Yesterday the Grosse Pointe Public School System posted the 2014-15 fiscal year audit – and the news was welcome.
Last year’s budget and all its amendments presented quite a roller coaster ride for followers of district finances, as I posted here and here. To summarize, here are three charts visualizing the data.
Quick analysis: 2015 revenue was in line with the twists and turns of the budget, but expenses came in over $1 million better (lower) than the projections made in last June’s Final Budget.
Quick analysis: Given the lower than expected 2015 actual expenses, fund equity increased by $1.2 million better than the June Final Budget, or $1.9 million overall. This is the second straight annual budget surplus after the $18 million aggregate loss from 2010 to 2013.
Quick analysis: Fund equity rose from 6.0% at the end of 2014 to 7.8% at the end of 2015. Based on the current year’s budget and its anticipated $1.6 million surplus, fund equity could end at 9.5% come next June, a mere $400,000 away from the long-standing goal of returning fund equity to 10%.
I will look at revenue and expense line items in more detail later, but for now the summary statement is that this was a good result – far better than what was expected last June. It is always welcome news when the budget exceeds projections (when running a surplus), but this was a big miss to forecast. More precision is required.
Bigger picture, the district’s march to 10% fund equity continues, and very likely a year ahead of schedule. This will be important to watch as we get closer to employee and teacher contract discussions, which are likely to commence soon given expiration at the end of the 2016-17 year.
More to come on that.
We can take away at least one source of controversy from future school bond and millage votes in Michigan.
The February election option is dead given legislation signed into law by Michigan Governor Rick Snyder last week. School elections may still take place in May and August as well as November.
The Grosse Pointe communities experienced this controversy last year when the tech bond proposal came before voters in February. It was controversial for other reasons including the $50 million price tag, its “one-to-one computing” philosophy, and the association of the technology initiative with former superintendent, Dr. Thomas Harwood.
Nevertheless, the tech bond rejection is historic now not just for its decisive margin of defeat (70% / 30%), but it was the last time a GPPSS election will have occurred in February.
Lawmakers cited voter turnout as the primary motivation for the new law. Recent voting patterns in the GPPSS support this rationale.
Technically if the district filed for a February election by the July 31 deadline this year they could beat enactment of this bill. No definitive statement has been made by district officials indicating plans for a new tech bond, although some parties have lobbied the district to pursue another tech bond.
Budget approval season is upon us for Michigan public schools and at least two – Farmington and Southfield – are learning how hard it is to maintain low class sizes, robust course offerings and pay higher than average teacher salaries – a topic I have treated before.
The Grosse Pointe Public School System is indeed doing this – with great difficulty and at a cost – and it has dwindling company.
To manage a comparison, I isolated Michigan districts with enrollment greater than 2,000. There are 219 such districts in total. The GPPSS is the 26th largest district in the state (enrollment of 8,353 in 2014 – the year of this analysis). Over 1.1 million of Michigan’s 1.5 million total students are represented in this group.
All of those districts are plotted in the chart below. The X-axis is the average teacher salary and the Y-axis is the ratio of general education students to general education teachers. All of this data is from the State of Michigan.
Of the 219 districts, only 40 are in the lower right quadrant, having pupil to teacher ratios lower than the average and teacher salaries higher than the average. Five of these – GPPSS, Southfield, Farmington, Birmingham and Bloomfield – represent the outermost boundary.
A reminder of the obvious, revenue per pupil, determined by the state, matters tremendously to salaries and pupil ratios. These five districts have revenue per pupil significantly higher than the 219 district sample. The GPPSS has the lowest revenue per pupil among these five outlier districts.
Notice that Birmingham and Bloomfield allocate a similar proportion of the revenue to teacher salaries and remain just above the group’s average. The GPPSS and Farmington are well above that average.In the GPPSS’ case, each percentage point is worth about $1 million.
But revenue per pupil is a different story. If it had Bloomfield’s revenue per pupil, the GPPSS total revenues would be $25 million per year higher! Despite that higher revenue, Bloomfield pays its teachers on average 7% less than the GPPSS, but employs (proportionally) 20% more teachers.This what enables Bloomfield to boast the lowest ratio of general education pupils to teachers in the state (among districts larger that 2,000 students).
Birmingham and GPPSS pay teachers about the same amount, but both still significantly higher than average. Birmingham uses their higher revenue position to employ proportionally 8% more teachers than the GPPSS. For Birmingham and Bloomfield, higher revenue and salary controls allow them to stay comfortably in the lower right quadrant.
For the other two members of this group of five, Southfield and Farmington, it’s not very pretty.
Southfield projects it will run a $9.2 million annual shortfall next year driving their fund equity to 4%. Its school board approved sweeping changes this week that will merge their two high schools, close two elementary schools, sell another school and freeze employee wages.
Farmington ran a nearly $6 million budget shortfall this year, dropping their fund equity to 4%. They announced massive layoffs for the coming year. 180 employees in total will lose their jobs, including 100 teachers. Despite those cuts, the district still projects a $1.5 million shortfall next year.
Undoubtedly with these actions, Southfield and Farmington will surrender their outlier positions. In all likelihood, they’ll see a sharp increase in their pupil to teacher ratio. The GPPSS, meanwhile, will remain on this outlier list along with two districts whose revenue per pupil is significantly higher.
In general, this analysis serves as a reminder of how the GPPSS stacks up against other districts in the two budget areas that are most under the control of the local board and have the greatest impact on a district’s financial profile – teacher salaries and number of teachers employed.
As I’ve written before, even after the contract driven salary concessions, the GPPSS offers a compensation package and working environment arguably unrivaled in the state, but for two districts who have far higher revenues.
We also see how hard it is to maintain this position, as Southfield and Farmington are now experiencing. The GPPSS must recall these lessons now and in the coming budget years.
It’s only fitting it is happening this way. The 2016 budget aims to accomplish what the 2015 budget failed at – bringing General Fund Equity to just above 8%.
That was indeed the plan for the 2015 budget. My last blog, “2015 budget lower than expected”, broke this down in more detail. With the final revision tonight, the 2015 performance worsened. Here’s a snapshot:
The original 2015 budget planned for an ending fund equity of 8.2%. But instead of the anticipated surplus of $2.3 million, the actual surplus (which is how fund equity grows) came in at less than $700,000 – a huge miss to budget. Here’s a further breakdown:
The 2015 budget miss is even more disappointing considering the strong momentum of the 2014 budget. The chart above shows a $3 million erosion of the 2014’s $3.7 million operating surplus that dwindled to $700,000 this year. This chart breaks this down further.
After some odd twists and turns through the budget year, 2015 revenue came in near the original budget projections. But while close in total, it massively missed on student enrollment revenue and state retirement revenue, which was just a pass-through cost. Expenses were worse, coming in $3.3 million higher than budget.
Now in 2016 the district needs to make up for this budget performance. The good news is that per pupil state revenue is higher, but GPPSS enrollment continues to drop ( a 137 student enrollment drop is projected in the budget). As a result, the district will reduce teacher headcount levels by almost 11 full time equivalents.
In total the 2016 instructional expenditure, despite fewer teachers, is $61.7 million versus 2015’s $61.99 million. As the teacher contract calls for a 1% salary increase this year, total Basic (non-Special Needs) salaries are only $103,000 less in 2016 despite that drop in 10.9 teacher headcount.
The only reason the 2016 projected operating surplus is $1 million better than 2015 is the end to internal transfer payments for legacy energy bonds. This is welcome news, but without that the district would be standing still economically despite fairly significant employment reductions and a slightly worse ratio of student to teachers.
The district cannot afford a budget miss in 2016 as it did in 2015 or it will have to revert employee headcount reductions at a pace greater than student enrollment loss. History tells us this is an unsustainable.
To end on a more positive note, the district did at least run a budget surplus for the second year in a row and a greater surplus is projected in 2016. Surpluses should not however lessen focus on expense controls, and that should be an area of improvement for the Board and administration starting right about now.
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.
The next superintendent of the Grosse Pointe Public School System will be either Dr. Gary Niehaus or Dr. Steve Matthews.
This was the conclusion after last night’s Board of Education meeting at which the third finalist, Mr. Matthew Wandrie, was eliminated from consideration.
In an hour long meeting marked by civil exchanges the consensus pointed to Niehaus having the edge given that he appeared to have been a top choice of all seven trustees. In fact two trustees, Judy Gafa and Dan Roeske, at first named just Niehaus as their finalist and not even a second, but both later supported a motion by Ahmed Ismail to move Matthews and Niehaus forward as the two finalists.
That motion passed 5-2 with the dissenting votes coming from Lois Valente and Brian Summerfield. Interestingly both Valente and Summerfield advocated for Wandrie as their lead finalist and thus their dissenting vote. Neither had Matthews as a finalist.
This is noteworthy as we try to determine a front runner. To the extent this Board does have a center, Valente and Summerfield are it. With their support and that of the other five trustees, Niehaus has a wider and more firm base of support. This is also relevant given the strong likelihood that the Board will want a unanimous vote to appoint the next superintendent given the strain induced by the last selection – an infamous 4-3 vote for former superintendent Dr. Tom Harwood.
The support for Wandrie, current superintendent of Lapeer Schools, seemed to rest on his charisma and frequent reference to innovation. The Board’s comments betrayed a tension between hesitance for broad-based change and the drive to innovate. This was in odd juxtaposition to frequent reference by many board members to “good being the enemy of great.”
That catch phrase is the product of the Jim Collins book, Good to Great, which cautions “good” organizations to avoid complacency. A common strategy to address this is indeed innovation.
Putting that altogether, this tension would seem to further support Niehaus’ candidacy, as clearly Matthews is the more traditional, and thus “safe”candidate. He’s better known to the Board and was once himself a trustee on the GPPSS Board of Education – ironically losing his seat to Ismail (during his first successful run for the Board) and Angela Kennedy.
As a side commentary, it is odd that there would have even been an effort to narrow the field. The upside of reducing options is not evident – particularly when the one eliminated was the top choice of two trustees. But perhaps this points to the desire to have a unanimous choice for the finalist – in which case Dr. Gary Niehaus has to be considered the prohibitive favorite.
More details on the search process and timeline can be found at www.gpschools.org.
These charts will help readers understand the relationship between how much the Grosse Pointe Public School System spends per pupil – and where that money goes – and the ultimate effect on fund balance (or fund equity).
This first chart shows the basics. If we spend above 100% of what we receive in revenue per pupil, the district will run an annual deficit. No shocker there, but sometimes we lose sight of this basic truth.
I highlight three examples in the chart below:
- In 2007, the district spent about 96% of its revenue and ran a $4 million surplus.
- In 2009, the district spent 100% of its revenue per pupil and had no change in fund balance.
- In 2012, the district spent 108% of its revenue per pupil and ran a $7.6 million deficit.
So now let’s look at a couple charts that show where that spending per pupil is going. Here’s a simple view showing percentage spend by instructional (general education and special needs education) and non-instructional (administration, business services, instructional support and transportation).
In 2009, the total instructional and non-instructional spend was about 95% of the total spend. In 2012 that number grew to 106%. A balanced budget of 2009 grew into a $7.6 million deficit as the proportional spend on instruction increased from 63% to 70% of revenue and non-instructional spend increased from 32% to 36%.
So what constitute instructional and non-instructional expenses? As the chart below shows, it’s mostly salary and benefit costs.
What this tells us in that in years that the GPPSS ran balanced budgets or even moderate annual surpluses, the percentage of spend that was allocated to salaries and benefits ranged from about 82% to 85%. The years where the district spent more than 85% on salary and benefits (2010, 2011, 2012 and 2013) it ran an aggregate deficit of $18 million – a four year span that saw fund equity drop from $20 million to $2 million.
We see now that last year, where salary and benefit costs accounted for 83% of total revenue per pupil, the district ran a $3.7 million surplus. As a result, fund equity will gradually return to 10% within the next couple of years.
To go a layer deeper, the benefit that caused the greatest problem has been state mandated retirement costs. This chart shows its rising consumption of our state aide per pupil:
In the end, the simple math is that districts like the GPPSS get only so much revenue per pupil. Expenses of all types must be managed to stay within that envelope – and the largest expense will always be salary and benefit costs.
When that simple math is ignored, the district runs a deficit and all kind of bad things ensue.
The good news now is that equilibrium has been re-established and the district has maintained very competitive compensation with favorable class size and student offerings.
The State of Michigan recently published updated financial information for all Michigan public schools and charter schools. I will be updating my Financial Benchmark Report shortly, but wanted to share this quick chart to show the change in average teacher salary for the Grosse Pointe Public School System as well as Birmingham and Bloomfield Hills Schools against the State of Michigan average.
The 2013-14 school year will prove to be the year with the largest salary schedule drop for the GPPSS and the results show an average 3.9% aggregate decline in teacher salaries.
As I always like to point out, this reflects a change in the average – not an across the board flat change. Many factors influence the average. Even though the salary schedule was reduced across the board, year over year changes in step and lane increases also affect the average.
Of equal importance to the average, on a year over year basis, the GPPSS employed 17 fewer teachers in 2013-14 versus 2012-13. Commonly as the number of teachers decreases, if teachers retire and are not replaced, this will drive the average down as well.
In comparison to the state, the GPPSS still ranks very high in average teacher salary. Among the 541 traditional public schools, GPPSS ranks 14th highest – one slot ahead of Birmingham schools. Both GPPSS and Birmingham average teacher pay is 21% higher than the state average and 7.6% higher than Bloomfield Hills.
I’ll close for now with the brief reminder that this entry and comments about teacher salaries are not intended to claim anyone is overpaid or not worthy of their salary. It is presented merely as a point of reference as districts struggle to maintain financial equilibrium with changing state aid and state mandated retirement costs.
We can be certain that now as the two most recent teacher contracts have run their course to return the district to 10% fund equity that the GPPSS salaries remain among the best in the state.
Last week I published a blog that again pointed to the ongoing problem the Grosse Pointe Public School System faces in student enrollment. It had more views than many of my posts and I read some interesting comments that encouraged me to go a layer deeper on the data analysis.
Here’s a slide deck I created to share some of the pertinent views.
Despite a loss of over 1,000 students since 2005, and an expectation that enrollment might stabilize, the future looks equally troubling.
Elementary enrollment is decreasing at a rate four times greater than the secondary level. As those losses work their way toward the secondary level, aggregate enrollment will continue to drop.
Imbalance across the district is also striking, but perhaps unexpectedly. South High School feeder schools enrollment loss is occurring at a rate three times greater than North High School equivalents. If these trajectories hold, and it looks like they will, the once nearly 400 student gap between the high schools will close over the next couple of years.
A couple highlights on that front. If next year’s projections hold true, Defer Elementary, a major South feeder school, will have lost over one-third of its enrollment since 2003. It will have a mere 19 more students that Trombly.
Meanwhile on the north end, Mason Elementary has been the only elementary school to experience an increase in enrollment from 2003 to 2014. Fellow North High School feeder Poupard Elementary is tied with Kerby as having second best enrollment trend in this same time period – even if it is a 2% loss. That is still significant because it is so much less than the district’s overall loss rate.
The only thing I like about this data is that it will challenge the overly simple, and really misinformed, view that school test scores are the major driver in enrollment. The data doesn’t support that conclusion.
I also think the magnitude of the enrollment reductions cannot be attributed to private school enrollment or the half-day kindergarten issue. These trends are very clearly population based. In ensuing posts I hope to cross reference this enrollment data against census data to get an even better view.
The implications for budgeting are significant. District administration will need very tight projections by school and grade level, balanced against class size guidelines, to make the staffing decisions that are required in April. Missteps here can introduce major budget challenges.