In the first year of operations following the controversial closure of two elementary schools and the reconfiguration of grades – all designed to deliver financial relief – the Grosse Pointe Public School System’s 2020-21 financial audit revealed the district operated at a $3.5 million loss, bringing General Fund equity to $14.8 million, or about 15% of annual revenues.
The 2021 loss was the largest since 2013, presenting an interesting symmetry. The 2013 audit activated the then new district Formula Clause which tied bargaining unit compensation to fund equity levels resulting in a 4.9% reduction in employee compensation. The 2021 audit reflected the opposite effect of the Formula Clause, a $2 million increase to employee compensation triggered by Fund Equity exceeding 15%. This is incremental to the new bargaining agreements announced in September which will increase employee compensation by 4% this year and 2% next year.
The $3.5 million loss improved on the $4.6 million loss estimated in May and the $4.2 million loss projected in the original budget adoption in June of 2020. Rougher roads lie ahead. The originally adopted 2021-22 budget anticipated a $2 million loss, but that does not yet factor the above mentioned cost increases.
Examining the 2020-21 audit and comparing it to the original budget adoption and revisions reveals the twist and turns of the budget and operational costs. The graph below highlights in blue the Favorable (adding to Fund Equity) and in red the Unfavorable (detracting from Fund Equity) changes in the budget from the originally adopted budget by major Revenue and Expense categories. The net effect (in grey) shows that the ending change in fund equity for the year was about $700,000 better than the original budget expected – but in the end there was still a $3.5 million reduction in Fund Equity. (Clicking on chart will expand it. Mouse over for more detail.)
So why all the twists and turns? Let’s examine.
On the revenue side, the original budget expected a $600 cut in the per pupil Foundation Allowance that thankfully didn’t happen, accounting for the lion’s share of the $5 million favorable change to State Revenue. Federal Revenue exceeded original budget expectations by $2.5 million on account of COVID Relief Funds which were confirmed after budget adoption.
On the expense side, Instructional Expense ended the year $7.3 million (10%) higher than the original budget. There were two main drivers on top of the Formula Clause payout referenced above. The federal government understandably required that COVID Relief aid get invested. That accounts for about one-third of the Instructional Expense increase. Secondly, as reported by the district in the first budget amendment back in February, “settlement of contracts as approved by the Board of Education, staffing adjustments, materials and supplies including the operation of OneGP Virtual for this school year” accounted for another $1.2 million.
Operations and Maintenance costs presented a different problem. In its second budget amendment (from May) the district pinned half of the cost overruns on overtime driven by COVID related activity. Budget amendment explanations don’t account for the other $1.6 million.
Like all things 2020 and 2021, there is not much welcome news here. Many district stakeholders will understandably struggle to reconcile the tradeoff of closing and reconfiguring schools to get a reported $1.2 million in savings when the district more than expended that in non-COVID related Operations and Maintenance cost overruns alone.
Also puzzling is that the 2022 budget will be the second straight year that employee bargaining agreement driven compensation changes were not factored in the original budget adoption. While this might be defended on the basis that the agreements were not finalized by the time the budget had to be approved, undoubtedly the Board had to know that those changes were coming. That’s a serious defect in budget planning and the cuts we will undoubtedly start seeing will be more compacted, urgent, and controversial as a result.
We can probably expect some wild budget swings in the coming months. Now would be a good time to pay attention. As a fellow East Sider once famously sang, “things are about to get heavy.”