Brendan P. Walsh

Lots has happened and lots will happen in GPPSS and State School funding. Long term views are advised.

Update: Readers have pointed out that the maximum Sinking Fund tax levy is 3 mills. If true, this does not change the conclusions I have reached below. 3 mills would yield about $7.6 million per year (and perhaps more if Taxable Value increases). The benefit of this approach is greater flexibility, greater taxpayer control, and the reduction of millions of dollars of interest expense versus a bond scenario. Even if the maximum were 5 mills I would not advocate levying 5 mills. Thanks for reading. 

We’re about a week away from a couple big elections… on all levels of government. The Internet will serve you well if you are looking outside the GP bubble.

Within the bubble? Pretty wild here, too. Let’s do some catching up. The GPPSS Operating Budget is a good place to start as we evaluate the proposed new building and site bond. 

If you’ve been here before, you know we need to look at some history. The district is now nearly nine years into a dramatic restructuring on operating budget planning and employee compensation. I won’t take the time to link to all the entries and analysis I did. You can peruse this site for that. But the short version is that the district agreed to take the reins off of fund equity (which exceeded $20 million) in order to bring teacher salaries in line with the state’s public school funding model.

This was an unpleasant but necessary journey. Now we see the district’s fund equity percentage rise above 10% for the first time since 2011. The 10% target has been the statistical centerpiece of the district’s finances since the GPEA (Teachers Union) contract settlement of 2010.

Lots has happened since then, but three items to highlight:

1. GPPSS enrollment has dropped by about 1,000 students (~11%). A massive loss of revenue of about $12 million per year.
2. Average teacher salaries have fallen by ~8%, from $80,566 to $74,281. I won’t take the time now, but this reduction is attributable to MANY factors, not just negotiated salary reductions. The new teacher salary grid, significant retirement turnover, and other related factors are equally important. GPPSS teachers are currently the 17th highest paid in the state, despite GPPSS having the 72nd highest revenue per pupil in the state. As a last comparison, for now, when average salaries were $80,566, GPPSS’ revenue per pupil was still 72nd, but GPPSS teachers were 6th highest in the state and we were running multi-million dollar deficits.
3. The latest key development was the passage of the Wayne County Enhancement Millage a couple of years ago. This was the final ingredient to drive the district’s fund equity above 10%. At an additional $2.6 million per year in revenue for the last two years, Fund Equity increased $3.7 million last year, as reported by the 2017-18 audit report. This year’s budget projections predict a $1.5 million operating surplus, which would drive Fund Equity to ~12%. 

Lots of ways to look at this, but one is simple. Both employees (pay reductions) and taxpayers (increased tax burden) have sacrificed to withstand a historic drop in enrollment (and other huge adverse state tax policy changes) to bring the GPPSS operating budget to equilibrium, which was always the goal. It wasn’t fun, but what needed to be done is done. The district is on firm financial ground.

Now the community contemplates another tax levy. With the above backdrop, we can see that this proposal should not be viewed as a means to address operating budget concerns specifically, although it is certainly a hedge against further strife. No, a building and site bond cannot be used for operating costs, but it can loosen the need for certain repair and maintenance costs that would otherwise depend on the operating budget. 

I see two major longer-term issues that are worth contemplating – enrollment and long-term state finances.

The Plante Moran Enrollment projections remain fairly sanguine over the next few years, but at no time in the last 50 years has the economic prospects for the city of Detroit been so optimistic. This bodes well for the Pointe’s which bodes well for enrollment. All of this is an unknown. My main takeaway on it, though, is that any talk of building closure is not prudent. Leaving aside a logical view on this, frankly I simply could never see the GPPSS Board of Education ever voting to close a school. Controversial measures of far, far less significance have had the Board on the run. This won’t change. This won’t happen.

The other major pending dynamic is long-term state school funding reform. He’s had a rocky road as governor, but one thing is certain. In 2037, a mere twenty years from now, the state will realize the benefit of retirement system reforms enacted early in Gov. Snyder’s tenure. These changes will drop billions of dollars off of the state budget in an area that has wrought, without a doubt, the greatest problems affecting the GPPSS (and every other state) district’s operating budgets.

Is 20 years too far out to be thinking? In the context of a 25 or 30 year bond, obviously not. The benefits of the MPSERS reform will be realized well before the bond is paid off.

This post has already gotten too long… sorry. So bottom line, factoring all these issues, I reach the following conclusions:

1. The GPPSS operating budget is stable. Arguments in favor of the pending bond proposal should not be overly influenced by operating budget issues, but rather on the short and long term capital needs.
2. The operating budget has reached equilibrium by shared sacrifice among taxpayers and district employees.
3. We have more reason to be optimistic about enrollment than we have been in years. The upshot of which should be we should hold off on talk of building closures.
4. The effects of Gov. Snyder’s retirement system reforms will be the biggest boon to the School Aid Fund (and districts) in history – and nothing else is even second. This benefit will be realized in 20 years.
5. If there is consensus (and I think there is) that our buildings require more investment for needed repairs, if I were to ask taxpayers for more money, I would seek to maximize the Sinking Fund levy. (The district reports the max is 3 mills, but I thought I have seen a 5 mill max.) A Sinking Fund brings the benefit of  incurring no service debt. This is a prudent and practical financial alternative to address what absolutely is required over the next six to seven years, a time period in which many of the above issues will be better quantified and that many years closer to the MPSERS reform boon.

On these bases, I oppose the proposed new Site and Building Bond Proposal and simultaneously advocate for maximizing Sinking Fund Revenue, adhering to the bargaining principles established in 2010, and aggressively explore all options to leverage the resurgence of Detroit to increase district enrollment organically.