After the cost of salaries paid to the teachers, administrators and staff, the next largest cost for any school district is that of providing health insurance. Today's Columbus Dispatch ran a story about a concept which is again getting some attention in the Statehouse - insurance pooling. This is because there is a belief by some that Ohio's public school districts can - in aggregate - save money with this approach.
So what is "insurance pooling" anyway?
I'm far from being an expert into the nuances of health insurance, but I think we all understand the general concept: we pay someone else to assume some of the risk associated with an aspect of our lives.
Take car insurance for example. We spend a fair amount of money on our cars, and we would be pretty annoyed to wake up one morning and find our car gone. In other words, once you buy a car and park it in your driveway, you run the risk of it being stolen and you being out all the money you've paid for it. However, you can reduce that risk by paying an insurer to assume some of it. So let's say you buy a $20,000 car, and the insurance company offers to give you $20,000 in cash if someone steals your car and it isn't recovered. You'd make your decision on that offer based on how much the insurance company wanted to charge you to take the risk. Let's say they charged $100/yr.
Would you buy that insurance? Probably. That $100 premium seems like a reasonable amount to pay for the peace of mind you would get knowing that if your car were stolen, you'd get sufficient money to replace your car.
Why is it a good deal for the insurance company? Because they know that not every car gets stolen. In fact, a very small percentage of cars get stolen. So if they can sell an auto theft policy to thousands of customers, but have to pay out loss claims to only a small fraction, they win the bet. The cost of auto theft insurance premiums are kept in check by competition between auto theft insurance companies (everyone knows the Gecko, and that Nationwide is on your side).
Health insurance starts with the same concept: we pay the premiums for health insurance in order to have someone else assume part of the cost of our health care, should we need it. It's quite a bit more complicated than auto theft insurance, but the general idea is the same: insurance companies need to have the bets in general come out in their favor in order to stay in business. They need to be able to charge enough in premiums so that they can pay out claims and still make a profit. And unlike the case with auto theft - everyone is going to make claims against their health insurance.
Another way in which health insurance differs from auto theft insurance is that it has become a custom in this country that health insurance is, in nearly all cases, paid for by the employer, not the individual. From the perspective of the employer, the cost of an employee includes the full gamut of salary, benefits and taxes. Benefits can be defined as money an employer spends on behalf of an employee but not reported on his/her W-2.
For example, the contract with the teachers' union says each member receives life insurance coverage in the amount of $40,000 at no cost to the employee. The school district isn't assuming that risk - it buys a master life insurance policy that covers all the employees. But if an employee dies, the death benefits is paid to whomever the employee names as his/her beneficiary, not the school district. Therefore the cost of this life insurance policy is a component of the compensation package for the employee, not protection for the school district.
Until the signing of the 2008 contract with the teachers' union, health insurance coverage was handled the same way. The school district bought a master insurance policy from an insurer, and paid 100% of the premium. However, to reduce the premium, the employees share in some of the costs, by way of co-pays and deductibles. Starting with the 2008 contract, the district's employee began paying a share of the basic premium as well, stepping up to 10% (capped at $136/mo for family coverage) effective Jan 1, 2010.
In 2010, the School Board, on the advice of the Treasurer, decided that it would no longer buy health insurance covering 100% of the risk, but would instead build its own fund from which to pay claims. This is called self-insurance. The idea goes to the basic principle of insurance: in exchange for having the school district - that is the taxpayers - assume the risk for paying claims, we would not have to pay an insurance company to put its own profits at risk. In other words, it should save us money. So far, it seems to have done just that, but only time will tell - after we have a few more years of claims history to examine.
That doesn't mean we can just tell the insurance company to take a hike. It is enormously complex and expensive to handle health insurance claims. Every time an employee goes to a doctor, is rushed to the emergency room, or is issued a prescription, someone has to go through the process of deciding whether the claim is valid and appropriate to pay. It would be stupid for the school district to scale up and staff an operation internally to do that. So we contract with a "Third Party Administrator" (TPA) to take on that function.
In essence, it means we continue to pay the insurance company for all the administrative services they performed as our insurer, but we don't have to compensate them for assuming any risk.
We can do this because we're one of the largest school districts in Ohio, and have the resources necessary to build a fund large enough from which to pay claims (the fund gets it money from the part of our budget which formerly went to pay the insurance premiums, including the employee contribution). But Ohio has tons of small school districts which could not afford the risk - a single large claim could wipe out their cash reserves. So they are forced to buy insurance and bear the cost of transferring the risk to the insurance company.
The General Assembly is therefore once again looking into health insurance pooling - the idea that all school districts in Ohio should band together in regional groups to buy health insurance.
I try to keep partisan politics out of this blog, but I don't think this conversation about insurance costs is really a cost conversation at all. It's about winners and losers. If we made a huge insurance pool out of all the school districts in the state, there would be no net change in insurance claims or the cost of insurance. The only difference is that some districts would pay more in premiums, and some would pay less.
Obviously, the winners of a pooling program will be the districts with high per-employee claims costs. The demographics of a district's employee will have a lot to do with that. If the staff is young, there will be lots of claims associated with pregnancy and child rearing. If the staff is older, there will be all the claims that come with aging, such as diabetes and heart disease. For example, Hilliard Schools and Olentangy Schools are nearly identical in size, but our employee population is older. That's because we had our big growth spurt in the 90s, and hired tons of young teachers then - teachers who are 20 years older now. Olentangy has been growing for the past decade, and is still growing. So they have a preponderance of young teachers now.
The losers will be the districts which have a healthier employee teams, whether through effective wellness programs, demographics, or just the luck of the draw. Such districts should be enjoying lower per-employee health insurance costs, and will see their costs go up if forced into pools with districts with higher claims histories.
The losers might also be districts like ours, who have the wherewithal to be self-insured. If we are forced to join an insurance pool, we would again be paying premiums, and those premiums will likely be more than our claims cost plus the cost of the TPA contract. The only way for that to not be true would be for us to join a significant pool of districts with claims costs lower than ours. In other words, becoming a winner by making others become losers.
The Republicans have again won control of our state government, and are going to use that power to execute their agenda. I have no problem with that, any more than I have problems with the way the Democrats have pushed their agenda at the national level the past two years. Parties are put in power by the will of the voters. As long as we have political parties - and it's too bad that we do - that's the way it will be.
But while the common image is that Democrats stand for big tax-and-spend government and do so with the support of labor, and that Republicans stand for minimalist government with the support of big business, neither stereotype is any longer true. Both major parties are now of the tax-and-spend variety, and while they may each have a reliable base of supporters, the big money in this country places bets on both Red and Blue. Big business backs Democrats when the Democrats promise to send tax dollars their way, and big labor backs Republicans when Republicans have influence over labor issues (e.g. when John McCain sat on Senate committees that influenced education spending).
In the case of health insurance pooling, the Kasich administration seems to want to replace the free market with a government-mandated solution. That seems like something we'd expect from a Democrat. As always, there's the claim that by getting the government involved, money will be saved.
Do any of us really believe that?
Monday, February 7, 2011
Monday, January 31, 2011
State Funding Cuts: We Still Don't Know
The Columbus Dispatch ran a story this past weekend about the school funding cuts that will be implemented in the first biennial State budget submitted by Gov. Kasich. While our Federal Government might not be so good at keeping secrets (e.g. WikiLeaks), the Kasich Administration has been completely opaque about what they intend to do about this $8-10 billion budget gap hanging over our State. However, this story gave a little hint of what I've believed for a long time - Hilliard City Schools and similar suburban districts are likely to take the brunt of the State funding cuts.
As you can see from the following chart, Hilliard Schools receives 33% of its funding, or $46 million, from the State of Ohio.
As you can see from the following chart, Hilliard Schools receives 33% of its funding, or $46 million, from the State of Ohio.
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It has been growing at a pretty good pace...
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... although not as fast as the local component of our funding - paid via our property taxes. The State funding on a per-student basis has risen as well...
...although this is partially an artifact of the phase-out of Personal Property Tax revenue as a Local source and being replaced by a temporary reimbursement by the State. The one-time money granted as part of the Federal stimulus programs also was fed to school districts via the State.
Regardless of these aberrations, the story here is Rep. John Carey, vice chairman of the House Finance Committee, saying that "there is growing support of a tiered cut." So what does that mean?
Ohio's school funding system is, and has been for decades, based on one key principle: that the pool of State dollars budgeted for school funding should be passed out in hunks inversely proportional to the affluence of a particular school district. In other words, the people and businesses in affluent districts pay boatloads of State income (and other) taxes, but most of that money will be used to fund the poorer districts of the State.
I don't have a huge philosophical problem with that. Some might argue that there should be no State income taxes (there wasn't until the 1970s), and that communities should have to provide the entire funding necessary to operate a public system, without any help from others.
That position ignores two key points: a) the Ohio Constitution requires the state government to take what action is necessary so that every child in Ohio has the opportunity for a "thorough and efficient education;" and, b) the school district boundaries drawn 100 years ago have created opportunities for regions to fracture into communities of "haves" and "haves-not" that were not anticipated when the public school system was conceived.
Because of that, we tend to have urban districts with high commercial property values and high poverty levels, and suburban districts lacking significant commercial revenue sources, but the ability to fund their districts completely with local resources.
Why do I say "fund their districts completely?" Because if you take Hilliard for example, we - according to a report generated by Larry Wolpert when he was our State Representative - pay out two dollars of income taxes for every dollar of school funding we receive back. If that ratio is still true today, then we pay out around $70 million in State income taxes in order to get back $35 million in State funding. It would be worse - Dublin gets back about 12 cents on the dollar.
We can't put too much weight on this analysis. After all, there are others important ways in which our State income tax dollars are spent - notably for Medicaid and to run our prison systems. But you get the point. If you combine what we pay in State income tax and local property tax, it is more than sufficient to run our schools. As a friend once said, we pay enough taxes to run our school district plus a couple of the little ones.
That's not going to end with the Kasich administration. Instead, we need to prepare ourselves for the likelihood that we'll bear a disproportionate share of the cuts, simply because we are seen to have the capacity to do so. And it's simple for the state lawmakers to implement, all they have to do is tweak the Educational Challenge Factors, which are encoded into the law as ORC 3306.051 (an easier to read list of the ECFs is available here). These factors range from about 0.7 to 1.7, and they are used as a scaling factor in the PASS calculation used to determine how much State funding a district receives. The smaller the ECF, the smaller the fraction of the calculated funding a district will be granted. Our ECF is 0.985085.
The state lawmakers will also likely have to tinker with what is often called "the Guarantee." In the PASS calculation, it is called "Support Provided During Transition to Revised Funding Model." What that really means is that anytime the lawmakers change the school funding system, there are winners and losers. This "Guarantee" softens the blow for the losers, which makes such changes easier to get passed in the General Assembly.
The Guarantee is more of an ax compared to the ECF's scalpel, but both will be used.
And we'll take the hit. The current Five Year Forecast is built on the assumption that our hit will be 10%. The size of the levy we just voted to put on the ballot was passed in part because of that assumption.
If we take a bigger hit - and I fear we will - our Forecast goes out the window, and we'll have to scramble to figure out how to bring spending into alignment with even less revenue. I would have preferred to have used a larger temporary levy to give us some wiggle room, but we've ended up with a Permanent Levy of 6.9 mills on the ballot.
Between now the May election, we'll find out what the Governor and General Assembly have in store for us. Let's hope the 10% assumption is in the ballpark.
Saturday, January 29, 2011
Time Bomb: Facing Reality
I have written a number of articles over the years about the perilous fiscal condition of the State Teachers Retirement System, the organization which provides retirement benefits to the teachers and other certified employees (including Administrators who are former teachers) of Ohio's school districts.
This week, as reported in The Columbus Dispatch, the governing Board of STRS voted 7-3 to implement adjustments to both the contributions required and benefits provided, in hope of preserving the financial integrity of the system. This is not the final step in the process - the decision of the STRS Board now goes to the General Assembly, who will use the Board's resolution as the basis for drafting updates to the laws which control STRS. From there, the proposed law goes to the Governor for his action.
Governor Kasich had made it clear that he would veto any legislation which forced greater contribution from the employers - which are the local School Boards. The current contribution scheme requires the employee to contribute 10% of salary to STRS, and the employer - the taxpayers - to contribute another 14%. Under the proposed plan, the employee share would gradually increase to 13% by 2014, but there would be no increase in the taxpayer percentage.
Some argue that the employer contribution to STRS has not increased for years. This is a partial truth.
While the percentage of the employees salaries contributed by the taxpayers might not have increased from 14% for many years, the majority of our teachers and other certified staff have been receiving annual increases of more than 7% for the past decade, and the taxpayer share, in dollars, of the STRS contribution has increased at the same rate.
The STRS Board made some other tough choices as well. Currently, the STRS rules allows a teacher to retire with unreduced benefits at 30 years of service. Under the new rules, which phase in between 2017 and 2023, a teacher will need to be at least 60 years old and have 35 years of experience to receive unreduced benefits.
They are also ending the practice of enhancing the benefits of a teacher who works 35 or more years. Under the current system, a teacher who retires at 30 or fewer years of service receives, as an annual lifetime pension, 2.2% of their Final Average Salary (average of the last three years) for each year worked, or 66%. With the Final Average Salary of $90,363 (the top of our pay scale for the past three years), a teacher retiring with 30 years of service receives a lifetime annual pension of $59,640.*
But currently a teacher who retires with 35 years of service receives a kicker that makes this percentage 88%. With Hilliard's current pay schedule, a teacher retiring with 35 years of service with a Final Average Salary of $90,363 would receive an annual pension of $80,423* for the remainder of life.
In what perhaps is a preview of the issues facing Social Security (which by the way the teachers neither pay into nor receive benefits from), decisions had to made about how to apportion the costs of fixing STRS between those who are already retired, and those who are still working. Each group feels they are being asked to sacrifice for the benefit of the other. The following cartoon is from the blog of Kathie Bracy, an STRS retiree and activist.
The final decision will have less to do with what is fair or logical than it does which group carries more political clout in the Statehouse. As with every other area of American politics, those with money and votes always win in the end. So who won in this case - the retired teachers who are more likely to show up to vote, or the active teachers who can funnel tons of money into campaign coffers via the Ohio Education Association? We may not know for a few years, after all of the unintended consequences shake out (e.g. as many highly paid teachers retire, converting from major contributors to the system to its largest beneficiaries).
But I do know that the taxpayers were not made party to the conflict, thanks to the stand taken by Gov. Kasich. It was their own investment decisions and benefits choices (e.g. the so-called '13th Paycheck') that got STRS into this mess, and the taxpayers should not be expected to bail them out.
* Note: these numbers are accurate to the best of my knowledge. However, the only authoritative source of retirement information is the State Teachers Retirement System. Consult with STRS before making any retirement decisions.
This week, as reported in The Columbus Dispatch, the governing Board of STRS voted 7-3 to implement adjustments to both the contributions required and benefits provided, in hope of preserving the financial integrity of the system. This is not the final step in the process - the decision of the STRS Board now goes to the General Assembly, who will use the Board's resolution as the basis for drafting updates to the laws which control STRS. From there, the proposed law goes to the Governor for his action.
Governor Kasich had made it clear that he would veto any legislation which forced greater contribution from the employers - which are the local School Boards. The current contribution scheme requires the employee to contribute 10% of salary to STRS, and the employer - the taxpayers - to contribute another 14%. Under the proposed plan, the employee share would gradually increase to 13% by 2014, but there would be no increase in the taxpayer percentage.
Some argue that the employer contribution to STRS has not increased for years. This is a partial truth.
While the percentage of the employees salaries contributed by the taxpayers might not have increased from 14% for many years, the majority of our teachers and other certified staff have been receiving annual increases of more than 7% for the past decade, and the taxpayer share, in dollars, of the STRS contribution has increased at the same rate.
The STRS Board made some other tough choices as well. Currently, the STRS rules allows a teacher to retire with unreduced benefits at 30 years of service. Under the new rules, which phase in between 2017 and 2023, a teacher will need to be at least 60 years old and have 35 years of experience to receive unreduced benefits.
They are also ending the practice of enhancing the benefits of a teacher who works 35 or more years. Under the current system, a teacher who retires at 30 or fewer years of service receives, as an annual lifetime pension, 2.2% of their Final Average Salary (average of the last three years) for each year worked, or 66%. With the Final Average Salary of $90,363 (the top of our pay scale for the past three years), a teacher retiring with 30 years of service receives a lifetime annual pension of $59,640.*
But currently a teacher who retires with 35 years of service receives a kicker that makes this percentage 88%. With Hilliard's current pay schedule, a teacher retiring with 35 years of service with a Final Average Salary of $90,363 would receive an annual pension of $80,423* for the remainder of life.
In what perhaps is a preview of the issues facing Social Security (which by the way the teachers neither pay into nor receive benefits from), decisions had to made about how to apportion the costs of fixing STRS between those who are already retired, and those who are still working. Each group feels they are being asked to sacrifice for the benefit of the other. The following cartoon is from the blog of Kathie Bracy, an STRS retiree and activist.
The final decision will have less to do with what is fair or logical than it does which group carries more political clout in the Statehouse. As with every other area of American politics, those with money and votes always win in the end. So who won in this case - the retired teachers who are more likely to show up to vote, or the active teachers who can funnel tons of money into campaign coffers via the Ohio Education Association? We may not know for a few years, after all of the unintended consequences shake out (e.g. as many highly paid teachers retire, converting from major contributors to the system to its largest beneficiaries).
But I do know that the taxpayers were not made party to the conflict, thanks to the stand taken by Gov. Kasich. It was their own investment decisions and benefits choices (e.g. the so-called '13th Paycheck') that got STRS into this mess, and the taxpayers should not be expected to bail them out.
* Note: these numbers are accurate to the best of my knowledge. However, the only authoritative source of retirement information is the State Teachers Retirement System. Consult with STRS before making any retirement decisions.
Monday, January 24, 2011
Now in the Hands of the Voters
Here is the comment I read into the record at tonight's School Board meeting. As I said would be the case, I voted in favor of presenting this levy to the voters in the May election.
First, I wanted to say thanks to President Maggied for calling the special Board meeting last Friday, and thanks as well to the other Board members and Administrators for participating. I think we got some important information on the table that I hope will be helpful as we move forward. And as always, thanks to the community members who came to observe.
In the fourteen years from 1976 to 1990, the Hilliard School district asked the community for additional funding only twice, raising our school taxes during that period at an annual rate of 2%, a pace that would cause our school tax to double once every 30 years.
Since then, school levies have been coming at ever-shortening intervals – five years, then four, and this time only three.
With this levy, we will be entering the next phase – putting a levy on the ballot that will almost certainly have to be followed by another in only two years if there is not a significant reduction in the rate of our spending growth. Since 1990, our school taxes have been growing at an annual rate of 7% - a pace which will cause them to double every ten years.
There will be no significant reduction in the rate of our spending growth without a significant reduction in the rate in which our compensation and benefits costs are rising, as compensation and benefits are now nearly 90% of our total spending. I’ve been saying this for several years, and last year we heard the Audit & Accountability Committee come to the same conclusion, calling our current rate of spending growth “unsustainable.”
I ask for bold leadership on the part of the administrators and union officers, and ask the entire team of teachers, staff and administrators to have empathy for the people of our community, many of whom are struggling to stay afloat.
There are 700 property owners behind in their taxes in our district. Approximately 150 properties have been brought up for Sheriff’s sale so far this school year.
It is my belief that for this levy to pass, the Administration and the unions will need to be forthcoming with ideas for how we should collectively address this issue of spending growth at a time when we are seeing declining revenue from all funding sources.
The answer cannot be to keep asking the homeowners and business owners of our community to pass levies with ever increasing frequency.
It is not business as usual this time around.
First, I wanted to say thanks to President Maggied for calling the special Board meeting last Friday, and thanks as well to the other Board members and Administrators for participating. I think we got some important information on the table that I hope will be helpful as we move forward. And as always, thanks to the community members who came to observe.
In the fourteen years from 1976 to 1990, the Hilliard School district asked the community for additional funding only twice, raising our school taxes during that period at an annual rate of 2%, a pace that would cause our school tax to double once every 30 years.
Since then, school levies have been coming at ever-shortening intervals – five years, then four, and this time only three.
With this levy, we will be entering the next phase – putting a levy on the ballot that will almost certainly have to be followed by another in only two years if there is not a significant reduction in the rate of our spending growth. Since 1990, our school taxes have been growing at an annual rate of 7% - a pace which will cause them to double every ten years.
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There will be no significant reduction in the rate of our spending growth without a significant reduction in the rate in which our compensation and benefits costs are rising, as compensation and benefits are now nearly 90% of our total spending. I’ve been saying this for several years, and last year we heard the Audit & Accountability Committee come to the same conclusion, calling our current rate of spending growth “unsustainable.”
click to enlarge
I ask for bold leadership on the part of the administrators and union officers, and ask the entire team of teachers, staff and administrators to have empathy for the people of our community, many of whom are struggling to stay afloat.
There are 700 property owners behind in their taxes in our district. Approximately 150 properties have been brought up for Sheriff’s sale so far this school year.
It is my belief that for this levy to pass, the Administration and the unions will need to be forthcoming with ideas for how we should collectively address this issue of spending growth at a time when we are seeing declining revenue from all funding sources.
The answer cannot be to keep asking the homeowners and business owners of our community to pass levies with ever increasing frequency.
It is not business as usual this time around.
After the School Board meeting, I had a chance to meet with the Darby Athletic Boosters, and present to them much the same information I outlined in the previous article. My only objective is to teach folks how we came to be in this position, to ask for their help in finding a solution, and to request that they pass what they have learned on to their neighbors.
Regardless of one's philosophical leanings, we have a real money problem to solve - whether or not this levy passes - and we need people to help us find real solutions, not spout opinions without any basis in fact.
Additional note: Contrary to the story reported in the Hilliard Northwest News, the School Board did not spend months deciding on a millage amount. As I noted in my blog article of Dec 17, there was still much to discuss relative to this levy, and it was for this reason that I voted against the Resolution of Necessity during the January 10, 2011 meeting of the School Board. Until our special meeting on January 21, 2011, 6.9 mills was at best a strawman, in my opinion. I was certainly not involved in any discussions of this amount prior to January 10, 2011.
Additional note: Contrary to the story reported in the Hilliard Northwest News, the School Board did not spend months deciding on a millage amount. As I noted in my blog article of Dec 17, there was still much to discuss relative to this levy, and it was for this reason that I voted against the Resolution of Necessity during the January 10, 2011 meeting of the School Board. Until our special meeting on January 21, 2011, 6.9 mills was at best a strawman, in my opinion. I was certainly not involved in any discussions of this amount prior to January 10, 2011.
Saturday, January 22, 2011
Levy Step 2.0 - Resolution to Put Levy on the Ballot
The agenda for the Jan 24, 2011 regular meeting of the School Board includes a resolution to direct the Franklin County Board of Elections to place a levy issue before the voters for the May 2011 election.
As I wrote earlier, I voted against the Resolution of Necessity when it came up at the Jan 10 meeting, and explained that I did so because I felt there had been insufficient discussion of our financial picture - not enough due diligence - prior to that vote. I had hoped the Board would postpone the vote on the Resolution of Necessity for a few days until that discussion could be had. The Board instead chose to go ahead with the vote, but agreed to schedule a special meeting to have the discussion I requested.
That meeting took place yesterday.
Treasurer Brian Wilson reviewed the assumptions that he had used to build the current Five Year Forecast, and I presented the latest set of scenarios I had prepared. The Board then entered into a time of discussion, much as I hoped would happen. That discussion hopefully made it clear to all in the room that:
Our community needs to understand that it is unlikely that our Board, in its current composition, will ever fully agree on the actions needed to find a solution to our fiscal challenges. We simply see some things differently, and the folks who voted us into office supposedly know that.
I see our primary fiscal issue being the compensation and benefits structure for the teachers, staff and administrators. I seek to recalibrate our personnel spending practices in order to dramatically slow down the rate in which these costs are growing. My pitch today was designed to draw attention to this area, and hopefully convince the other Board members that this is where we need to concentrate our efforts.
Not everyone on the Board agrees with me on this. Nonetheless, they are the duly elected representatives of the people of our district. I may not agree with their viewpoint, but I respect them for being true to their philosophy and faithful to the people who elected them. I hope they respect me for the same reason.
There was agreement that we need to look more deeply into a couple of areas. One was a request by Dave Lundregan that the Treasurer prepare some additional scenarios built on a variety of changes to his current assumptions. Things like changes in the compensation structure, but also a variety of other factors.
Another is that we talk to experts on early retirement incentive programs to see if our current configuration of employees lends itself to a buyout program that makes economic sense for both the employees and the District.
Unless something quite unforeseen happens between now and Monday evening, I will be voting in favor of putting a 6.9 mill levy question to the voters in May. I am satisfied that the whole Board understands the challenges before us, even if we disagree on the solutions.
It is now time for the public to have its say.
Some will vote 'yes' without any regard to the financial situation. They may be employees of the district, or the friends and family of employees. They may be parents of school age kids who fear having the school district come apart before their kids graduate. They may be property owners who worry about a further erosion of their home values if the school district falls into fiscal crisis.
Others will similarly vote 'no' without reasoned analysis. Maybe they're just tired of their taxes going up. Without question, every time property taxes are raised, there is hardship created, especially for the retired senior citizens and now the large number of unemployed. Others who could easily absorb the tax increase will vote 'no' on philosophical grounds, unswayed by any arguments to the contrary.
My hope is that the remaining voters will use this levy question to engage in the dialog about where their school district is headed. If you think the school district is spending too much money on something, please come forward at a School Board meeting and say so. A 'no' on the ballot is nowhere near as effective as your direct feedback to the School Board. Just don't make it about lights left on at night or empty school buses that pass your house. That lemon has been squeezed pretty hard over the past several years, and there's not a lot left there.
I think the dialog has to be about the future of our compensation and benefits program. But I may be missing something...
As I wrote earlier, I voted against the Resolution of Necessity when it came up at the Jan 10 meeting, and explained that I did so because I felt there had been insufficient discussion of our financial picture - not enough due diligence - prior to that vote. I had hoped the Board would postpone the vote on the Resolution of Necessity for a few days until that discussion could be had. The Board instead chose to go ahead with the vote, but agreed to schedule a special meeting to have the discussion I requested.
That meeting took place yesterday.
Treasurer Brian Wilson reviewed the assumptions that he had used to build the current Five Year Forecast, and I presented the latest set of scenarios I had prepared. The Board then entered into a time of discussion, much as I hoped would happen. That discussion hopefully made it clear to all in the room that:
- A 6.9 mill levy if passed this May will still not provide sufficient money to fully fund the assumptions given in the latest Five Year Forecast, accepted by the Board in Oct 2010. We are spending more than we take in now, and will continue to do so even if this levy passes. All that will be achieved with this levy is to slow the rate in which we are draining our cash reserves.
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- Therefore, if the spending plan is not changed, another levy will be needed no later than two years from now. If we continue to increase our rate of spending at this rate, our property taxes will have to double every 10 years to keep up (see chart below).
click to enlarge
- As I have been saying for years, and am now joined by the Audit & Accountability Committee, our rate of spending increases cannot be materially changed without dealing with the cost of compensation of benefits, which is projected to consume 90% of our budget by FY15.
click to enlarge
Our community needs to understand that it is unlikely that our Board, in its current composition, will ever fully agree on the actions needed to find a solution to our fiscal challenges. We simply see some things differently, and the folks who voted us into office supposedly know that.
I see our primary fiscal issue being the compensation and benefits structure for the teachers, staff and administrators. I seek to recalibrate our personnel spending practices in order to dramatically slow down the rate in which these costs are growing. My pitch today was designed to draw attention to this area, and hopefully convince the other Board members that this is where we need to concentrate our efforts.
Not everyone on the Board agrees with me on this. Nonetheless, they are the duly elected representatives of the people of our district. I may not agree with their viewpoint, but I respect them for being true to their philosophy and faithful to the people who elected them. I hope they respect me for the same reason.
There was agreement that we need to look more deeply into a couple of areas. One was a request by Dave Lundregan that the Treasurer prepare some additional scenarios built on a variety of changes to his current assumptions. Things like changes in the compensation structure, but also a variety of other factors.
Another is that we talk to experts on early retirement incentive programs to see if our current configuration of employees lends itself to a buyout program that makes economic sense for both the employees and the District.
Unless something quite unforeseen happens between now and Monday evening, I will be voting in favor of putting a 6.9 mill levy question to the voters in May. I am satisfied that the whole Board understands the challenges before us, even if we disagree on the solutions.
It is now time for the public to have its say.
Some will vote 'yes' without any regard to the financial situation. They may be employees of the district, or the friends and family of employees. They may be parents of school age kids who fear having the school district come apart before their kids graduate. They may be property owners who worry about a further erosion of their home values if the school district falls into fiscal crisis.
Others will similarly vote 'no' without reasoned analysis. Maybe they're just tired of their taxes going up. Without question, every time property taxes are raised, there is hardship created, especially for the retired senior citizens and now the large number of unemployed. Others who could easily absorb the tax increase will vote 'no' on philosophical grounds, unswayed by any arguments to the contrary.
My hope is that the remaining voters will use this levy question to engage in the dialog about where their school district is headed. If you think the school district is spending too much money on something, please come forward at a School Board meeting and say so. A 'no' on the ballot is nowhere near as effective as your direct feedback to the School Board. Just don't make it about lights left on at night or empty school buses that pass your house. That lemon has been squeezed pretty hard over the past several years, and there's not a lot left there.
I think the dialog has to be about the future of our compensation and benefits program. But I may be missing something...
Tuesday, January 18, 2011
Levy Step 1.75 - Special Board Meeting
I appreciate very much that the other members of our School Board agreed to hold a working session to further discuss our levy options. A copy of the official meeting notice is provided at the bottom of this message.
I have prepared a set of financial scenarios (with notes to the scenarios) and sent them to the Board members in preparation for our discussion.
These scenarios are intended to help us look a couple of moves ahead - beyond just the immediate situation - and to help discover the bounds of reasonable decisions. I have long said that when a levy is being planned, several other parameters beyond just the levy size need to be considered - because they are all interrelated. For example, assuming any particular spending plan, the smaller the size of the first levy, the larger must be the second levy. The reverse is also true - the larger the first levy, the smaller the second can be.
Likewise, the larger the first levy, the longer the interval can be until the next levy; and the smaller the first levy, the shorter the interval must be.
The Board also needs to pay attention to the cash balance. It's a "hard deck" as Navy pilots like to say - we can't let the cash balance go below zero. Most would say it's prudent to leave a little margin for error. Board policy says our cash reserve should be 10% of the annual operating budget, which would make it about $18 million at our current spending rate. However, having spent a big chunk of this reserve in order to wait an extra year before putting a levy on the ballot - it would take a pretty good sized levy to get us back to 10%. Several of the scenarios I've prepared examine what it would take to keep the reserve at $5 million, or about the size of one payroll. That's not a lot of wiggle room.
And finally, a look at these scenarios makes it clear that the spending plan has to change. There is simply no combination of rational levy sizes and intervals which can support the spending plan currently dialed into the Five Year Forecast. The Board needs to dig into this soon, and examine another set of scenarios for lower rates of spending growth - lower than the 4.25% compound annual growth rate built into the current Forecast.
I realize that this special meeting has been scheduled during working hours for most of us, and there is no public participation scheduled, but I still hope folks will come to observe how their School Board makes these important decisions.
I have prepared a set of financial scenarios (with notes to the scenarios) and sent them to the Board members in preparation for our discussion.
These scenarios are intended to help us look a couple of moves ahead - beyond just the immediate situation - and to help discover the bounds of reasonable decisions. I have long said that when a levy is being planned, several other parameters beyond just the levy size need to be considered - because they are all interrelated. For example, assuming any particular spending plan, the smaller the size of the first levy, the larger must be the second levy. The reverse is also true - the larger the first levy, the smaller the second can be.
Likewise, the larger the first levy, the longer the interval can be until the next levy; and the smaller the first levy, the shorter the interval must be.
The Board also needs to pay attention to the cash balance. It's a "hard deck" as Navy pilots like to say - we can't let the cash balance go below zero. Most would say it's prudent to leave a little margin for error. Board policy says our cash reserve should be 10% of the annual operating budget, which would make it about $18 million at our current spending rate. However, having spent a big chunk of this reserve in order to wait an extra year before putting a levy on the ballot - it would take a pretty good sized levy to get us back to 10%. Several of the scenarios I've prepared examine what it would take to keep the reserve at $5 million, or about the size of one payroll. That's not a lot of wiggle room.
And finally, a look at these scenarios makes it clear that the spending plan has to change. There is simply no combination of rational levy sizes and intervals which can support the spending plan currently dialed into the Five Year Forecast. The Board needs to dig into this soon, and examine another set of scenarios for lower rates of spending growth - lower than the 4.25% compound annual growth rate built into the current Forecast.
I realize that this special meeting has been scheduled during working hours for most of us, and there is no public participation scheduled, but I still hope folks will come to observe how their School Board makes these important decisions.
HILLIARD CITY SCHOOL DISTRICT
BOARD OF EDUCATION
NOTICE OF SPECIAL MEETING
(RC 3313.16)
Notice is hereby given; there will be a SPECIAL meeting of the Board of Education of the Hilliard City School District on FRIDAY, JANUARY 21, 2011 at 3:00 P.M. located at the Hilliard City School District Administration Building, 5323 Cemetery Road, Hilliard, Ohio. The meeting will be held in regular session to discuss the potential operating levy 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.
January 17, 2011
Signed:
Brian W. Wilson, Treasurer/CFO
Hilliard City School District
Board of Education
Answers regarding Resolutions of Necessity
In the previous article, I noted that there was a question whether a School Board could submit more than one Resolution of Necessity to the County Auditor.
The answer is Yes - a School Board can submit as many resolutions as it wishes. In fact, some School Boards choose to submit several resolutions at the same time, each with different levy amount, so that they have a opportunity to use that information to make their final determination of the levy amount to put on the ballot.
The County Auditor turns these Resolutions around pretty quickly - it's not a hard calculation for them after all. Treasurer Brian Wilson told me that we had our response back from the County Auditor by Thursday of the same week we submitted it.
It would have been good to know these things when I made my motion at last week's Board Meeting to postpone a decision until we could have more detailed discussions, as it might have least received a second - since the reason expressed for withdrawing the second was a concern that action had to be taken that night in order to leave enough time for the County Auditor to perform their required actions.
The answer is Yes - a School Board can submit as many resolutions as it wishes. In fact, some School Boards choose to submit several resolutions at the same time, each with different levy amount, so that they have a opportunity to use that information to make their final determination of the levy amount to put on the ballot.
The County Auditor turns these Resolutions around pretty quickly - it's not a hard calculation for them after all. Treasurer Brian Wilson told me that we had our response back from the County Auditor by Thursday of the same week we submitted it.
It would have been good to know these things when I made my motion at last week's Board Meeting to postpone a decision until we could have more detailed discussions, as it might have least received a second - since the reason expressed for withdrawing the second was a concern that action had to be taken that night in order to leave enough time for the County Auditor to perform their required actions.
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