Enhancement millage could sink GPPSS Sinking Fund

The Board of Education Building at 389 St. Clair

The Board of Education Building at 389 St. Clair

The Grosse Pointe Public Schools’ Board of Education is prudently pausing the Sinking Fund millage approval, but the plot will get much thicker pending the August 5th Wayne County enhancement millage results.

This November’s election is a big one for the Board and Grosse Pointe district in general. Not only will three of seven Board of Education seats be up for election, so will nearly a quarter of all the district’s annual revenues – mainly in the form of the district’s uniquely valuable (8 mill) Hold Harmless tax levy.

My blog entries on the recently failed tech bond proposal addressed GPPSS tax policy, but in broad strokes the district levies just over 10 mills locally, about double the statewide local district average. When factoring GPPSS’ much higher than average homestead property tax base, each of our mills is worth 6 times above the state average.

Against this backdrop, the Board will inevitably endorse renewal of the Hold Harmless millage. The rest of the 10 Homestead mills is comprised of the Debt Millage and the Sinking Fund.

The August 5th Wayne County enhancement millage is a new wrinkle. Locally the GPPSS Board of Education (this past April) voted unanimously to oppose placing the 2 mill, 6 year tax increase on the ballot, but since other Wayne County districts representing a majority of students approved the language, the issue will be decided by voters in a county-wide vote.

The GPPSS Board opposed it, most likely, since it would cost Grosse Pointe Public School taxpayers about $5 million and return $3.2 million annually. GPPSS is one of twelve Wayne County districts that would get back less than what they would contribute (due to the formula used to distribute the funds by student enrollment, not by tax base.)

For reference, the GPPSS Sinking Fund yields about $2.5 million annually and is limited by law for certain uses. The enhancement millage is worth more not only in dollars, but in flexibility. The enhancement millage does not have the restrictions of the Sinking Fund. It could be used just as the Sinking Fund is today, but also more broadly for technology or even employee salaries and benefits.

Locally the Sinking Fund is also due for renewal, but the Board has chosen to wait on the outcome of the Wayne County enhancement millage before deciding whether to place the Sinking Fund renewal back on the ballot, at least according to this official district document.

This does not necessarily mean that if the enhancement millage passes that the GPPSS Board will not seek Sinking Fund renewal. With a ballot language deadline of August 11th, the Board would officially decide that question at their August 7th meeting.

Should the Wayne County millage pass, this is a political hot potato. Certainly loud factions of the GPPSS community would gladly welcome a new $3.2 million revenue stream on top of the Sinking Fund’s $2.5 million. But even placing the question on the November ballot could threaten passage of the Hold Harmless millage.

For politically engaged readers, all this represents a great question to pose to the seven declared Board of Education candidates, obviously aside from our currently elected members. What would they do in this scenario?

GP BOE Election 2014: The hijinks begins

Update to post: Since publication of this July 3rd entry, incumbents Jakubiec and Dindoffer did not file for re-election. Seven candidates did file for the three open seats. Technically, since current trustee Brian Summerfield was appointed, there are no incumbent candidates.

The Grosse Pointe Public Schools Board of Education enters the zany election period which has been thankfully reduced to just even years. Even in this very early stage, the melodrama has begun.

Three seats will be up this fall, those of Joan Dindoffer, Brian Summerfield and Tom Jakubiec. Current president Dindoffer has served for an incredible 17 years. Will she run again? Who knows, but the odds are against it. Summerfiield was appointed about a year and half ago and has already filed to run. Jakubiec has served for five years and has the oddest case. He announced his indeterminate resignation in December 2013, but subsequently recanted it. Will he refile? Who knows, perhaps him the least.

But things spiced up this week when former BOE member Ahmed Ismail announced his candidacy – with his usual flair. He said he had heard two “extremists” were going to file and that he could find no other interested candidates to oppose them. So on this basis Ismail has filed for re-election.

The drama prone latched onto this and claimed Ismail was calling Summerfield an extremist and otherwise using the filing as a rallying cry.

This is precisely the diversion that these kind of election suffer from, but they are inevitable. Did Ismail mean to call Summerfield an extremist? Who knows… and who cares. Let’s focus on the real issues in the 2014 BOE election. I see three significant issues facing the next configuration of the Board:

The teacher contract “Appendix C Formula Language”

In March, 2013 the Board and teacher bargaining unit (the GPEA) revised their contract and extended it to August 10, 2017. The most significant change in the contract was the “freezing” of Appendix C, the oft-discussed formula clause that adjusts employee compensation to the key financial drivers facing every Michigan public school district: state revenue, state mandated retirement rates, and employee salaries.

The revised contract suspended Appendix C until the day before the contract expires (August 9, 2017) at which time Appendix C returns to its original state. The suspension saved the teachers from further salary reductions and slowed the district’s return of Fund Equity to 10%.

I’ll be writing more about this as the election proceeds, but this is probably the number one issue facing all the candidates and their position on Appendix C should be made absolutely clear if their candidacy is to be taken seriously.

Tax Increase Position

This one binds closely to the issue above. With the last tech bond going down in flames before GPPSS voters, the question has loomed whether a revised issue will be put in front of voters. A big puzzle piece is the pending Wayne Country RESA millage that would cost GPPSS taxpayers $5 million to get back $3.17 million. As painful as this would be to taxpayers, it creates a huge budget cushion and would (probably) render the tech bond issue moot. Nonetheless, any candidate should need to make their vision on tax policy very clear in this election.

The Harwood Issue

The drama around Superintendent Harwood’s contract and related evaluations has been thick. The Board collectively has been mercurial on the issue, passing by various margins Dr. Harwood’s effectiveness rating yet extending his contract by only a year. This was a classic political punt, clearly not willing to extend it the normal three to five years but also not willing to end his contract. So now the ensuing configuration of the Board will be faced with this heavy issue almost immediately upon the induction of three new or re-elected members. So the candidates’ position on Harwood is incredibly relevant.

Grosse Pointe voters will be tempted to engage in the typical local politic hijinks. Gird yourselves for the social media drama and the series of red herrings that will be presented you. I encourage voters and candidates alike to focus on issues that really matter.

 

 

Proposed GPPSS budget stays the course

The Grosse Pointe Public Schools Board of Education will approve the 2014-15 budget tonight in a form largely unchanged from my May 18th analysis. Some highlights based on the various financial available on the district’s budget website:

  • Revenue is increasing by 0.5% most largely attributable to a $50 per pupil increase in state aid per pupil.
  • Expenditures increase by 1.5% ($155,000) due mainly to a $500,000 increase in expenditures for Computer Technology. (This is on top of the $1.1 million flowing to technology in the 2014-15 Sinking Fund budget).
  • Total employee compensation costs (salary and benefits) drops by 0.5% in total, however…
  • Average total compensation per employee increases by 4.3% due mainly to an increase in retirement investment by the district on the employees’ behalf. Total average retirement investment by the district per employee will be $15,727.
  • The aggregate drop in total compensation costs is attributable to a reduction of 8.5 full time equivalent staff (from 876.7 to 868.3). Of these 8.5, only 2.5 are teachers, the rest are various other staff categories.
  • The district will run a $2.25 million General Fund surplus, increasing on the $2.0 million surplus it ran in 2013-14.
  • Fund Equity will increase to $6.2 million or nearly 6.5% by the end of 2014-15 and is projected to breach 10% by the end of 2016-17.

Much continues to be made of the Fund Equity measure of a district’s financial health. I addressed this issue in depth in a June 2012 post on the topic that is worth revisiting.

The district’s budget narrative makes note, accurately, that “the more (fund) equity a district has, the less short term borrowing a district has to do for cash flow purposes.”  It’s worth noting the district reports total annual Interest Expense for 2014-15 of $220,000, or 0.2% of the total budget. This is a small price to pay for maintaining district standards through the financial downturn.

The district’s bond rating remains a strong AA- and the district is quick to note that they are “confident that the rate will increase as our fund equity increases.”

Time continues to show the financial strategy of leveraging a strong fund equity position to return structural balance to the district budget has worked well. Our employees remain very well compensated. The ratio of pupils to teachers is a mere 2% higher than it was 8 years ago. No schools were closed, no staff outsourced, no school of choice policy adopted.

In short, the 2014-15 budget is essentially a roll-over budget. It has very little variance to preceding years and applies increased state aid to technology.

 

Should Michigan have spent another $38b on K-12?

State of Michigan Capitol Building

State of Michigan Capitol Building

The Drake report was published this week. It asserts that the State of Michigan is cutting taxes to such an extent that we are “on the road to economic mediocrity” as one headline put it. The lead snippet from the report states:

Michigan has slashed taxes over the last 20 years: Beginning with 1994′s Proposal A, tax cuts have reduced state and local revenues in Michigan by $51.1 billion; an estimated $38.3 billion of that would have gone to K-12 education.

The report, commissioned by a variety of public education stakeholders such as the American Federation of Teachers, Michigan Association of School Boards, and the Michigan School Business Officials, seems to be making a case that school funding needs to increase and that our favorable tax climate proves we have capacity to do so.

Should that $38.3 billion gone to K-12 spending at a time (from 1994 to 2013) when Michigan’s average per capita income ranking among states dropped from 17th to 35th?

If we were only comparing Michigan with itself, then maybe there is merit.

But how does Michigan compare with other states when it comes to K-12 spending today in light of the reductions referenced by this article?

Here is where Michigan ranks against other states in key education spending categories as reported by the National Education Association:

  • 9th in per capita education spending
  • 3rd in K-12 spending per $1,000 of personal income
  • 4th in state and local education spending as a percentage of all government expenditures
  • 10th in average teacher salaries
  • 14th in K-12 spending per pupil

Given the state’s 35th ranking in per capita income, the data shows that K-12 spending in the state compares favorably to other states and in comparison to our own means. The reductions referenced in the Drake Report are better explained as the tax policy reflecting the massive loss of revenue experienced by the state during the Lost Decade.

The unpleasantness experienced by the group who commissioned this study has more to do with how the total expenditure is allocated, particularly as the state address massively underfunded pension and retiree healthcare funds.

Proposal A is maligned now, but it wasn’t so much as Michigan’s economy grew, leading to rising property values, more jobs, higher wages, and ultimately higher tax revenue. No tax revenue system fares very well when an economy contracts.

We now appear to be on the other side of Michigan’s darkest economic days. As there is capacity for tax increases, we can see a better case to address Michigan’s failing road system. The numbers, however, don’t make a great case for increased K-12 taxes.

A review of GPPSS 2014-15 budget projections

Between the Grosse Pointe Public Schools’ 2014-15 budget planning discussion at last Monday’s meeting and the budget materials posted on the district website, we can conclude the following based on current plans:

  • The district will increase technology spending in 2014-15 by roughly $1.6 million. $1.1 million would be sourced from the Sinking Fund and an additional $500,000 would be sourced from the General Fund. In total, when adding run rate technology costs, the district would allocate roughly $2.5 million to technology spending in 2014-15 and nearly $3 million in 2015-16.
  • In the ensuing two years (2015-16 and 2016-17) the district would further increase technology spending out of the General Fund by an additional $500,000. This is mostly attributable to the end of the Energy Bond payments of $675,000 annually.
  • Even with these increases in technology spending, the district would run General Fund budget surpluses on average of about $2 million per year for the current fiscal year, for 2014-15, and for 2015-16.
  • General Fund equity is projected to increase from 2012-13′s $2 million (or 2%) to $8.8 million (or nearly 9%) at the end of 2016-17.
  • The surplus in 2016-17 budget year is projected currently at $900,000 from the previous year’s $1.8 million. According to the district’s reports, this is mostly attributable to a $1 million increase in employee direct compensation and a $500,000 increase in employee indirect compensation.

This last bullet is key as a large portion of last Monday’s discussion was dedicated to the teacher contract that runs through 2016-17. The contract specifies that the district “shall use best efforts to adopt a budget” that results in General Fund equity reaching certain thresholds annually. The table below compares current projections against the contract’s defined “best effort” levels.

[table id=22 /]

 

Unlike in past years, failure to reach the designated Fund Equity levels will not automatically trigger employee compensation reductions. The “Modified Formula” language clarifies that unless the shortfall to target is attributable to an increase in state mandated retirement costs (MPSERS) or due to reduction in state funding, employees shall “not experience any impact” for not reaching the target levels. Furthermore, the contract later specifies the true target for the 2015-17 fund equity is 10%.

So what does all this mean?

It means that even if the district does not meet the 10% goal, employee compensation won’t be affected. While it’s admirable to strive for a 10% fund equity, the contract does not require it. For those concerned with bond ratings, agencies will be seeing four straight years (minimally) of budget surpluses and a very clear trajectory to 10% fund equity by 2017-18.

It’s also noteworthy that the only reason the 10% target won’t be reached is due to employee compensation increases of $1.5 million in 2016-17. Without this anticipated increase, fund equity would end at about 10.3%. Therefore it would be a disservice to students and the community if the district made essentially arbitrary cuts to meet a 10% target that is essentially meaningless. It’s almost certain that the 10% would be met in the ensuing budget year just at the current run rate.

Again to the point I’ve made before, the district remains on very firm financial ground. It’s running budget surpluses into the foreseeable future. Fund Equity is well on its way to returning to very healthy levels. Technology spending is increasing substantially even without a tax increase. Class sizes and course offerings remain as they are now. Fees are not increasing and employee compensation is projected to increase.

About 99.99% of districts in the state would trade with GPPSS in a heartbeat.