Following the publication of the district’s 2014 financial audit showing a $3.7 million operating surplus in the GPPSS General Fund, I wrote on this blog:
If the district could maintain expense controls in the current year (2014-15) consistent with last year, fund equity could increase by $4M and fund equity would end 2014-15 at 10% – two years ahead of schedule.
That won’t be happening. Let’s take a look at what transpired this budget year.
Adopting a General Fund budget in June for the ensuing year, in accordance with state law, requires assumptions about enrollment, state aid, retirement costs and many others. As assumptions are proven accurate or inaccurate, the budget must be amended by Board vote. The district’s first budget amendment came in January, the second in March and the third will happen this month just prior to the 2016 budget adoption – and the cycle will continue.
The chart below tracks the changes in the 2014-15 budget from its original adoption through the amendments, past and pending.
The original 2015 budget increased expenses by $1.9 million over the 2014’s final audited budget. The first budget amendment increased spending by another $1.4 million for a total year over year spending increase of $3.3 million.
$1.8 million of that $3.3 million came from increases non-Human Resource expense, called Variable expenses. The largest portion of that increase went to technology where investment increased by over half a million, a logical and welcome decision in the wake of the tech bond debacle.Repairs and Maintenance increased by $385,000, textbooks by $275,000, and Property Tax adjustments increased by $360,000. Together these four constitute the majority of the year over year Variable expense increases.
The majority of the rest of the $3.3 million spending increase came from state mandated retirement costs, but that increase brought with it increased revenue estimated at over $1 million.
Revenue related to enrollment is the bigger problem. The original budget assumed 8,072 students in the Fall headcount. The actual was 7,912 – a miss of 160 students. That means revenue would come in over $1 million less than budgeted.
Despite that missed forecast, which would have been known in November, the district increased its revenue forecast in the January 2015 amendment by another $800,000 – presumably attributable to the retirement pass through revenue, but not properly accounting for the enrollment miss.
The district’s revenue forecasts were overly optimistic which enabled increased spending during the budget year. As a result, fund equity will increase, but by $1.3 million less than what the 2015 budget had originally anticipated – a 56% miss.
Thankfully fund equity will increase by about $1 million in 2015, which is very good, but $2.7 million less than the 2014 increase. Here’s a graphical view.
This is not all bad news, particularly as many Michigan districts continue to struggle their way back to financial stability. Follow the Ann Arbor Public Schools tension for your moment of schadenfreude.
The long-committed task to return General Fund equity to 10% of expenditures continues, just at a slower pace. Here’s where we stand:
In Grosse Pointe, the budget is proving stable having run a surplus now for two straight years after five years and $18 million of deficits. Teacher salaries remain among the best in the state, and class sizes remain low, on the whole, in elementary.
The district has continued to maintain a report I started in my time on the Board. The report shows that projecting into next year and looking back to 2009, the district has seen a reduction in elementary enrollment of over 17% and that teacher headcount in elementary is down 14%. So ratio of students to teachers is actually more favorable now that seven years ago.
It’s nice to see more favorable student to teacher ratios, but such a loss of elementary enrollment portends continued enrollment reductions, most likely, for years to come. This report also highlights how teacher layoffs follow enrollment loss.
On top of last year’s unexpected drop of 160 students, the district is forecasting more of the same – another 154 student loss going into next fall. Enrollment continue to be the greatest threat to the district, in financial and other terms, and a topic I have treated frequently over the last few years.
Frankly better stated, this dual issue of enrollment and population trends is a matter that needs attention from the entire community, not just the schools.
But for now, dealing with just the Grosse Pointe Public School System, we learn once again that “the budget” is never really done. It’s many variables and assumptions need constant attention. The coming month is critical to that effort as the 2016 budget adoption is on deck.