HB136 is currently working its way through the Ohio General Assembly. This Bill creates the "Parental Choice and Taxpayer Savings Scholarship Program," also known as PACT. The core purpose of this legislation is to allow parents to redirect the money the State of Ohio sends to the local public school districts to properly approved private schools.
Some school boards have recently chosen to pass resolutions in opposition to HB136. The Ohio School Boards Association, of which our School Board is a member, is lobbying in opposition to HB136.
I recently read through the Bill Analysis, prepared by the Ohio Legislative Services Commission, a body appointed by the General Assembly to render non-partisan, independent views on proposed legislation. The general notion of this legislation seems pretty good to me. And I can't believe what I believe about the importance of free markets and competition, or write what I have written about school choice, and be opposed to the principles of this Bill.
But it still needs some work. My friend Marc Schare, who is also current President of the Worthington School Board, submitted written testimony to the House back in April. I agree with much of what he said.
The Bill in its current form specifies that parents could apply to have up to $4,563* subtracted from the funding their local school district gets from the State and redirected to a scholarship account which could in turn be used to pay tuition and other expenses to an approved non-public school. The intention is that the school district would retain all the funds it raises from local sources - primarily homeowners and businesses - but that the money provided by the State could be used to pay tuition at a private school.
The problem, as Mr. Schare points out in his testimony, is that not all school districts receive $4,563 per student from the State. The amount of funding a school district receives from the State is determined to a large degree by the affluence of a community, as measured in terms of property value. By this measure, we are a fairly affluent community, and consequently our State funding was reduced to $3,741 per student in FY2010 (see CUPP Report produced by the Ohio Dept of Education).
This means that if a student were to take $4,563 with him to a private school, we would have to send along the $3,741 of State funding we receive, plus $822 that we have raised locally through tax levies.
Mr. Schare says this is inappropriate because the people of the community voted to be taxed that amount of money in order to fund their public school district, not to have it diverted to a private school.
I see his point, and agree somewhat. But here's where one's perspective is important.
From the perspective of folks with kids in the public school system, this sounds like their money is being taken away to subsidize kids in the non-public schools. From a practical standpoint, one of the more significant challenges with HB136 is that it allows PACT money to be withdrawn for students already attending non-public schools. So if we have 1,000 kids in our community currently attending non-public schools (I don't know the real number), it means we aren't currently allocating any resources to educate those kids, but we could still have as much as $4.6 million of our State funding diverted. Same number of kids, $4.6 million less funding. That's equivalent to about 50 teachers.
But from the perspective of the folks with kids in non-public schools, it means an end to having their tax dollars being taken to fund the public schools their kids don't attend. This has always been an issue with the families who send their kids to the Catholic schools for example - they feel like they're paying for both the public schools and their parochial schools. For these folks, HB136 seems pretty fair.
We also have to remember that it's unlikely that any of the votes taken to approve public school levies were unanimous. There might have been a fair number of people in the community who voted to NOT send additional funds to the public school district, but are required to do so anyway because the majority dictates to the minority when it comes to levies.
I recognize that this argument stands on shaky ground. The rule of our democracy is that the majority wins, even when the margin of victory is only one vote. This is one of the challenges of democratic capitalism - knowing when to let individual choices and appropriately regulated markets determine how resources are allocated, and when we should allow majority-wins elections to decide the outcome for all.
I prefer the former whenever practical.
That's my core reason for saying what I did in Food Stamps - that we should operate our schools like we do our food distribution system. Our society has set up a food production and distribution system which is the envy of the world, and one of the key drivers is the ability for any shopper to buy whatever food they want, wherever they want, and at whatever price they find acceptable. The competition for customers drives producers and retailers to create fantastic choices at prices the market will bear.
But instead we fund our schools like the Soviets ran their food distribution network - government control of what was produced and in what quantity, and where it was distributed. Their food may have been free or nearly free, but there were massive shortages and the food was generally of poor quality (no, I'm not saying our school district is of poor quality - we all know it's quite the opposite). And of course the black market thrived, but only for those with the means. The majority of the population just had to suffer.
We think food is a pretty important component of life, so for those who can't afford to buy sufficient food, we provide a taxpayer-funded public assistance program we call "food stamps," even through the little books of coupons haven't existed for a number of years.
We could organize our education system in the same way - most people would pay tuition to the institution in which they wish to enroll their kids during the years they were in school, and otherwise be off the hook. For those who can't afford a "thorough and efficient" education, as required by the Ohio Constitution, we would have a tax-funded scholarship program, akin to food stamps. No one who wants it would go without an education.
I recognize that such a radical shift in thinking is not in the cards, at least not for the near future. HB136 has some good ideas, but has not been sufficiently thought through, as was the case with SB5. It will further stress the public school districts without having practical, workable solutions to the real problems it will create.
* The actual amount of the scholarship available to a student is reduced as family income increases. The full $4,563 is available only to families whose combined income is less than 278% of the Federal Poverty Level,. For a family of four, this means the full scholarship amount is available only if the combined family income is less than $62,000. No scholarship money is available when the combined family income is more than $95,000, so this isn't a way to help pay the tuition for rich kids at expensive private schools.
Friday, November 25, 2011
Thursday, November 24, 2011
Levy Passed, What's Next?
I'm happy that our community passed the levy issue, albeit by an extremely slim margin.
I've come to view levies as the mechanism which the School Board uses to facilitate a negotiation within the community. There is not now, nor will there ever be a time when every single voter in our community agrees on exactly how our schools should be run, or what it should cost. It will vary depending on whether the voter has kids in school, on the voter's financial status, on the voter's political philosophy, and a myriad of other personal factors.
So I look at a levy issue as more of a proposition, explaining what will be offered if the levy passes, and what will happen if it fails. If a majority of the voters accept the proposition, the levy passes. If not, it fails.
What should happen if a levy issue fails? I think that when that happens, the School Board should adjust the proposition and ask again by putting a new levy proposition before the voters. I think this because not putting a levy on the ballot denies folks a chance to accept a different proposition.
That doesn't mean that if a levy fails I advocate running a levy at every single opportunity following until one finally passes. I think that would annoy the community, and unreasonably burden the emotional, physical and financial resources of the levy campaign team. I think there's a better way to go about this - more later.
In this case, the community rejected the proposition offered in May, but accepted the proposition offered in November, which included the commitment to not ask for more money until 2014 at the soonest (but we have to be realistic and say that we might have to revisit that if the State of Ohio makes further significant cuts to our funding).
As a result of the levy passing, here's what our Five Year Forecast looks like in graphical form:
As has been the case for years, 88% of our spending is on comp and benefits, which is as it should be. It's also the only part of the budget which is growing materially. That's good too - it indicates that the 'overhead' part of spending is being held constant.
Notice that the projected spending for Compensation and Benefits for future years is well less than it was projected to be just a year ago - by about $18 million in FY15. This reflects the terms of the new agreement with the unions for 2011-2013 - including the projected impact of the early retirement incentive program for the teachers and additional contribution toward the health insurance premium.
It also assumes a resumption of annual 4.15% step increases in 2013 (which is effectively 2.3% given the mix of teachers on and off the step years), but with only 1% base pay increases starting 2014.
Since the most significant of the budget, and the only part that's growing is comp and benefits, that's where we need to focus our attention. So what drives up the cost of compensation and benefits?
Clearly, the most significant driver is whatever gets negotiated into the teachers' contract in terms of the salary grid. If you're not familiar with how this works, I recommend that you read an article I wrote titled Teacher Salary History. Their current contract runs through 2013, and I don't anticipate engaging in negotiations again until then.
So in regard to teachers and staff, the labor rate is set, but that's only half of the equation. The other half is the number of teachers and staff we choose to employ. At the end of FY11, our district employed the equivalent of 1,716 full time employees, 1,117 of whom were teachers. The remainder includes 202 pupil and teacher support staff, 131 building and grounds maintenance personnel, 125 bus drivers and other transportation staff, and 108 administrators (source: 2011 CAFR, page 110).
So what determines the number of teachers we employ? It depends on the grade level. At the K-5 level, it's mostly about the number of students we want to have in each classroom. As you can see from the monthly Enrollment Report, the overall K-5 ratio is 23.6 students per classroom.
When you get to the high schools, the variety of course offerings also becomes a driver. Our high school catalog offers over 300 courses, although not every course is offered every semester. Some classes are pretty large, with 30+ kids, and some - such as our new Chinese foreign language offering - have single digit enrollment.
Overall in our district, the student-teacher ratio is 22.5/1, while the average for our region is 25/1, and that ranges from 18/1 in Upper Arlington and Bexley to 35/1 at Groveport-Madison.
If we increased our student-teacher ratio to 25/1, our need for teachers would diminish by 70, which could reduce our spending by about $3.5 million per year (assuming junior teachers averaging $40K+benefits). We have a unique opportunity to do such a thing in the coming year, with potentially a large number of teachers retiring to take advantage of the early retirement incentive program. It's an opportunity to adjust staffing levels without layoffs, and that must not be ignored.
In addition to their normal pay, many employees of our district also receive stipends and supplemental salaries. Once again, these rates are set in the union agreements, but there is a choice as to how many of these roles will be funded each year.
As is shown on the agenda for Monday's School Board meeting, we will be considering a resolution to authorize stipends for the 2011/12 school year for about 1,000 roles, ranging from $350 each for the 182 participants on the School Improvement Teams ($64,000 total cost), to $1,200 per semester for supervising the high school weight rooms (12 person-semesters/yr for Davidson, 3 each for Darby and Bradley), adding up to about $22,000 each year. The total outlay for all stipends will be more than $600,000 next year.
The resolutions to approve supplemental salaries are dealt with a couple of times during the year. A complete list of these are included in Appendix L of the teachers' contract, starting on page 94 of the Master Agreement. These are expressed as a percentage of the base salary for each teacher, ranging from 15% for the head football, basketball and wrestling coaches, as well as the head instrumental music directors, to 5% for an assistant drama director or an assistant middle school tennis coach.
Administrative contracts have terms of varying terms and expiration dates. You'll see these come before the Board for action at the appropriate times.
My opening statement was to describe levy issues as the way the School Board facilitates a negotiation within the community. I also think it's an extraordinarily inefficient way of accomplishing this task.
We have lots of things to talk about in regard to our community and our schools, and with the passage of this levy, we've bought some time to figure out a better way to get this done.
My suggestion is that we use a process that has worked pretty well for us over the past few years - a large committee (~100 members) of diverse viewpoints called together to deal with a challenging question. It has been used for adjusting attendance boundaries when Bradley and Washington were built, for looking at student housing alternatives, and most recently for developing an approach for Pay-to-Participate fees.
What do you think of that? Would you participate?
I've come to view levies as the mechanism which the School Board uses to facilitate a negotiation within the community. There is not now, nor will there ever be a time when every single voter in our community agrees on exactly how our schools should be run, or what it should cost. It will vary depending on whether the voter has kids in school, on the voter's financial status, on the voter's political philosophy, and a myriad of other personal factors.
So I look at a levy issue as more of a proposition, explaining what will be offered if the levy passes, and what will happen if it fails. If a majority of the voters accept the proposition, the levy passes. If not, it fails.
What should happen if a levy issue fails? I think that when that happens, the School Board should adjust the proposition and ask again by putting a new levy proposition before the voters. I think this because not putting a levy on the ballot denies folks a chance to accept a different proposition.
That doesn't mean that if a levy fails I advocate running a levy at every single opportunity following until one finally passes. I think that would annoy the community, and unreasonably burden the emotional, physical and financial resources of the levy campaign team. I think there's a better way to go about this - more later.
In this case, the community rejected the proposition offered in May, but accepted the proposition offered in November, which included the commitment to not ask for more money until 2014 at the soonest (but we have to be realistic and say that we might have to revisit that if the State of Ohio makes further significant cuts to our funding).
As a result of the levy passing, here's what our Five Year Forecast looks like in graphical form:
 |
| click to enlarge |
 |
| click to enlarge |
It also assumes a resumption of annual 4.15% step increases in 2013 (which is effectively 2.3% given the mix of teachers on and off the step years), but with only 1% base pay increases starting 2014.
Since the most significant of the budget, and the only part that's growing is comp and benefits, that's where we need to focus our attention. So what drives up the cost of compensation and benefits?
Clearly, the most significant driver is whatever gets negotiated into the teachers' contract in terms of the salary grid. If you're not familiar with how this works, I recommend that you read an article I wrote titled Teacher Salary History. Their current contract runs through 2013, and I don't anticipate engaging in negotiations again until then.
So in regard to teachers and staff, the labor rate is set, but that's only half of the equation. The other half is the number of teachers and staff we choose to employ. At the end of FY11, our district employed the equivalent of 1,716 full time employees, 1,117 of whom were teachers. The remainder includes 202 pupil and teacher support staff, 131 building and grounds maintenance personnel, 125 bus drivers and other transportation staff, and 108 administrators (source: 2011 CAFR, page 110).
So what determines the number of teachers we employ? It depends on the grade level. At the K-5 level, it's mostly about the number of students we want to have in each classroom. As you can see from the monthly Enrollment Report, the overall K-5 ratio is 23.6 students per classroom.
When you get to the high schools, the variety of course offerings also becomes a driver. Our high school catalog offers over 300 courses, although not every course is offered every semester. Some classes are pretty large, with 30+ kids, and some - such as our new Chinese foreign language offering - have single digit enrollment.
Overall in our district, the student-teacher ratio is 22.5/1, while the average for our region is 25/1, and that ranges from 18/1 in Upper Arlington and Bexley to 35/1 at Groveport-Madison.
If we increased our student-teacher ratio to 25/1, our need for teachers would diminish by 70, which could reduce our spending by about $3.5 million per year (assuming junior teachers averaging $40K+benefits). We have a unique opportunity to do such a thing in the coming year, with potentially a large number of teachers retiring to take advantage of the early retirement incentive program. It's an opportunity to adjust staffing levels without layoffs, and that must not be ignored.
In addition to their normal pay, many employees of our district also receive stipends and supplemental salaries. Once again, these rates are set in the union agreements, but there is a choice as to how many of these roles will be funded each year.
As is shown on the agenda for Monday's School Board meeting, we will be considering a resolution to authorize stipends for the 2011/12 school year for about 1,000 roles, ranging from $350 each for the 182 participants on the School Improvement Teams ($64,000 total cost), to $1,200 per semester for supervising the high school weight rooms (12 person-semesters/yr for Davidson, 3 each for Darby and Bradley), adding up to about $22,000 each year. The total outlay for all stipends will be more than $600,000 next year.
The resolutions to approve supplemental salaries are dealt with a couple of times during the year. A complete list of these are included in Appendix L of the teachers' contract, starting on page 94 of the Master Agreement. These are expressed as a percentage of the base salary for each teacher, ranging from 15% for the head football, basketball and wrestling coaches, as well as the head instrumental music directors, to 5% for an assistant drama director or an assistant middle school tennis coach.
Administrative contracts have terms of varying terms and expiration dates. You'll see these come before the Board for action at the appropriate times.
My opening statement was to describe levy issues as the way the School Board facilitates a negotiation within the community. I also think it's an extraordinarily inefficient way of accomplishing this task.
We have lots of things to talk about in regard to our community and our schools, and with the passage of this levy, we've bought some time to figure out a better way to get this done.
My suggestion is that we use a process that has worked pretty well for us over the past few years - a large committee (~100 members) of diverse viewpoints called together to deal with a challenging question. It has been used for adjusting attendance boundaries when Bradley and Washington were built, for looking at student housing alternatives, and most recently for developing an approach for Pay-to-Participate fees.
What do you think of that? Would you participate?
Wednesday, November 9, 2011
Election 2011 Comments
I'll write about my thoughts on the election when I've had a chance to digest the numbers, and we have a final tally on the levy. Meanwhile, feel free to post thoughtful comments here, but be forewarned that I'll not publish comments I find to be hateful, which make personal attacks, etc.
Sunday, October 30, 2011
Unfunded Mandates
One often hears the phrase "unfunded mandates" when discussing the economics of public schools. This is a disparaging term, meant to criticize an action taken by the government - usually the State government - to impose new requirements on a school district, but not providing the funding for implementation.
When drawn into such a discussion, my suggestion to folks is that they're concentrating on the wrong word. Most folks think it's the unfunded part which is the problem. I think it's the mandate which is the root problem. Here's what I mean.
One of the most recent examples of this was the requirement enacted in 2009 by the Governor Ted Strickland and the 128th General Assembly that all public school districts implement all-day kindergarten.
This was a big deal. According to a story that ran in the Columbus Dispatch, Hilliard City Schools had 640 kids who were in half-day kindergarten (of about 1,000 total kids enrolled in kindergarten). Here's how the math comes out:
We can consider 640 kids in school for half-days to be the same as 320 kids in school all day. With an average classroom size of 23.43 for kindergarten (as of the Oct 2011 enrollment data), 320 kids would require 27 teachers. Those teachers would each have 23 kids for the morning, and a different set of 23 kids in the afternoon.
To have these same 640 kids in all-day kindergarten, we would have to double the number of teachers, from 27 to 54.
While our average classroom teacher salary is $69,369, according to the 2010 CUPP report from the Ohio Dept of Education (plus 34% for taxes and benefits, or $90,000/yr total cost), if we were to hire 27 new kindergarten teachers, most if not all of them would be at the low end of the pay scale, around $45,000/yr. With benefits, the cost would be about $60,000/yr for each new teacher, or $1.2 million/yr.
The Dispatch story says our cost would be about $1.7 million/yr. I can accept this number, as in addition to these new teachers, we would have the cost of 27 new classrooms, probably in the form of leased 'modulars' that we'd have to park at every elementary school.
And so the cost of this "unfunded mandate" was seen to be $1.7 million/yr, because the State was telling us we had to do it, but wasn't backing it up with any new money.
Turns out it's a bit more complex than that.
For decades, the State funding model has used the number of students in a school district as the primary basis for determining the amount of State funding that would be granted. Actually the number used is called "Average Daily Membership," or ADM, and it is close to the number of students, but with some adjustments. For example, kids with disabilities are counted as a little more than one student, depending on the severity of disability. In this way, the State helps underwrite the greater costs of serving students with special needs.
In the case of kindergarten, each kid is counted as one-half student, reflecting the assumption that these kids would be in school for only a half-day, therefore creating half the cost burden of an all-day kid.
So with the mandate that all school districts be required to offer all-day kindergarten to all kids, the State did indeed create a funding stream to help support the mandate by simply allowing school districts to count kindergarten kids as a whole kid, rather than a half. This doubles the amount of State funding granted to a district for kindergarten. Does that sound unfunded to you?
But here's the catch: for districts like ours, as well as most suburban districts in Ohio, the funding models had a mechanism called the "Transitional Guarantee," which was created to ensure that in the transition from one funding model to the next, no school district would see a dramatic reduction in its State funding. This guarantee existed in Ted Strickland's Evidence Based Model, and it existed in the model before that (to smooth the transition from whatever was before that model). One could say that the funding model used by Gov. Kasich and the 129th General Assy was nothing but a transitional guarantee approach - allocating new funding based on prior funding and not worrying so much about all the components of the prior two funding models.
For districts 'on the guarantee,' this change in the counting of kindergarten kids wouldn't have much impact on State funding. So from a practical standpoint, the requirement to implement all-day kindergarten would be unfunded for us - meaning we would have to bear the full incremental cost locally. That's the reason the School Board has opted to request waivers from this mandate each year. Fortunately, subsequent to the passage of the last budget bill by the 129th General Assembly, all-day kindergarten is no longer a requirement.
However, this still isn't quite the full story.
We have to step back and ask "where does the State of Ohio get the money it passes out in the form of State funding to school districts?" Of course the answer is that most of it comes from us. According the Budget submitted by Gov Kasich, 80% of all State revenue (excluding that associated with the pass-through of Federal subsidy for programs such as Medicaid) comes from individual income taxes and sales taxes.
According to the CUPP report, the our school system gets back 41 cents for each dollar of State income taxes paid by the people of our community. One could say that this means that to get back $1.7 million per year from the State to fund all-day kindergarten, our State income taxes would have increase by $4 million.
So if we were mandated to implement all-day kindergarten, wouldn't it be better to fund it with a local tax that raises $1.7 million/yr (about 0.7 mills), than to be taxed $4 million more by the State?
Of course I'm oversimplifying things. Funding new things doesn't always have to mean more taxes. In these tough times especially, spending has to be prioritized, and that often means that new programs have to be funded by discontinuing other programs.
But the purpose of this article is to point out that often the most efficient way for communities like ours to fund new mandates is with local taxes. The real fight needs to be over whether the mandate should be enacted in the first place.
If we want to have all-day kindergarten in Hilliard schools, let the people of our community make that choice, and back it up with local funding. Nor do we want the State to be telling other school districts that they must have all-day kindergarten, and then funding it with our income tax and sales tax dollars.
When drawn into such a discussion, my suggestion to folks is that they're concentrating on the wrong word. Most folks think it's the unfunded part which is the problem. I think it's the mandate which is the root problem. Here's what I mean.
One of the most recent examples of this was the requirement enacted in 2009 by the Governor Ted Strickland and the 128th General Assembly that all public school districts implement all-day kindergarten.
This was a big deal. According to a story that ran in the Columbus Dispatch, Hilliard City Schools had 640 kids who were in half-day kindergarten (of about 1,000 total kids enrolled in kindergarten). Here's how the math comes out:
We can consider 640 kids in school for half-days to be the same as 320 kids in school all day. With an average classroom size of 23.43 for kindergarten (as of the Oct 2011 enrollment data), 320 kids would require 27 teachers. Those teachers would each have 23 kids for the morning, and a different set of 23 kids in the afternoon.
To have these same 640 kids in all-day kindergarten, we would have to double the number of teachers, from 27 to 54.
While our average classroom teacher salary is $69,369, according to the 2010 CUPP report from the Ohio Dept of Education (plus 34% for taxes and benefits, or $90,000/yr total cost), if we were to hire 27 new kindergarten teachers, most if not all of them would be at the low end of the pay scale, around $45,000/yr. With benefits, the cost would be about $60,000/yr for each new teacher, or $1.2 million/yr.
The Dispatch story says our cost would be about $1.7 million/yr. I can accept this number, as in addition to these new teachers, we would have the cost of 27 new classrooms, probably in the form of leased 'modulars' that we'd have to park at every elementary school.
And so the cost of this "unfunded mandate" was seen to be $1.7 million/yr, because the State was telling us we had to do it, but wasn't backing it up with any new money.
Turns out it's a bit more complex than that.
For decades, the State funding model has used the number of students in a school district as the primary basis for determining the amount of State funding that would be granted. Actually the number used is called "Average Daily Membership," or ADM, and it is close to the number of students, but with some adjustments. For example, kids with disabilities are counted as a little more than one student, depending on the severity of disability. In this way, the State helps underwrite the greater costs of serving students with special needs.
In the case of kindergarten, each kid is counted as one-half student, reflecting the assumption that these kids would be in school for only a half-day, therefore creating half the cost burden of an all-day kid.
So with the mandate that all school districts be required to offer all-day kindergarten to all kids, the State did indeed create a funding stream to help support the mandate by simply allowing school districts to count kindergarten kids as a whole kid, rather than a half. This doubles the amount of State funding granted to a district for kindergarten. Does that sound unfunded to you?
But here's the catch: for districts like ours, as well as most suburban districts in Ohio, the funding models had a mechanism called the "Transitional Guarantee," which was created to ensure that in the transition from one funding model to the next, no school district would see a dramatic reduction in its State funding. This guarantee existed in Ted Strickland's Evidence Based Model, and it existed in the model before that (to smooth the transition from whatever was before that model). One could say that the funding model used by Gov. Kasich and the 129th General Assy was nothing but a transitional guarantee approach - allocating new funding based on prior funding and not worrying so much about all the components of the prior two funding models.
For districts 'on the guarantee,' this change in the counting of kindergarten kids wouldn't have much impact on State funding. So from a practical standpoint, the requirement to implement all-day kindergarten would be unfunded for us - meaning we would have to bear the full incremental cost locally. That's the reason the School Board has opted to request waivers from this mandate each year. Fortunately, subsequent to the passage of the last budget bill by the 129th General Assembly, all-day kindergarten is no longer a requirement.
However, this still isn't quite the full story.
We have to step back and ask "where does the State of Ohio get the money it passes out in the form of State funding to school districts?" Of course the answer is that most of it comes from us. According the Budget submitted by Gov Kasich, 80% of all State revenue (excluding that associated with the pass-through of Federal subsidy for programs such as Medicaid) comes from individual income taxes and sales taxes.
According to the CUPP report, the our school system gets back 41 cents for each dollar of State income taxes paid by the people of our community. One could say that this means that to get back $1.7 million per year from the State to fund all-day kindergarten, our State income taxes would have increase by $4 million.
So if we were mandated to implement all-day kindergarten, wouldn't it be better to fund it with a local tax that raises $1.7 million/yr (about 0.7 mills), than to be taxed $4 million more by the State?
Of course I'm oversimplifying things. Funding new things doesn't always have to mean more taxes. In these tough times especially, spending has to be prioritized, and that often means that new programs have to be funded by discontinuing other programs.
But the purpose of this article is to point out that often the most efficient way for communities like ours to fund new mandates is with local taxes. The real fight needs to be over whether the mandate should be enacted in the first place.
If we want to have all-day kindergarten in Hilliard schools, let the people of our community make that choice, and back it up with local funding. Nor do we want the State to be telling other school districts that they must have all-day kindergarten, and then funding it with our income tax and sales tax dollars.
Tuesday, October 25, 2011
Five Year Forecast: Oct 2011 version
At the regular School Board meeting on October 24, 2011, the Board, on the recommendation of Superintendent Dale McVey, voted unanimously to accept the latest Five Year Forecast as presented by Treasurer Brian Wilson. For the visual folks out there, here is the forecast in chart form:
The yellow area in the chart represents the gap between spending and funding. By state law, the District cannot operate without cash reserves, nor can these forecasts - which must be submitted each May and October to the State Board of Education - show anticipated revenue from levies that haven't been passed. That means that we cannot in fact operate the district past FY12 (this year) without less spending than shown in this forecast, more revenue, or both. That's the reason we have a levy on the ballot.
If our 5.9 mill levy issue passes in two weeks, it would make the chart look like this:
Now the yellow area - the revenue/spending gap - is smaller, but still there. That again means we need to have less spending, more revenue, or both. Let's say that the spending is left as Mr. Wilson projected; what size future levy is needed to close the gap?
Given those inputs, the size of the next levy would need to be 7.1 mills, which looks like this:
So what if we lower the rate of spending growth? Note that projected spending has already been reduced compared to the May 2011 Five Year Forecast (the dotted red line). No, I'm not getting caught in the semantics of claiming that there has been a spending cut because one forecast projects less future spending than the last forecast did. There has not been, nor is there projected to be, any year in which the total spending is less than the year before.
As has been long clear to readers of this blog, 88% of our spending is for compensation and benefits. Our spending for compensation and benefits increases faster than the rate of student growth, and it increases faster than the rate of employee (FTE) growth. In other words, the average cost per employee for compensation and benefits is going up.
(Part 2)
This shows that cutting $10.2 million from each year of future budgets extends the time until we are out of cash by just one more year. Without question, there would be discussion about putting a levy on the ballot again in 2012. If we modify the goal to say that we want to get the cash balance to 7% by the end of FY14, then a 2012 levy of at least 3.6 mills is required, but the interval to the next levy would need to be only two years:
To make the interval following a 2012 levy at least three years, the 2012 levy would need to be on the order of 5.5 mills.
 |
| click to enlarge |
If our 5.9 mill levy issue passes in two weeks, it would make the chart look like this:
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| click to enlarge |
Back in April, I wrote an article in which I described the four primary knobs we can turn in the budgeting process: 1) the rate of spending growth; 2) the interval to the next levy; 3) the size of the next levy; and, 4) the size of the "rainy day fund" we want to keep.
So let's say the 5.9 mill levy passes. The Board has committed that it will be at least 3 years before another levy is proposed. Board policy is that the rainy day fund should be kept at about 10% of annual spending, and the Audit & Accountability Committee has recommended that we restore this level of reserves as well.
The spending plan in this forecast is a little unusual. In their current contract, the teachers have been offered an early retirement incentive package that the Administration forecasts will be accepted by 75% of those eligible. Combined with the three year base pay freeze, and the postponement of step increases until 2013, this actually makes our compensation expense go down in FY13. However in FY14 spending is forecasted to rise 2.3%, and then 4.1% in both FY15 and FY16 (it was 4.8% in the years FY03-FY09).
Given those inputs, the size of the next levy would need to be 7.1 mills, which looks like this:
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Nor am I at this time advocating spending cuts, although that will certainly happen if this levy doesn't pass.
But I think we can and must continue to consider ways to decrease the rate of spending growth. For example, if we lower the annual growth rates for FY15 and FY16 from 4.1% to just 3.5%, we can lower the size of the levy needed in 2014 to 6.1 mills, which would look like this:
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| click to enlarge |
So how do we go about changing the growth rate in spending? Let's look at how the money gets spent:
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As you can see in the chart above, that growth rate has been substantially reduced compared to the Five Year Forecast published one year ago (the dotted line). That's because of the projected effects of the early retirement incentive program, and the very real effects of the base pay freeze and accompanying step delays (one step will be eliminated altogether).
However, this is being offset by the increasing cost of benefits, in particular health insurance. Even though the teachers and support staff have agreed to pay 15% of the health insurance premiums (it was 10% in the prior contract, and before 2008 was 0%), the total new dollars we'll spend over the next five years on health coverage will be $6 million more than we spend on increased compensation.
Some advocate demanding that the teacher take pay cuts. I don't. That might have to be put on the table if things get really bad, but we're not there yet, in my opinion. The thing that could really nail us is having the State of Ohio further reduce our state funding. We cannot continue to ask the people and businesses of our community to keep filling the deepening hole created by a bad economy. If there are significant further reductions in state funding, pay cuts might have to become part of the solution to keeping our district solvent.
There are no easy answers. We'll all have to participate in finding solutions. I hope this article helps inform the conversation.
(Part 2)
At M's request, here are a couple of additional charts.
The first is a chart that shows what happens if the levy fails and the approved cuts are implemented. All other assumptions in the Five Year Forecast are kept in place:
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| click to enlarge |
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| click to enlarge |
There are an infinite number of permutations we could explore. but the point remains the same: there are four knobs to twist, pick three and you get the fourth.
There is no right answer. Some people in our community want the Board to spend less, whether that be cuts to academic and extracurricular programming (which reduces staffing needs), or by pay cuts, or both. Others are concerned that we might not be spending enough - that we are depriving the kids of opportunities by not spending more. There is no majority position, only a spectrum of individual opinions.
That's the way democracy works. Candidates run for office, and issues are put on the ballot. The winners get to choose how things go until the next election. If folks with extreme positions are elected, we tend to get legislation that brings extreme changes.
SB5 is the current right-wing example. But we've already forgotten that not so many years ago, the left-wing prevailed, and we got all kinds of legislation that tipped the laws in favor of their views.
This whip-sawing can't be good for Hilliard, for Ohio, or for America. We have to again learn how to communicate (listening is at least as important as talking), negotiate, and live with compromise.
Thursday, October 20, 2011
Moneyball and Education
I read a number of education-oriented publications and blogs, but have rarely come across articles that I thought would be of much interest to folks who come here. But this one by Rick Hess in the EdWeek blog made a point worth passing on.
I haven't seen the movie Moneyball, but I understand the premise. Baseball is as much a playground for numbers geeks as it is for athletes. All kinds of statistics are kept, reported, and memorized by the most left-brained of baseball fans.
The storyline in Moneyball is that one particular numbers geek suggests to a major league manager that the statistics that get all the attention, like batting average, home runs, and RBIs, are perhaps not the ones that are good predictors of future success in winning games. So he proposes using a different set of statistics to predict which players would be most valuable to the team, and how they should best be utilized.
Hess suggests that the growing infatuation with value-added measures and test scores might lead to the same kind of misguided assessment of effectiveness as do the high-visibility statistics in baseball. He's suggesting that in the effort to develop effective measurement systems for education system performance - whether we're talking kids, teachers, or schools - we need to accept that this kind of statistical analysis in the education domain is still in its infancy, and that we have a way to go before this body of research evolves to really meaningful statistics, like the ones the numbers geek derived in Moneyball.
Lots of folks would like to use the standardized test scores and other existing measures to determine all kinds of very important stuff, in particular the allocation of resources and the evaluation of teachers. SB5, if it withstands the repeal initiative, mandates merit-based evaluation of teachers, but conveniently doesn't say how it should be done.
Most teachers I've talked to don't have a problem with the theory of a merit-based system, they just don't trust that it will be administered fairly. Hess's article points out another potential flaw - using the wrong statistics to measure effectiveness.
I spent my career in cahoots with some pretty tremendous sales folks. One of the main challenges of my colleague, the Sales VP, was to come up with an annual commission plan for his sales team that motivated them to sell the right set of products for the right set of terms so as to meet the strategic goals of the company. The sales folks - as smart as they were - would most assuredly figure out how to maximize their compensation given whatever rules the Sales VP set, regardless of whether or not their efforts contributed to meeting the company's strategic goals. So the Sales VP had to put a great deal of thought into how to design the plan to get the behavior and results he was looking for.
We have to take the same kind of care if and when a merit-based system is put into use to determine teacher compensation. Otherwise there will be some unintended and expensive consequences, and we still might not achieve our strategic goals.
I haven't seen the movie Moneyball, but I understand the premise. Baseball is as much a playground for numbers geeks as it is for athletes. All kinds of statistics are kept, reported, and memorized by the most left-brained of baseball fans.
The storyline in Moneyball is that one particular numbers geek suggests to a major league manager that the statistics that get all the attention, like batting average, home runs, and RBIs, are perhaps not the ones that are good predictors of future success in winning games. So he proposes using a different set of statistics to predict which players would be most valuable to the team, and how they should best be utilized.
Hess suggests that the growing infatuation with value-added measures and test scores might lead to the same kind of misguided assessment of effectiveness as do the high-visibility statistics in baseball. He's suggesting that in the effort to develop effective measurement systems for education system performance - whether we're talking kids, teachers, or schools - we need to accept that this kind of statistical analysis in the education domain is still in its infancy, and that we have a way to go before this body of research evolves to really meaningful statistics, like the ones the numbers geek derived in Moneyball.
Lots of folks would like to use the standardized test scores and other existing measures to determine all kinds of very important stuff, in particular the allocation of resources and the evaluation of teachers. SB5, if it withstands the repeal initiative, mandates merit-based evaluation of teachers, but conveniently doesn't say how it should be done.
Most teachers I've talked to don't have a problem with the theory of a merit-based system, they just don't trust that it will be administered fairly. Hess's article points out another potential flaw - using the wrong statistics to measure effectiveness.
I spent my career in cahoots with some pretty tremendous sales folks. One of the main challenges of my colleague, the Sales VP, was to come up with an annual commission plan for his sales team that motivated them to sell the right set of products for the right set of terms so as to meet the strategic goals of the company. The sales folks - as smart as they were - would most assuredly figure out how to maximize their compensation given whatever rules the Sales VP set, regardless of whether or not their efforts contributed to meeting the company's strategic goals. So the Sales VP had to put a great deal of thought into how to design the plan to get the behavior and results he was looking for.
We have to take the same kind of care if and when a merit-based system is put into use to determine teacher compensation. Otherwise there will be some unintended and expensive consequences, and we still might not achieve our strategic goals.
Sunday, October 16, 2011
Retirement Pickups: Correcting the Dispatch
The Columbus Dispatch today published a story titled "Is SB5 good for Ohio?" SB5 = Senate Bill 5, the law whose fate is being determined by referendum (Issue 2) on the November ballot.
The story addressed a number of topics, including an often misunderstood concept regarding pension plan contributions called "pickup." Unfortunately, the Dispatch didn't quite get it right.
The first point to understand is that the teachers' pension program is not operated by our school district, but rather by a quasi-State agency called the State Teachers Retirement System (STRS). STRS was created by State law, and the State retains a certain amount of control over its operations. But the primary governance of STRS is handled by a Retirement Board, made up of five elected contributing teacher members; two elected retired teacher members; an investment expert appointed by the governor; an investment expert appointed jointly by the speaker of the House and the Senate president; an investment expert designated by the treasurer of state; and the superintendent of public instruction (ie the State Superintendent) or his designated investment expert.
The STRS pension fund gets its money primarily from contributions made by working teachers and by the school districts which employ them. The maximum contribution rates are set in the law, but may be set to lower numbers if the Retirement Board feels the fund can be kept solvent with smaller contributions (STRS is not solvent, by the way). Currently, the Retirement Board has the contributions rates set to the maximum amounts allowable by law: 10% of the teacher's salary paid by the teacher, and another 14% of the teachers salary paid by the school district.
The story addressed a number of topics, including an often misunderstood concept regarding pension plan contributions called "pickup." Unfortunately, the Dispatch didn't quite get it right.
The first point to understand is that the teachers' pension program is not operated by our school district, but rather by a quasi-State agency called the State Teachers Retirement System (STRS). STRS was created by State law, and the State retains a certain amount of control over its operations. But the primary governance of STRS is handled by a Retirement Board, made up of five elected contributing teacher members; two elected retired teacher members; an investment expert appointed by the governor; an investment expert appointed jointly by the speaker of the House and the Senate president; an investment expert designated by the treasurer of state; and the superintendent of public instruction (ie the State Superintendent) or his designated investment expert.
The STRS pension fund gets its money primarily from contributions made by working teachers and by the school districts which employ them. The maximum contribution rates are set in the law, but may be set to lower numbers if the Retirement Board feels the fund can be kept solvent with smaller contributions (STRS is not solvent, by the way). Currently, the Retirement Board has the contributions rates set to the maximum amounts allowable by law: 10% of the teacher's salary paid by the teacher, and another 14% of the teachers salary paid by the school district.
Article 32 of the Collective Bargaining Agreement between the Hilliard Education Association (HEA, the teachers' union) addresses retirement system contributions. In this article, you see the use of the word "pickup," and it has confused many people over the years, including me. While the language of Article 32 is accurate, if you don't know that "pickup" is a code word in the world of public employee retirement systems, it's easy to misinterpret this section.
Here's what "pickup" means in the context of our contact with the HEA. It DOES NOT mean that the school district (ie we the taxpayers), is paying both the 14% employer and the 10% employee shares. Rather, it is a mechanism which allows the teachers to make their share of the retirement contribution with pre-tax dollars, in a method no different than that used by those in the private sector to contribute to 401(k) plans with pre-tax dollars.
Mechanically, it works like this:
Mechanically, it works like this:
- Let's assume that the teacher has 10 years of experience and a Master's degree. According to the pay scale in their Collective Bargaining Agreement, this teacher would have a Base Pay of $64,525. Let's make it $65,000 just to use round numbers.
- The employer's share of the contribution to STRS is 14%, or $9,100.
- The teacher's share is 10%, or $6,500. This is deducted from the $65,000 base pay, reducing the take home by $6,500.
- However, for purposes of the W-2, the teacher's gross salary is reported as $58,500. This is what makes it a "pre-tax" contribution.
- STRS recognizes the whole $65,000 for purposes of calculating pension benefits.
There is another code-phrase which gets used in regard to pension payments: "Pickup on the Pickup." This DOES mean that the school district pays both the employer and employee shares. This benefit appears in the contracts of our administrators, and it works like this (go here to see an example, and click "Read More..."):
- Let's use the average administrator salary of $90,000
- The administrator's share is 10%, or $9,000, but this is paid by the District.
- This extra 10% is treated as income as well, increasing the total employer contribution to 14% of $99,000, or $13,860, and the 10% employee contribution to $9,900. This means $23,760 in total is paid to STRS, all by the school district. The administrator has no money deducted from the $90,000 base pay for retirement contributions.
- The administrator's salary is reported on the W-2 as $90,000
- For purposes of calculating pension benefits, the administrator's salary is reported as $99,000.
I hope this helps straighten out what goes on with retirement plan contributions in our school district. Please let me know if you have any questions.
By the way, the teachers and administrators do not participate in Social Security, neither making contributions, nor getting any benefits.
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