03/21/2010

MEA Admits It: Spending Fund Equity is a “Band Aid”

The Michigan Education Association’s official position on spending Fund Equity in response to the K-12 funding challenge says it better than I could.  They acknowledge it is a “band-aid.”  The leadership of the Grosse Pointe Education Association would be well served by not cherry picking the position of the MEA and taking a long-term view for the well-being of the Grosse Pointe Public School System.

I’ve written about Fund Equity previously and we need to revisit the topic now.

The topic got statewide attention last week when the House Education Committee Chairman, Rep. Tim Melton, sponsored legislation that would not allow K-12 school districts to maintain fund equity levels greater than 15% of their budget.

To provide some context for Grosse Pointe Public Schools, our Fund Equity is about 17% of our $105,000,000 General Fund budget.  So this bill would require us to spend $2,500,000.  To put THAT into context, our projected budget shortfall for next year is about $7,500,000.  So this would amount to Lansing “helping us solve” 1/3 of our problem.

So in the grand scheme of things, is this that significant?  After all, we DID spend $2,600,000 of our fund equity in October 2009.  Did our problem go away?  Of course not.  Spending more to mask rising salary, health care, and retirement costs never solves the problem.  But here is the significance of these discussions:

  1. By taking this action, Lansing is acknowledging that 15% is an appropriate level of Fund Equity.  The leadership of the Grosse Pointe teachers union, the GPEA, disagrees.  They have publicly advocated that Grosse Pointe’s Fund Equity levels should be reduced to 7%.  This provides their justification to fund additional annual raises (on top of the standard steps and lanes) of nearly 6% over the next three years.  Why would they think this way?
  2. The GPEA is an affiliate of the Michigan Education Association (the MEA).  The MEA’s lead economist, Ruth Beier, testified in Lansing in support of this bill.  This is no surprise.  But what is more significant? The MEA thinks 15% is too high. They believe 5% is the right amount.  So the leadership of the GPEA is more fiscally conservative than the MEA…by2%.  So we’ve got that going for us.
  3. Of greatest significance is that the MEA acknowledged that even spending fund equity is not a long term solution.  The direct quote from Ms. Beier is, “While we (the MEA) support this bill, we know that this is a short term solution.  It is a band-aid rather than a cure.  We caution against relying on this one time fix, and urge the legislature to come up with a way to close the structural deficit in the School Aid Fund.”  Ms. Beier, you and I could not agree more on that point.

So the GPEA leadership is dutifully singing from the MEA hymnal locally, but conveniently ignoring the second leg of their proposed “strategy” – one that is dependent on Lansing  to solve the long-term problem.  The leadership of the GPEA wants the taxpayers of Grosse Pointe to fund nearly 6% of additional raises to those on the top end of the salary scale by using fund equity when the leadership of the MEA acknowledges that without other structural change from Lansing, spending Fund Equity is nothing but a band-aid.  How many taxpayers in Grosse Pointe want to buy a $10,000,000 band-aid?

Lansing politicians haven’t shown the skill, will, or resolve to address the K-12 budget problem.  The politically convenient solution for them is to kick the can down the road, as they’ve been doing for years.  I’m not willing to bet the future of the Grosse Pointe Public School System on a sudden transformation in Lansing.

I’ve asked before and I will ask again.  How many of the taxpayers of Grosse Pointe have any faith that Lansing will address the structural deficit in the School Aid Fund that the MEA acknowledges exists?  The fact is they either don’t know how to do it, don’t have the will to do it, or are content to let the local school districts solve it on their own.  Until I see a shred of evidence to the contrary, I’m betting we need to solve this on our own.

I’ve been saying this for my nearly five years on the Board.  This problem is real and it is all ours.  There is no back door.  There is no way to avoid it.  Ignoring it only makes it worse.  The responsible school board takes a long-term approach to this problem.  Spending $10,000,000 of fund equity to fuel escalating salary, retirement, and health care costs without a pre-identified and agreed upon long-term solution would be nothing short of irresponsible.  I believe the taxpayers of Grosse Pointe want the school board to take the long-term view. I’ve written about it before.  This is the New Normal. We had better be able to deal with that.

Kudos to my friend and Birmingham Public School’s school board trustee Rob Lawrence for raising this issue in his blog.  Rob was able to get the documented testimony on this bill and posted it online.  You can see it below with Rob’s comments typed in red within it.

12 Comments

Filed under Contract Negotiations, Current Events, State of Michigan Policy

03/13/2010

Retirement Rate Increase: Granholm’s Back Door Cut

Things are starting to look eerily and sadly familiar in Lansing.  In the spirit of March Madness, Governor Granholm is attempting a back door cut that would make legendary North Carolina coach Dean Smith smile, but local school districts frown.  Let the political games began.  It’s Budget Madness.

A few weeks ago Governor Granholm unveiled her rough budget proposal.  As it related to the School Aid Fund, the source of 65% of GPPSS’ revenues, Granholm eagerly proclaimed that she would veto any budget recommendation that reduced per pupil funding.  Some estimates have the required per pupil reduction nearly at $268.  It doesn’t sound like much, but to our district that would reduce our revenue by $2.7 million.

So yeah for Granholm?  Hardly.  The beleaguered lame duck gov was less bold in her proposed increase to the school employee retirement system (MPSERS, discussed in detail here).  In her proposal, the MPSERS rate would increase from 16.9% to 19.4%.  For reference, this is the percentage of salaries paid to employees that the district must contribute on their behalf to their retirement pension and benefit fund.

Since there is NO discussion of an increase in the Foundation Allowance next year, translated into next year’s budget, that increase from 16.9% to 19.4% represents a loss of almost $1.4 million.  So net/net, this is the equivalent of a cut of about $175 per pupil.  Governor Granholm, spare the spin job. A cut’s a cut.

Meanwhile, those dastardly fiends in the Michigan Senate revealed their plan the other day.  They are holding fast to their “cuts only” approach to the budget and call for a per pupil reduction of $118, or about a $1 million loss for GPPSS.  However, in the proposal they call for a retirement rate increase far below that of Gov. Granholm – moving from 16.9% to 17.08% – an increase of a more meager $80,000 to district expenses.

It will be curious how the various stakeholders react to these proposals.  I have a pretty good sense.  Granholm’s plan puts lipstick on the pig because she knows most people don’t know the nuances of the economic implications of her proposal.  But in the background, it aims to preserve a rapidly deteriorating, and perhaps terminally ill, defined benefit program at the continued expense of local school budgets – the mother-lode of unfunded mandates.  This is precisely how individual employee costs increase and why we can afford fewer and fewer every year.

The Senate can claim they are staying true to their word with more cuts, and perhaps further their plan of forcing reform on the retirement system.  But oddly, in a role reversal, the Senate’s plan is actually better economically for local school budgets – not by a huge margin, but certainly better.

To paraphrase Gertrude Stein, “A raise is a raise is a raise.”

These are the subtleties of Michigan K-12 finances.  How many school employees recognize increases in district contributions to their retirement plans for what they are?  All too often, only salary increases are recognized as raises.  Make no mistake about it.  It is a raise, plain and simple.  When an employer spends more money for an employee’s personal benefit, regardless of whether the money goes to salary, health care, or retirement, that constitutes a raise.

Despite their different means, the proposals are fairly similar.  Neither are good news for local school budgets, but neither are as bad as what others are calling for.  As was the case last year, the worst choice Lansing could make would be to sandbag the local districts again by bringing forth these options only to drop the hammer well after budget decisions are made (ala the October 2009 cuts).

This is why prudent school districts budget conservatively.  The district carries all the risk in these scenarios.  Salaries are locked in.  So are health care costs and retirement rates, but our funding remains in doubt.  Not a good combination.  Yet when we spend within or below our budgets, certain parties claim we are “hoarding” funds.  But if the cuts of October 2009 taught us one thing it is this:  The Lansing politicians have no regard for the local school district budget.  It is solely up to us to mitigate that risk.

1 Comment

Filed under GPPS Finances, State of Michigan Finances

Tagged as ,

03/10/2010

GPPSS Budget Challenge in 5 Minutes

Last night I was invited to speak at a meeting of the Mother’s Club of Grosse Pointe South.  I was asked to provide a budget update in 5 minutes.  With that compression of time, I thought through how I would frame the challenge.  In short this was my message.

  1. The state of Michigan is our largest source of funding, based primarily on tax revenues that have scaled down with the state’s loss of wealth – sales, income, and property taxes. 
  2. Our per pupil funding (the state determined Foundation Allowance) has not kept pace with the rising trend of human resources costs – namely salary, retirement, healthcare, and FICA.  These are the four largest expenses in the local schools’ General Fund.
  3. The friction between these two forces is the root cause of K-12 budget challenges.  Unless root cause is addressed, the problem will persist.  This can only be fixed in two ways:  Either state revenues need to start rising again at a rate at least equal to the rise in salary, retirement, health care and FICA or locally we find a way to curb the rate of growth of those same rising costs.  Any other reaction the the budget challenge only masks this root cause problem.

To demonstrate the friction of these forces, consider the following:

  • With the Foundation Allowance and 20J reductions of October 2009, GPPSS’ per pupil revenues are now below those of 2005-6.  (Coincidentally, GPEA leadership has taken to the spin that this is the first time aid has actually been reduced.  My comment is:  Watch that first step.  It’s a doozy!)
  • If the state reduces the Foundation Allowance another $268 as has been forecasted by the state legislative fiscal agencies, GPPSS per pupil revenues would be at their lowest levels since 2003.
  • On the expense side of the ledger, even if GPPSS ends up reducing our teaching staff as we are evaluating now, the total cost of teacher retirement, health care and FICA for 2010-11 for 533 teachers will exceed that same cost for 602 teachers from 2007-8.
  • According to state of Michigan statistics, the average teacher salary in GPPSS has risen from $66,799 in 2003 to $85,985 in 2007-8.  Our locally developed statistics differ from the state in this area, but not in terms of the rate of growth.

Any objective person would agree this is an unsustainable scenario.  If we recall the two potential root cause resolutions referenced above, I have no faith or expectation that state revenues will rise to meet this challenge.  How many of you think the lawmakers will vote for a tax increase of any kind in an election year?  We’re now essentially a poor state and we cannot expect our revenues to remain at previous levels – let alone rise.

So how do we solve the problem locally?  Last week Farmington schools, like Bloomfield Hills the year before, closed a handful of elementary schools.  I put this in the category of responses that mask the problem.  How does closing a school curb the rate of growth of salaries, retirement and health care costs?  It will reduce some of those expenses by reducing staff, but when you look at the expense trends it is clear that this is a temporary fix.  I’m not interested in that.

Viewing the challenge through the root cause lens is essential in evaluating alternatives.  The GPEA leadership should do this as well.  They call for taxpayers to reduce our fund equity to 7% from our current level of 17% (of total expenditures).  That’s an allocation of $10.5 million taxpayer dollars.

The GPEA leadership rightfully argues that this money is earmarked for allocation to educate the children of our community.  But the question must be asked: Is continuing to fuel the unchecked growth of salaries, retirement, health care and FICA for a smaller population of teachers the right path?  It’s masking the root cause problem in a different, but equally temporary manner. 

I’d much rather invest in more teachers than pay more for fewer – which is precisely what is happening today.  This is why class size is rising.  Who’s happy with this solution?  I have heard students, parents, and teachers alike all advocate for smaller class sizes. 

Bottom line: We have to establish a expense/compensation system that has a cognizance of our funding model.  As things stand now each has no regard for the other.  Clearly this is not working.  As a result we expend all too much time and energy on re-visiting the recurring budget challenge (as we annually mask the problem) and not as much time as we would like grinding over ways to improve our educational program offerings.

Enough is enough.  This has got to change.

5 Comments

Filed under Current Events, GPPS Budget Decisions

01/29/2010

It’s Time GPPSS Moved Forward With No-Fee All Day Kindergarten

A loophole in how Michigan distributes per pupil revenue has long allowed public schools to get twice what they really deserved for half-day kindergarten students.  But charging for extended day kindergarten amounts to taxing residents twice.  For this and other reasons I am advocating a district-wide switch to a no-fee All Day Kindergarten program for 2010-11.

In my last post and at the Board of Education meeting on January 25th I spent a great deal of time emphasizing that Michigan public schools derive their revenue on a per pupil basis.  The per pupil funding is known as the Foundation Allowance.  The Foundation Allowance does not distinguish between between a half-day student and a regular, full-day student.  This has been a pretty good deal for school districts.

Why?  Simple.  If we receive full per pupil funding for half-day kindergarten students it means that we essentially educate them at half the cost of most of our other students.  This is good for the district and, arguably, the other district services subsidized by the business model.

But it’s not so good if you are among the ever growing group of families who prefer their son or daughter go for more than half a day of kindergarten.  In response to this demand school districts have created programs called Extended Day Kindergarten (EDK).  But many districts, including GPPSS, charge a fee for EDK.

Continue reading →

3 Comments

Filed under Current Events, GPPS Academics, GPPS Budget Decisions, GPPS Policy, Meeting or Agenda Announcement

Tagged as ,

01/26/2010

2010-11 GPPSS Budget Development: Background, Process and Timeline

The 2010-11 Grosse Pointe Public School System budget will present perhaps the most difficult challenge to the district in its history.  Approaching such a problem with stakes as high as they are will require careful planning, collaboration, and deliberation.  Above all else, it requires an understanding of the dynamics that contribute to the current economic distress.

Last night’s Board of Education meeting was the first official Regular Meeting of the Board of Education of 2010.  I am honered to have been voted by my peers to serve in the role of treasurer, but at the same time I know that the task and responsibility of the position could not be any greater than they are right now.

Having spent the last 4 and a half years on the school board, and over a year before that, educating myself on the economic factors at play for our district and all those across the state of Michigan, I approach this daunting task with a great deal of confidence and resolve.  The trite phrase is “Knowledge is Power,” but knowledge is impotent if not leveraged.  The more people who have knowledge and choose to leverage it, the better off we will all be.  My strategy will be to continue to accumulate knowledge and leverage it to the greatest extent to solve our problems.

In that context I continue to invest substantial amounts of my own time making financial information accessible – meaning not just available, but simple to understand – for as many people as possible.  That is why this blog exists.  That is why I created the Financial Transparency Series and many other tools and reports available both on this blog and on the district’s web site.

Last night I delivered the presentation below to introduce the 2010-11 Budget Development Process, but more importantly the economic backdrop to that process.  It represents an abstract of the entire Financial Transparency Series.  I welcome your questions and feedback – so much so that I announced last night I will make myself available to present to any group across the district that has an interest in the finances of the Grosse Pointe Public School System.  So if you are a part of a PTO, athletic or performing arts booster group, or any other community group please take me up on my offer. I will be there.

The actual Resolution codifying the 2010-11 Budget Development Parameters can be found here.

I am a great fan of the Citizens Research Council of Michigan, a non-partisan policy think-tank specializing in Michigan governmental affairs.  Their motto is “The right to criticize government is also an obligation to know what you are talking about.”  I take that to heart and hope everyone else does as well.  So please consume these materials so you can contribute constructively to the solutions we need.

Leave a Comment

Filed under Current Events, GPPS Budget Decisions, GPPS Finances

Tagged as , , ,

01/17/2010

School Employee Retirement Costs and the House of the Rising Sun

Most people know by now that Lansing is by far the most significant source of school district funding.  Lansing is also the unilateral source of our second largest expense – employee retirement costs.  Lansing sets the rates and we pay the bill – a financially lethal combination that puts local school boards in an unenviable predicament.

Last Monday, January 11th, the Grosse Pointe Public Schools Board of Education had a marathon budget planning Work Session that could best be described as miserable.  My personal projection is that we will unfortunately have to terminate the employment of over 60 district employees – all of them good people who add value to our mission and who are valued in return.  But we cannot ignore our economic reality.  The cuts are coming – hard and fast.

graphWe collectively stare down the barrel of our most daunting projected budget shortfall in the history of the district, brought about equally by Lansing’s wretched policy making combined with a Depression-level state economy.

I cannot repeat enough that Lansing is the largest source of funding for every public school system in the state of Michigan.  Lansing controls our per pupil revenue.  Lansing has cut our per pupil revenue this year resulting in the loss of $3,000,000 and is making plans now for cuts next year that will result in the loss of another $2,200,000.  Meanwhile salaries and health care costs rise and student population is shrinking.  This is the financial stew that is our sustenance.

The focus in this post is another ever increasing cost which, after salary, is our second largest expense – employee retiree health and pension costs – referred to as the Michigan Public School Retirement Systems, MPSERS.  Lansing unilaterally controls the rate of this expense.  To put this in perspective, if we receive roughly $10,000 per pupil for school funding, nearly $1,300 of it goes to employee retirement.

Continue reading →

14 Comments

Filed under Current Events, GPPS Budget Decisions, State of Michigan Finances

Tagged as , ,

01/05/2010

Steps, Lanes and More: A Technical Analysis of Teacher Compensation

State of Michigan statistics show Grosse Pointe Public School teachers are the highest paid in the state.  Questions have been asked and theories presented as to why this is the case.  Teacher salaries are every district’s highest investment.  As such we need to understand the dynamics of employee compensation fully, but undertake the analysis in an objective, constructive manner.

Teacher salaries.  This is a heavy topic.  So here’s the preamble.

You are NOT about to read an argument that makes a case that our teachers are overpaid, or that they are greedy, or that they are to blame for school districts’ financial predicament, or that unions are evil, or any other similarly negative interpretation of this analysis.  We have to be able to talk about compensation.  We cannot fearfully avoid these discussions.  This would be like a household under financial distress avoiding discussion about their mortgage as they plan their budget.

The fact is that teacher salaries are our highest investment.  This should come as a surprise to no one.  Furthermore, salary costs have a direct impact on our second highest expense, retirement costs.  When dealing with financial challenges such as we are today it would be simply foolish to avoid analysis of our two largest budget items.

In anticipation of the next logical question, how can I, as a member of the Board of Education, position myself as an objective analyst?   I myself am a graduate of the Grosse Pointe Public School System (South, ’86).  I remain in frequent contact with dozens of fellow GPPSS graduates who are eager to see the district flourish.  As a parent of three GPPSS students, an uncle to many more students, and friend or neighbor of the parents of scores more students, I want nothing but the best for our district.  These are my motivations for Board service.

I count many teachers as friends.  Many recall I, too, was once a teacher and know how familiar I am with the value they deliver, their motivation for their profession, and unique challenges of their jobs.  I recognize the importance of a mutually respectful and beneficial partnership.

I don’t buy into the idea that Board members and teachers have to be cats and dogs.  I have nothing to personally gain in the increase or decrease of employee compensation.  I believe, as I am sure our employees believe, that the Grosse Pointe Public School System must maintain financial equilibrium in order to deliver the services the community expects.  As a Board member, my responsibility is to help ensure short-term AND long-term financial equilibrium within the construct of how Michigan funds public schools.  So with that foundation, let’s get started.

In a recent post and in a variety of benchmarking reports I have pointed out the implications of employee compensation on school budgets.  This begs the question, if it is true that Grosse Pointe Public School teachers are the highest paid in the state, how did it come to be that way and how can we afford it?  One hypothesis is that our teacher salaries are higher because we have a more experienced staff (in terms of years of service) and better educated teachers (measured by degrees and post-graduate credits).

Continue reading →

12 Comments

Filed under Dispelling Rumors, GPPS Budget Decisions, GPPS Finances

Tagged as , , , , ,

12/31/2009

Fund Equity Is Not a Long-Term Solution to School Funding Challenge

As everyone acknowledges the reality of the financial distress facing public schools, the focus must shift from assigning blame toward crafting solutions.  Understanding fund equity is essential to a meaningful dialog on this topic.  An objective view of data shows that fund equity will help districts cope, but is clearly not a long-term solution to the root cause problems.

Remember the first time you saw the picture below?  Look at it one way and you see an old woman, but with a subtle shift in focus it looks like a young one.

old woman optical_illusion

A view of the state’s K-12 budget and those of the local school district’s can have  a similar effect – most notably in relation to a school district’s fund equity.  You can learn much more about fund equity in this installment of the GPPSS Financial Transparency Series, but in short fund equity can be defined as the aggregate of a district’s revenue less its expenses over the history of its operations.

Sometimes called a  “rainy day fund”, fund equity draws attention in times of budget contraction because it is viewed, rightfully, as an alternative to other imminent and unattractive cuts.  The key question, however, hinges on the nature of the budget shortfall.  Is it temporary or an annually recurring one? A recurring shortfall is referred to as a structural deficit.  The distinction is significant.  I view the budget contractions that Michigan K-12 schools are now experiencing as permanent, what I previously wrote about as the New Normal. Continue reading →

1 Comment

Filed under GPPS Finances, State of Michigan Finances

Tagged as ,

12/21/2009

Contemplating the “New Normal” on Michigan’s Darkest Day

Michigan’s communities are engaged in a high stakes game, wrestling with the lethal combination of rising costs and falling revenues.  Despite the urgency of the situation, a long-term view is critical for long-term health.

New reports surface daily chronicling how communities are responding to the financial trauma plaguing Michigan public schools.  Here is a sampling of articles from Dearborn, Saugatuck/Portage, Wyoming,  Wayne-Westland/Livonia,  Bloomfield Hills,  Allendale, Coopersville, Grand Haven, Hudsonville, West Ottawa, Spring Lake, Charlevoix, Grand Ledge, Hemlock/Saginaw/Chesaning, Escanaba, Fenton/Holly/Linden, Lansing, Utica, Northville, Three Rivers, East Jackson, Adrian, Muskegon, Detroit, Walled Lake, and Birmingham. 

welcome to MI What’s the point?  The list runs the gamut of the wealthiest districts to those that receive the lowest per pupil revenue.  Some are very large and some are very small.  Some are urban, some suburban, and some rural.  Some were previously receiving section 20J funds and some never received them in the first place. 

The point is that if you’re a school district in the state of Michigan you are certain to be experiencing financial distress.  There are no exceptions.

Welcome to Michigan -  a great state, but great times?  Not so much.

Continue reading →

7 Comments

Filed under GPPS Budget Decisions, State of Michigan Finances

Tagged as , ,

12/05/2009

The Economics of Class Size

“Doing more with less” was the recurring concern the Board of Education heard from teachers at our last meeting.  Who is getting more and who is getting less?  What are we measuring?  What matters most and to whom?  Let’s take a closer look at the dynamics and economics of class size as we wade into murky budget waters.

class size In my most recent blog I reported on my trip to the State of Michigan Board of Education meeting where economists delivered testimony on the state budget.  Tax policy, specifically the decision to raise taxes, is at the heart of the K-12 funding debate.  Let’s call it the tax question.

Governor Granholm and many Democrats argue that taxes should be raised to avoid painful cuts to local school district budgets.  They cite statistics that show Michigan’s tax burden is middle of the road in comparison to other states.  Senate Majority Leader Mike Bishop and many Republicans argue that whatever the rationale, increased tax burden will worsen Michigan’s already ravaged economy.

The state board put the tax question to  economist Patrick Anderson who advised, “Everyone who hires workers and pays taxes thinks [higher taxes] do matter…and they are the ones that really matter.”  This  position cannot be substantiated irrefutably, but is certainly logical.  Indeed, no one argues that increasing taxes is better in and of itself.

The same can be said of class sizes.  No one argues that higher class sizes are better.  Except in narrow examples (e.g. K-3 class sizes of less than 15 students) research is inconclusive as to whether smaller class sizes improve achievement.  To paraphrase Anderson, to the people who matter, higher class sizes DO matter.  Students, parents, and teachers prefer smaller class sizes.  Supported by research or not, who would not prefer smaller class sizes?

Continue reading →

Leave a Comment

Filed under GPPS Budget Decisions, GPPS Finances

Tagged as , , ,