apartment dwellers is generally a small fraction of that for single family home owners, it is fair to say that apartment dwellers make a smaller contribution.

      I'll write more soon about income tax levies as a potential addition to our funding mix. There are both benefits and drawbacks...

    4. I've never said they don't contribute. What I have said and will continue to say is that apartment dwellers don't see rent increases when levies pass, because the cost is swallowed for existing tenants by the management companies; too many people leave when rents get raised and an empty apartment loses more money. Apartment rentals are also driven more by economics than tax increases.

      Single-family rentals may be a different issue. Makes more sense to have house rental contracts that include provisions for that.

    5. Apartment rents are a function of supply and demand. If the landlord can pass on a cost, be it taxes or maintenance expense, they will do so at the first opportunity. If market conditions prevent it, they'll likely cut back on some service to tenants (e.g. responding to plugged toilets in the middle of the night).

      Regardless, your point is correct that apartment dwellers do not likely pay the same share of funding for our schools as to homeowners.

      But then, not all homeowners pay the same share either. Whether a family lives in a $100K home or a $1m home, the access to the full range of services of our schools is the same.

  6. Paul, I understand the emphathy and big picture, however my point is WE HAVE NOT YET BEGUN TO CUT. If you look at the big picture we have more programs, events, supplementals than ever before

    A simple math request. Just cut 50% of the supplemental pretty much at the same time every year that I spoke to recently at the board, from 800,000 to 400,000 Use real speak in NO 1000 stipends for safety patrol, no 1200 weight room top of the line stipend, remember I get it as a former division 1 athlete. and certainly not 4 to 5 thousand dollar stipend for the same employee which means in the few hours dedicated for 4 activities, 4,000 is two months or more of social security or pension for the regular types. 400,000 pays for that levy promise of cutting busing each year for a while as promised by the board !!!!!!!!!!!!!!!!!!!

    In addition with all the duties a teacher embarks on 4 to
    5 stipend activities is either overblown as to need and payment or the person is working 20 hours a day, NOT!!!!!

    The community has consistently supported a top level education. What they have gotten in return too many times
    is YOU D
    DONT GET IT., Yes we do, look at the frickingtax bill compared to other districts.

    I understand the comment to anon, about a real name but anon if they have children in school or coming up might think twice. My opinioons and interest, which is genuine by the way caused my kids a lot of grief which is shameful.

    The district in hindsight should have been held legally accountable on there past treatment of students during the last job action and it would have cost this district millions for the reckless actions of inappropriate activity related to the teachers contract in the classrooms.

    So lets let anon be anon for their safety.

    Time to take a tough look, hold off on a levy for another two years and come back with 4 mills in 2015 Otherwise you will have a severe impact on those onfixed incomes,
    disabled vets, those who have lost jobs, and those who have not had raises in some time. Dont forget amongst the biggest increases in health care, our employees up until recently paid zero for health care.

    Rolling stones song Doom and gloom related to every time a levy comes up here

    The dist

    1. Rick:

      I understand every one of your points, and as a retiree living off what's left of my IRAs and 401(k) savings in a zero percent interest environment, I have plenty of empathy. I don't want my taxes to increase either.

      But just to let you know what the numbers are:

      In order to stay close to a 10% cash reserve, if we were to wait until 2015 to put a 4 mill levy on the ballot, then the FY15 budget would need to be cut by $3.5 million, FY16 by $7.5 million ($4m more), and FY17 by $11.7 million (another $4.2m).

      Put another way, it would mean restricting our rate of spending growth to 1.75% per year.

      What are you suggestions for how to achieve that? $400k/yr is only a small start.

  7. Paul,

    Everything is done under the cover of darkness. While I know there is never any public conversation by the board members at a board meeting. Dale recommends and the board approves. That is the way it has been done.

    Will the new leader use this approach or will he try an open forum. Will the board allow him to use an open approach?

    We always say it is for the kids but we follow the OSBA in resolution after resolution. It is odd we did not follow best practices for annual review, we also failed to follow board policy.

    It would also be nice to track board trips and costs like 10 did with upper Arlington.

    The new super will have my support. But the coming to table will never happen. The district lost my support and any future levy votes for a long time. What is the final cost on the ILC?

    Done with Levy Dave

    1. Dave: I'm hopeful that we'll start to have some working sessions in the coming months, so we can get this stuff on the table and have some needed conversations. There is much work to be done.

  8. Here is the statement I made at the School Board meeting last night:

    As I remarked when we had the October forecast before us, I have confidence that this forecast reflects the strategy articulated in the 2020 Plan, and that the numbers were well developed with all the experience and wisdom Mr. Wilson brings to this process.
    But it remains my opinion that this spending forecast requires an increase in property taxes – on the order of 6.4 mills – which our community is unlikely to support in 2014, when it looks like we will have to return to the ballot.

    Here are a couple of the things I believe we need to look at:
    While compensation costs, on a FTE basis, have increased at an annual growth rate of 3.5% since 2003, our benefits costs have increased at an annual rate of nearly 5%. In 2003, our benefits cost per FTE was $14,000. For 2013, that number will be approximately $22,000 – a 57% increase. By 2017 it could be as high as $29,000 according to this forecast, if the student/employee ratio remains constant. We need to continue to work via the Insurance Committee to find ways to moderate this growth rate.
    I believe we also need to examine the breadth of our high school academic offerings, and make decisions about whether we can afford to continue offering courses in which a small number of students are enrolled. Cost reductions might be achieved in part through the use of technology, or the consolidation of some classes to a single building, such as the ILC. But we may also need to trim the number of courses we offer.

    I vote not to accept this forecast, and would ask that we soon begin the hard work of indentifying ways in which our rate of spending growth can be moderated to a level which can be supported with a smaller levy in 2014.

    The resolution passed 4-1.

    1. I feel the story just published in This Week Hilliard misrepresents what I said, in spite of the fact that I handed the reporter the sheet of paper from which I read my statement (above).

      In particular, the story says "Lambert reiterated the forecast still included spending that likely would require a ballot issue in 2014, something he said would not be palatable to the electorate.".

      Unless something substantial changes about our state funding, we are almost surely going to need to be on the ballot in 2014. I've never said otherwise.

      The question is how large that levy will need to be, and that will be determined by a combination of what changes in regard to our state funding, and whether or not we can reduce the growth in spending.

  9. Paul,

    Thanks for your effort, but 4-1. They always have the same approach, listen then act as they wish. They view their job as giving parent and teachers what they want then turn to the voter for more money. If you vote no all bad things will happen.

    Accountable, using what dictionary. My next move is to request all expense reports from adm and board travel. The gang of 4 and Dale have put us in a corner. The end result will be a less than desirable district and lower home values. I have from time to time called it Hillbillards. When the Dale legacy bill comes due we will luckey to last unitl 2020.

    What does a 2020 plan cost and once again what did the ILC cost? Moving leaders out of Hilliard why a small amount of Tax money how do you think the city would react. Look at Dales review and the rating of working with the community. While he gave us a great deal, at what cost today and into the future.


    1. I understand what you are saying. But again I will state that in a democracy, the majority rules, and for the democracy to survive, the minority has to accept that - at least until the minority does what it takes to become the majority.

      There are a variety of opinions about the governance and economics of our school district, including those who are quite satisfied with the way things have been run. There are even some who feel we might not be spending enough money to give their kids all the opportunities they could have.

      So it might be that the composition and demeanor of the Board is actually a pretty good representation of the community. Without question, the Board is made up exactly of the people who the voters elected to represent them. If the community wants a Board which behaves differently, then they have to get engaged and elect different people to the Board.

      I'm not sure I can explain why the community will re-elect members to the Board, then turn down a levy issue that same Board puts on the ballot. Perhaps it's because the voters are relatively ambivalent about who sits on the Board, but get very much interested when a tax issue is put before them.

      It seems to me that the voters would want to be equally engaged in both cases.

  10. Paul,

    Just a few items.

    RENTERS, The school tax is hidden in their rent payment. In addition even if they itemize their tax return they are unable to deduct.

    MAJORITY RULE, While it works well in non issue elections, but it never holds on levy issues. If a levy fails the district blows smoke and lowers the amount. If it passes it is once and done. What if we moved to renewable levy but no it is always perm.


    1. Renters: Thanks for the reinforcement

      Majority Rule: I've come to view the levy process as a negotiation over price. IE - when the community shot down the 6.9 mill issue, we came back with 5.9 mills, and it narrowly passed.

      Admittedly, this isn't a very efficient approach for figuring out how much the community wants to pay, or what they want to pay for.

      I'd much rather see us have lots more community dialog in the period between levies, with the goal being to put an operating plan, budget and levy issue on the table that has a high probability of passing the first time on the ballot.

      There will never be complete agreement - the majority will rule whatever the given proposition. Let's just try to figure out what the majority wants in a more efficient manner, what say you?

    2. Paul, the other board members have no interest in determining what the majority wants; their only concern is how much the majority is willing to swallow.

      Case in point: you mention that the board came back with a reduced millage. Yes, it did; but we both know that the total tax raised by the levy was not reduced 14% as would be implied, but that better-than-expected property valuations meant the district could accept a lower millage but raise more or less the same amount of dollars.

      Meanwhile, the board patted itself on the back saying "look what wonderful people we are" all the while knowing they were deliberately misleading people.

      Another case: The community presentations indicated a cut of 92.5 teaching positions since the previous levy in 2008. But when I asked Brian Wilson after if that meant there were 92.5 fewer teachers, the answer of course was no. In fact there were MORE teachers.

      HCSD math is one position eliminated (e.g., 6th grade science) and one position added (e.g., 7th grade science) equals one teaching position cut. No mention of the position added...

      Paul, until this deliberate misrepresentation of facts is stopped, we have no confidence in the board or the district actually having an open exchange of ideas.

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