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.

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.

Charging for EDK is a real sore point for families who prefer this service for their children.  What’s more, the need for ADK is on the rise for purely educational reasons.

Having been on the Board for over four years now, I know many families feel this is unfair.  They make a compelling case that they are being taxed twice.  After all, they pay taxes.  The district is receiving its full per pupil funding for that student.  Yet they have to pay again just so their child can go to school all day – just like all the other students.  It’s a logical argument.

EDK is not a nominal fee either – projected to be over $4,000 next fall.  The district runs the program on a break even basis.  It is becoming an increasingly popular option.  The problem is that as costs escalate we are pricing ourselves out of the business.

Why is all or extended day kindergarten so popular?  Some want to dismiss EDK as inexpensive day care.  I don’t.  I know how important education is to Grosse Pointe and Harper Woods families.  Don’t get me wrong.  Kindergarten is still nurturing and our teachers are incredibly sensitive to the needs of these young learners.

But state prescribed grade level content expectations (GLCEs) have placed an increasingly higher demand on real academic achievement at the early elementary level.  I think many people would be quite surprised at what GPPSS kindergarten students learn.  It’s at least the new first grade, if not more advanced, and showing no signs of slowing down.  Recall the recently approved new state graduation requirements, with such characteristics as Algebra 2.  You don’t get started on that path as a freshman.  It all roots way back to where you begin.  The mark of a great district is one that puts students in the best position to succeed and the bar is always getting higher.

Our teachers and administrators are almost unanimous in their support of a switch to a district-wide ADK format.  They’re in the trenches and know what students need.  One teacher felt so strongly she compiled the following points and sent it to me:

  • Over 75% of kindergartners in the nation now attend all day.  Due to No Child Left Behind Laws, most states have mandated it.
  • Teacher’s  manuals and programs for reading, math, science, and social studies are all written for all day programs over the half day programs.  Half day programs must choose what to eliminate due to time constraints.
  • Curriculum and State Expectations (GLCE’s) are also geared to all day programs.  The push down of first grade expectations has forced many kindergarten teachers to supplement their teaching with parent aids in order to cover the material.
  • At risk students benefit most from the all day experience.  It provides an enriched environment that is often lacking.  Title II funds were used last year to fund one all day kindergarten class.  It was cancelled, though the need was great, due to the inequity of free versus paid kindergarten in this district.
  • We have lost many students to all day programs.  We have lost students to paid programs in other schools as well as to free charter school programs and school of choice programs.

Can we afford to make the switch to a no-fee All Day Kindergarten?  I say we must find a way.  It’s simply the right thing to do and we’re a better district if we make this move.

This all begs the question, knowing that the traditional half-day kindergarten has been essentially a money maker for school districts, how can we now – at the height of financial distress – make such a decision?

Personally speaking I know we would be a better district if we made this move and I do not want to compromise on the things that I know will make us better.  Furthermore, the state is wise to this wrinkle in the Foundation Allowance and has made it clear that mandated ADK is on the horizon for Michigan public schools. I’d rather be in front of that problem than run over by it.

As a Board we’ve committed to a “zero-based budgeting” philosophy for the adoption of the 2010-11 budget.  This says we’re starting with a clean sheet of paper.  If we ask ourselves, starting with a clean sheet of paper, would we have a no-fee ADK in GPPSS or not?  There is no doubt.  We would.

Recalling that we derive our revenue on a per pupil basis, if we were able to attract 100 incremental kindergarten students whose families otherwise spend money to send their children to fee-based all day programs, the option becomes very affordable.  This should be the goal.  Let’s go compete for those students using the great assets available to public schools, enjoyed by a majority of families in the district.

What’s the downside?  Well, families rightly cherish time with their kindergarten age children.  A half-day program can provide just the right transition period for many, as it did for my wife and I and our three children who went to Defer for kindergarten.

I recognize this and am not advocating for mandatory ADK.  I believe the program can be designed in such a way to accommodate those needs.  But as things stand now, it’s not fair to accommodate only the needs of those families and tax everyone else twice.  Let’s be deliberate.  Let’s be cost conscious.  Let’s accomodate what the residents want, but let’s get on with becoming a better district.

Post Script:

The no-fee All Day Kindergarten proposal was approved at the February Board of Education meeting.  It was agreed that ADK would not be mandated for all students and that a half day option would be made available for parents who prefer that model.

In the 2010-11 school year, the first in which the no-fee ADK was offered, enrollment in the program skyrocketed, with an increase of 70 students above original projections.

To clarify for all, GPPSS has for year offered an extended day kindergarten option along with half-day.  This proposal does not represent the district’s first endeavor for an All Day option, but merely renders it a tuition free program.  In my view, this is a tax cut for our residents and I am glad to have advocated for this program.

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.

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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.

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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).

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