SaveHilliardSchools.org

School Funding (reprise)

2012-01-27T19:57:00.001-05:00

The way public school funding works in Ohio isn't hard to understand. It really isn't. But folks find it easier to just believe whatever misinformation they hear from a neighbor or friend than doing the research themselves. And frankly, few school districts or elected representatives are trying to educate their constituents about school funding either, so misinformation continues to propagate, and gets reinforced in its repetition.

One of those is about the constitutionality of using property taxes to fund our public schools in Ohio. Most people believe the Ohio Supreme Court ruled that property taxes may not be used to fund schools. We saw that mistaken belief expressed yet again in a Letter to the Editor published by The Columbus Dispatch today.

If you want to understand this constitutionality issue, I invite you to read this article, published on the EducateHilliard website.

Instead, I'd like to focus on the simple facts. Let's start by looking at the sources of our funding:

click to enlarge

Residential Property Taxes: This is our primary funding source, providing 47% of our total funding, or $5,200 per student per year. It changes due to two primary things: a) a new operating levy is passed by the voters; and, b) when new homes are built in the school district. Every dollar of property tax we pay stays in our school district.

Let's correct another common misconception: EVERY residential property owner in our school district pays EXACTLY THE SAME property tax rate. Our property taxes fund many agencies, and the agencies which appear on our individual tax bills depends on which municipality one lives in. Our school district includes all of the City of Hilliard, pieces of Dublin and Columbus, and all or some of several townships. Each may impose their own property taxes, making us have differing total tax rates. But we all pay the same school property tax rate, and it all comes to Hilliard City Schools.

Commercial Property Taxes: These are property taxes paid by the commercial property owners in our school district. They don't get to vote on the levies we put on the ballot (unless the commercial landowners are also residents of the district), but they pay the same property taxes as residential landowners nonetheless - unless a property tax abatement is granted by whichever municipality the business lies in. It's a bizarre thing: a city may waive up to 75% of the property taxes for a business without the approval of the school district. But it's not their revenue to give away in the first place!

Nonetheless, a city and school district acting in partnership will often decide that an abatement is a good thing. Such a decision was made at our last School Board meeting, when we agreed with the City of Columbus to grant a ten-year 75% abatement deal to Boehringer Ingelheim Roxanne Labs, who is competing internally for the opportunity to expand their operations. To not grant this abatement would mean losing the opportunity to collect any new revenue. It's a reasonable deal for an important community partner that we'd all like to see grow and be successful.

As is the case with Residential Property Taxes, every dime of the Commercial Property Taxes collected in our school district stays here. Today it is 15% of our funding, or about $1,700 per student per year. When our family came to the school district thirty years ago, the total Commercial Property Taxes was about equal the total Residential Property Taxes. This commercial percentage has gotten smaller not because there are fewer businesses now than then, but rather because there are thousands more houses, and of course thousands more kids to educate.

The problem here is that the incremental property tax revenue generated by the typical new single-family home is a fraction of the incremental cost to educate the school age kids who will live in that new house. That's why we need lots more commercial property development in our school district. Otherwise the school funding burden created by new homes has to be funded with new levies - meaning more taxes on the rest of us.

Federal Grants: As you can see, this is a relatively minor revenue source, consisting mostly of things like our Title 1 funding to help disadvantaged children. It amounts to about $500 per student per year.

We got a nice Federal stimulus gift of a few $million for a couple of years, and that's not reflected in this percentage, but it was one-time money and is long gone.

State Grants: This is our second largest source of funding, representing 33% of our revenue stream, or about $3,700 per student per year. The bulk of this is the so-called Foundation Aid, the primary state funding stream. Foundation Aid increases with the number of students, and decreases with the perceived affluence of a school district, as measured by aggregate property values, whether residential or commercial.

This is the component of our funding which causes all the angst among Governors, members of the General Assembly, and a myriad of lobbying groups such as:

The Ohio School Boards Association - representing the interests of School Boards (we're a member)
The Ohio Education Association - the statewide teachers' union
The Ohio Association for Equity and Adequacy of School Funding - representing mostly lower income school districts. This was the group that file the DeRolph case.
The Alliance for High Quality Education - representing mostly affluent suburban school districts. Hilliard City Schools is a member

In the past ten years, our Governors and the General Assembly have tried three different approaches to determining how much funding each of the 614 local school districts should receive from the State. None of them have satisfied everyone, and we still don't know what the Kasich administration is going to propose as a replacement to temporary funding mechanism now in place.

But the common philosophy of all past, and likely all future State funding schemes is that the more affluent a local district may be, the less State funding that will be provided. Here's a chart which shows how much Ohio income tax is paid by the residents of several local school districts versus the amount of state funding they received:

click to enlarge

In our case, we get back 41¢ for each $1 we pay in Ohio Income Tax. Three area school districts, Pickerington, Reynoldsburg and Canal Winchester get back every penny they pay in Ohio Income Taxes. Two districts, Whitehall and Hamilton get back multiples of what they pay.

This isn't going to change.

The assumption made down at the Statehouse is that districts like ours have the capacity to pay an ever-increasing fraction of the cost to run our schools. That's the reason they thought it was okay to accelerate the phase-out of our Personal Property Tax reimbursements, which is one of the primary reasons we put a 5.9 mill levy on the ballot in November.

So that's it - school funding in a nutshell. I'm happy to answer your questions. We'll discuss spending (again) in an upcoming post.

All data used in this article were taken from the 2010 CUPP Report, published by the Ohio Department of Education.

Navigation

2012-01-18T09:17:00.005-05:00

One of the top news stories this week has been the wreck of the the cruise ship Costa Concordia, which struck submerged rocks off the coast of Italy and sank. Fortunately, nearly all the passengers and crew were able to reach safety. It sounds like the one right thing the Captain did - before he cowardly scampered overboard to safety, leaving his passengers and crew behind - was to quickly steer the ship to shallower waters so that it wouldn't fully capsize, like in the movie The Poseidon Adventure. This action undoubtedly saved many lives.

But this tragedy was set up by decisions he made a long time before the hull was torn open.

I've had the opportunity to stand bridge watches on one of our Navy's ships of the line. I never saw the Captain just 'wing it' when sailing close to land, or in a narrow channel. Before leaving or entering port, or just sailing near a coast, the Captain and Navigator develop a maneuvering plan which includes waypoints and course bearings, and in doing so they pay close attention to all the depths and obstacles marked on the official nautical maps. Once underway, observations are taken continuously via radar, sonar depth finders, and visual means - even with the existence of things like GPS. Every few minutes, the actual position of the ship is plotted on official charts, which become part of the legal record of the passage. Other than maneuvers which might required to avoid other vessels, there is no deviation from the plan.

You don't kid around with this navigation stuff, whether the ship is a naval vessel, an oil tanker, or a cruise ship. Mistakes can be extraordinarily deadly and expensive.

Big ships can be surprising fast. Not only are our nuclear aircraft carriers the largest ships in the fleet, they're also the fastest. Although you won't find official confirmation, in the right sea conditions, carriers are said to be able to go over 40kts (about 45mph) - think a thousand foot long, 100,000 ton ski boat. Carriers need to be fast because the amount of weapons load an aircraft can carry when being catapulted off the flight deck is directly related to the amount of airspeed which can be generated over their wings, which is the sum of the actual windspeed while pointed into the wind, the speed of the carrier, and the terminal speed of the catapult.

But you had better not want to change course very quickly if you're sailing a carrier at flank speed. And if someone falls overboard, the carrier doesn't even try to go back and rescue the poor soul. It takes many miles of turning and a good deal of time for a carrier to return to a spot it has passed, so it's much quicker to dispatch a helicopter or one of the other ships always sailing with a carrier.

The captain of the Costa Concordia didn't think his maneuvers through very well. He clearly picked a track on which no large cruise ship had ever before sailed, and he was reportedly doing it to show off to the folks on the island they were passing. Apparently lots of cruise ship captains do this in this part of the world. Maybe this captain wanted to be the hottest of the hot-dog captains of the Mediterranean cruise industry, so he took a gamble. But even if they had seen those rocks from a mile away, it would have been too late to avoid a collision. The ship is too big and too fast. Inertia wins every time.

Our school district is like one of these big cruise ships. There has been a huge investment of talent and treasure to get us where we are. The quality of the experience our kids will have going forward will be dictated by the quality of decisions and plans made largely out of the view of the students and parents. But once execution begins, and the kids roll into the classrooms, things happen fast, and changing course can be very difficult. There is such a thing as organizational inertia as well.

The executive team of our district produces a few key planning documents which are used to lay out the course. The longest-range plan is the 2020 program, initiated in 2006 by Superintendent Dale McVey. It sets the general course for the school district, and gives guidance for planning and action all the way from the central office to the classroom. It should be read, reread and adjusted as necessary to make sure all stakeholders agree on the course and speed of our collective journey.

I very much enjoy reading naval history, especially of the World War II era. I'm currently reading Neptune's Inferno by James Hornfischer, which tells the story of the battles at Guadalcanal in the south Pacific. It never occurred to me before reading this that even with the sinking of many battleships at Pearl Harbor, the US Navy still had a fair number of battleships in the fleet. However, in the first couple of years of the war, battleships were not used much in the Pacific.

Why? Because they were gas hogs (actually they burned a very thick fuel called Naval Fuel Oil). The admirals had only so much NFO available which to operate their fleet, and a limited number of tankers available to transport it to the ships, so they decided to give priority to the carriers, which were much more effective in the ship-to-ship warfare of the early years of WWII, such as the Battle of Midway.

It was a tough choice. Battleships might have lost their prima dona role in the fleet to the carriers, but when it came time to land on the beaches, the Marines very much liked having the big guns of the battleships around to pound enemy emplacements. There would be a time and place for the battleships, just not right then.

The point is that these were resource-constrained decisions the admirals had to make. They would like to have had unlimited fuel available, and been able to sail both carriers and battleships in their fleets, covering vast distances in short periods of time. But most of their fuel was coming by slow tankers from ports on the west coast of the US, and so the admirals needed to make fuel availability and fuel consumption a core part of their planning. More ships require more fuel. Faster sailing speeds consumes more fuel. Tradeoffs had to be made.

Our version of that is depicted in the Five Year Forecast. If you've been a long time reader of this blog, you know that I write about the Five Year Forecast very often. It's not because I believe the Forecast, prepared by Treasurer Brian Wilson, is the most important document in the world, or because I believe financial matters trump everything else.

It's because a school district than runs out of money is like a naval fleet that runs out of fuel: Dead in the water.

The Navy didn't have an infinite supply of fuel in WWII (or now for that matter), and we don't have an infinite supply of money. The Five Year Forecast illustrates how fast we plan to burn fuel, and helps us determine when we need to be resupplied (ask for another operating levy).

Barring some significant change in thinking, the current execution plan for 2020 shows us needing to be refueled sometime after 2014. For that to be true - for it not to be sooner - we have to limit our spending to the rate shown in the Forecast - about 1.3% growth per year. There also needs to be no further erosion of supply (eg further cutbacks of State funding).

As implied by the name, the current Five Year Forecast paints one version of our fiscal future through FY2016. It shows the spending growth rate kicking up to a little more than 4% per year starting in FY2015. The main difference versus earlier years is the assumption made as to the cost of compensation and benefits. Those costs will be driven primarily by what programs and services we want to offer, how many people we employ in the district to deliver those programs and services, and the terms of the next collective bargaining agreements with the teachers' union and the support staff's union, which will need to be renegotiated by the end of 2013.

Maybe our planned fuel consumption rate and our assumptions of the fuel resupply rate are accurate and in balance. I suspect they may not be. Both may need some adjustment, and the conversations won't be easy.

We can't wait until 2013 to start having these conversations. The captain of the Costa Concordia could have avoided this tragedy by doing better long-range planning, rather than assuming that he could make last-minute decisions if needed to avoid disaster.

We need to do the same.

Spending Priorities

2012-01-10T18:04:00.000-05:00

The first meeting of the School Board each calendar year is an organizational meeting, and ours was held last night. The purpose of the meeting is for the five of us to elect a President and Vice-President, and for the new President to make committee appointments for the other Board members.

There is also a resolution authorizing the Superintendent and Treasurer to take various actions during the course of the year, essentially delegating authority for a specific set of things to those two executives.

The Board also authorizes expenditures to sustain our memberships in a three organizations, the National School Boards Association, the Ohio School Boards Association, and the Metropolitan Education Council.

I thought it was appropriate to discuss the need to continue our NSBA membership, and made a motion to amend the resolution to delete references to NSBA - in other words to terminate our membership. I thank Heather Keck for seconding my motion, and allowing a discussion to take place. These were my verbatim comments:

"The cost of our NSBA membership and services last year was $13,000.

It is not my contention that this is wasted money - only that I don’t believe it’s our highest priority. We’ve promised the people of Hilliard that we wouldn’t put another levy on the ballot before 2014, and to keep that promise, we have to be even more frugal with our spending.

I believe our highest priority should be in classroom and school buildings. This $13,000 could purchase a dozen additional ELMO digital overhead projectors, or allow us to upgrade some of the well-used copiers in our buildings. We could buy more of the innovative student tracking software like we saw demonstrated by the math department at Davidson recently.

It could buy new tires for a bunch of school buses, or patch up a few potholes in school parking lots.

Or it could not be spent at all, and help us regain the 10% operating reserve which is our policy.

No spending cut is without impact, and this is a relatively small amount of money in comparison to a $160 million budget. But I believe this sends the right message to the community and to the employees of the school district - that the Board is willing to make cuts in its own budget as well."

Other Board members expressed their opinions in regard to the value our district receives from our NSBA membership, primarily in two areas: a) the importance of continuing professional development for Board members, both for the benefit of the members and to set an example for the professional team; and, b) the value of the national and state lobbying efforts made by NSBA on behalf of its members.

I don't disagree, but think there are more impactful ways to spend the taxpayers' money.

My motion was defeated 1-4, with me casting the one "yea" vote. The main resolution then passed 5-0.

Who looks at the financials? Any financials?

2011-12-28T11:27:00.000-05:00

I suspect that most people who complain about White Hat have never examined the financials of their own public school district. This isn't really about disclosure, or accountability.

It's about competition.

How Much is Enough?

2011-12-12T14:34:00.001-05:00

On December 9, 2011, Colorado State District Court judge Sheila Rappaport, in the case of Lobato v. State of Colorado, issued a court order declaring Colorado's funding system for public schools to be unconstitutional, going on to say:

"Evidence establishes that the finance system must be revised to assure that funding is rationally related to the actual costs of providing a thorough and uniform system of public education. It is also apparent that increased funding will be required."

The Court has given the Governor and the state legislature until the end of the 2012 legislative session to come up with a fix.

Without even attempting to read or understand this case (I'm not a lawyer), I'll assume that that the arguments in this Colorado case have little difference to those raised by DeRolph v. State of Ohio, which was filed almost exactly twenty years ago.

DeRolph was the school funding case that made it to the Ohio Supreme Court, which declared the public school funding system then in use to be unconstitutional. Most people mistakenly believe the Supreme Court declared the use of property taxes to fund schools to be unconstitutional, but that's not at all what they said. Regardless, DeRolph is now moot, as the General Assembly has enacted two different funding systems since then, and neither has been test by a lawsuit.

It looks like Colorado might be the next state to go down this road. Lobato will undoubtedly be appealed. If it isn't, and their legislature doesn't satisfy the Court's order, it will still raise the constitutional question as to whether the legislative branch in their state can be ordered to do anything by the judicial branch.

Both states have similarly vague, and not very useful constitutional standards in regard to public education. Ohio's Constitution talks about a "thorough and efficient system of common schools" (Article 6.02), while Colorado's says "thorough and uniform system of public education."

It will be interesting to watch the Colorado case as it progresses. Lots of people would like to know how much a public education should cost and how it should be funded.

So how would we go about figuring that out - what Judge Rappaport called "actual costs" - and where should the money come from?

It seems to me that we first have to go back to the fundamental fact that 80-90% of the money spent on public education (88% in our district) goes to pay for the compensation and benefits of the teachers, staff and administrators who are employed by the school district, and most of that is spent on the teachers.

I'm not saying that's a problem. As long as educational services are delivered primarily by teachers in a classroom, that's where as much of the money as possible should be spent. Everything else should be viewed as support for what happens in the classroom, or as "extras" above and beyond the State requirements.

But how much should teachers be compensated, and how many of them should we employ (in relationship to the number of students)?

The notion of Governor Strickland's "Evidence Based Model" funding approach was that there are clear answers to those questions. The EBM specified how many teachers there should be, and how much they should be paid - at least at a minimum. It also specified how many folks we should have in key administrative and support staff roles, and also what they should get paid.

Here is a copy of our district's PASS report, the document which shows how a school district was funded under the EBM approach. Page 2 of the report spells out how many people we should have in specific job categories. For example, lines 6-12 detail the minimum number of teachers we should have in various categories. The State would then give a district $56,902 of funding per teacher, adjusted by the "Education Challenge Factor," which is essentially another measure of how affluent a district might be. Our ECF was .98509, meaning that the State's contribution would be adjusted to $56,902 x .98509 = $56,054.

This $56,054 is supposed to cover both compensation and benefits. In our district, the average teacher compensation is $69,369 plus 35% in benefits, or $93,648. So the EBM would cover only 60% of the cost of one of our teachers. The other 40% was our local contribution beyond the State funding.

Of course, Gov. Strickland's EBM was never fully funded, nor was the system it replaced. In the case of Hilliard Schools, and most school districts like ours, the changeover from one system to the next had virtually no impact on the amount of funding we received from the State, due to the effects of the so-called Transitional Aid Guarantee.

Any change in the school funding algorithm creates winners and losers. Since the objective of such a change is always to get more money to the poorest of Ohio's school districts, the winners are usually those districts while the losers are districts like ours. The Transitional Aid Guarantee came to be to prevent there being any such losers - a matter of political expediency rather than good policy.

So if 80-90% of the spending in a school district is on compensation and benefits, is there any data which helps us figure out how many folks we need on staff, and what we should pay them?

How about if we go back to the philosophy of the Empirical (Augenblick) Method, which was the approach used from the early 1990s until it was replaced by Strickland's OEBM in FY2010? Only this time, let's use only the 81 districts rated as "Excellent with Distinction" in 2009 as the sample set.

The Augenblick Method is to list the per-student spending of the school districts in the sample set, throw out the lowest and highest 5% or so to eliminate outliers, then average the rest. With this algorithm and using 2010 per student spending from the CUPP report, we get $10,026/student as the benchmark number, .

In other words, we don't know how exactly a district should or would spend the money, but it seems like with $10,026/student, any district should be able to achieve a rating of "Excellent with Distinction."

Yet the actual range is quite large. Throwing out the 4 high and 4 low districts (5%), the per-student spending still ranges from $14,733 at Sycamore Schools (Hamilton County) to $7,949 in Wausean Schools (Fulton County). So why can't Sycamore Schools get the job done at $8,000/student/year like Wausean - close to half the cost?

As said before, it's all about how many people the school district employs, and what they are paid.

At Sycamore, the ratio of Regular Education Teachers to Pupils is 17/1. At Wausean, it's 21/1. The average Wausean teacher has 24% more students in the classroom than a Sycamore teacher, yet they both achieve the same rating. So do the Wausean teachers get paid more for achieving the same result while having larger classes?

The average teacher salary in Sycamore is $71,137, while in Wausean it's $55,668, meaning Wausean teachers have 24% more students in their classes than Sycamore teachers, but get paid 22% less. So it's not class size or teacher comp which determines the rating on the State Report Card.

How about teacher experience? The CUPP report gives the percentage of teachers with 0-4 years of experience, 4-10 years, and 10 or more years. For Wausean, those statistics are 14%, 19% and 67%, respectively. For Sycamore, it's 14%, 17% and 69% - nearly identical, and both skewed to the higher experience band. That would certainly suggest that experience makes a difference in terms of results, but doesn't explain compensation differences between districts (Hilliard's numbers are 12%, 22% and 66%).

I should stop here and remind folks that correlations are not the same thing as "cause and effect," and that merits remembering here. There are within this dataset school districts which achieve Excellent with Distinction yet have fewer than 25% of their teachers with 10+ years of experience. Twinsburg for example achieves this rating while having 60% of its teachers with 0-4 years of experience.

So is there anything we measure which seems to be a strong predictor of outcome? I'd suggest that there is, at least within the constraints of the data published in the CUPP report. That predictor is the level of poverty in a school district. Among the 81 Excellent w/ Distinction districts, the average and median number of students living in poverty conditions is 22% (stdev=13). As poverty goes up, performance goes down, and it doesn't matter that much what the per-student spending might be.

For example, Columbus City Schools spends $14,904 per student, second in our area only to Grandview Heights, which spends just $74/student more. Yet the Performance Index for Columbus City Schools is only 80 (2009 data) vs Hilliard's 101.5, which we achieve while spending $3,400/student (23%) less. The difference: 80% of Columbus kids live in poverty, while 21% of ours do (I suspect that number is surprising large to many in our community).

So how do we determine how many folks we employ in our school district, and what we pay them?

The best answer I can come up with is that it's all a matter of local choice.

Across Ohio, teachers are paid according to what their local union negotiates with the local school board, and it seems clear to me that local school boards in more affluent communities tend to settle the labor contracts at higher salaries than do those in less affluent communities. That's about it.

So it behooves a young teacher to get hired in an affluent district like ours, or one of the many suburban districts around Ohio. Presumably those districts can be very selective in their hiring, so only the most promising young teachers get a job. In our district, new fulltime teachers typically serve as substitutes for a year or more before being hired. It's an effective way to give them a 'try-out' before being invited to join the team, and I've been impressed with the new crop every year when we get to meet them. It must be a valued opportunity, as we have literally thousands of applicants each year for dozens of openings.

Does that mean the tens of thousands of teachers in the less affluent districts are all duds, because they couldn't find jobs in districts like ours? Certainly not! Many things will cause a young teacher to live in a less affluent community: family, spouse's job, lifestyle preferences, etc. And there are districts that achieve Excellent w/ Distinction in spite of having very low teacher salaries. Bloomfield-Mespo (Trumbull) is such an example, with an average teacher salary of $37,751, less than the starting salary in our district of $38,362.

And the 'how many' part of the equation is a matter of local choice as well. We choose locally the overall student-teacher ratio. We decide locally the breadth of programming we wish to offer, and how those programs will be staffed.

You may respond that YOU don't get to make those decisions. But that's a cop out. You elect the school board members, and you should hold us accountable for making decisions consistent with your wishes, understanding that there will never be 100% agreement on anything about anything.

Your input makes a difference. Input from a lot of you makes a big difference, and can change the direction of important decisions. We've seen that a couple of times this year.

It will seem like we're entering a 'quiet' time right now. We have a workable agreement with the teachers and support staff through 2013. With your passage of the levy, we are committed to not putting another levy on the ballot before 2014 - provided the State doesn't hammer us with another significant funding cut.

Indeed we can take a little breather. But I feel strongly that we soon need to start the community education and communications effort to prepare us for 2013, when we'll next be negotiating with the teachers and support staff, and for 2014, when we'll be voting on the levy to fund that new contract.

The basics of school economics aren't difficult to understand, but we have lots of people to educate.

School Choice and HB136

2011-11-25T11:23:00.001-05:00

HB136 is currently working its way through the Ohio General Assembly. This Bill creates the "Parental Choice and Taxpayer Savings Scholarship Program," also known as PACT. The core purpose of this legislation is to allow parents to redirect the money the State of Ohio sends to the local public school districts to properly approved private schools.

Some school boards have recently chosen to pass resolutions in opposition to HB136. The Ohio School Boards Association, of which our School Board is a member, is lobbying in opposition to HB136.

I recently read through the Bill Analysis, prepared by the Ohio Legislative Services Commission, a body appointed by the General Assembly to render non-partisan, independent views on proposed legislation. The general notion of this legislation seems pretty good to me. And I can't believe what I believe about the importance of free markets and competition, or write what I have written about school choice, and be opposed to the principles of this Bill.

But it still needs some work. My friend Marc Schare, who is also current President of the Worthington School Board, submitted written testimony to the House back in April. I agree with much of what he said.

The Bill in its current form specifies that parents could apply to have up to $4,563* subtracted from the funding their local school district gets from the State and redirected to a scholarship account which could in turn be used to pay tuition and other expenses to an approved non-public school. The intention is that the school district would retain all the funds it raises from local sources - primarily homeowners and businesses - but that the money provided by the State could be used to pay tuition at a private school.

The problem, as Mr. Schare points out in his testimony, is that not all school districts receive $4,563 per student from the State. The amount of funding a school district receives from the State is determined to a large degree by the affluence of a community, as measured in terms of property value. By this measure, we are a fairly affluent community, and consequently our State funding was reduced to $3,741 per student in FY2010 (see CUPP Report produced by the Ohio Dept of Education).

This means that if a student were to take $4,563 with him to a private school, we would have to send along the $3,741 of State funding we receive, plus $822 that we have raised locally through tax levies.

Mr. Schare says this is inappropriate because the people of the community voted to be taxed that amount of money in order to fund their public school district, not to have it diverted to a private school.

I see his point, and agree somewhat. But here's where one's perspective is important.

From the perspective of folks with kids in the public school system, this sounds like their money is being taken away to subsidize kids in the non-public schools. From a practical standpoint, one of the more significant challenges with HB136 is that it allows PACT money to be withdrawn for students already attending non-public schools. So if we have 1,000 kids in our community currently attending non-public schools (I don't know the real number), it means we aren't currently allocating any resources to educate those kids, but we could still have as much as $4.6 million of our State funding diverted. Same number of kids, $4.6 million less funding. That's equivalent to about 50 teachers.

But from the perspective of the folks with kids in non-public schools, it means an end to having their tax dollars being taken to fund the public schools their kids don't attend. This has always been an issue with the families who send their kids to the Catholic schools for example - they feel like they're paying for both the public schools and their parochial schools. For these folks, HB136 seems pretty fair.

We also have to remember that it's unlikely that any of the votes taken to approve public school levies were unanimous. There might have been a fair number of people in the community who voted to NOT send additional funds to the public school district, but are required to do so anyway because the majority dictates to the minority when it comes to levies.

I recognize that this argument stands on shaky ground. The rule of our democracy is that the majority wins, even when the margin of victory is only one vote. This is one of the challenges of democratic capitalism - knowing when to let individual choices and appropriately regulated markets determine how resources are allocated, and when we should allow majority-wins elections to decide the outcome for all.

I prefer the former whenever practical.

That's my core reason for saying what I did in Food Stamps - that we should operate our schools like we do our food distribution system. Our society has set up a food production and distribution system which is the envy of the world, and one of the key drivers is the ability for any shopper to buy whatever food they want, wherever they want, and at whatever price they find acceptable. The competition for customers drives producers and retailers to create fantastic choices at prices the market will bear.

But instead we fund our schools like the Soviets ran their food distribution network - government control of what was produced and in what quantity, and where it was distributed. Their food may have been free or nearly free, but there were massive shortages and the food was generally of poor quality (no, I'm not saying our school district is of poor quality - we all know it's quite the opposite). And of course the black market thrived, but only for those with the means. The majority of the population just had to suffer.

We think food is a pretty important component of life, so for those who can't afford to buy sufficient food, we provide a taxpayer-funded public assistance program we call "food stamps," even through the little books of coupons haven't existed for a number of years.

We could organize our education system in the same way - most people would pay tuition to the institution in which they wish to enroll their kids during the years they were in school, and otherwise be off the hook. For those who can't afford a "thorough and efficient" education, as required by the Ohio Constitution, we would have a tax-funded scholarship program, akin to food stamps. No one who wants it would go without an education.

I recognize that such a radical shift in thinking is not in the cards, at least not for the near future. HB136 has some good ideas, but has not been sufficiently thought through, as was the case with SB5. It will further stress the public school districts without having practical, workable solutions to the real problems it will create.

* The actual amount of the scholarship available to a student is reduced as family income increases. The full $4,563 is available only to families whose combined income is less than 278% of the Federal Poverty Level,. For a family of four, this means the full scholarship amount is available only if the combined family income is less than $62,000. No scholarship money is available when the combined family income is more than $95,000, so this isn't a way to help pay the tuition for rich kids at expensive private schools.

Levy Passed, What's Next?

2011-11-24T13:16:00.001-05:00

I'm happy that our community passed the levy issue, albeit by an extremely slim margin.

I've come to view levies as the mechanism which the School Board uses to facilitate a negotiation within the community. There is not now, nor will there ever be a time when every single voter in our community agrees on exactly how our schools should be run, or what it should cost. It will vary depending on whether the voter has kids in school, on the voter's financial status, on the voter's political philosophy, and a myriad of other personal factors.

So I look at a levy issue as more of a proposition, explaining what will be offered if the levy passes, and what will happen if it fails. If a majority of the voters accept the proposition, the levy passes. If not, it fails.

What should happen if a levy issue fails? I think that when that happens, the School Board should adjust the proposition and ask again by putting a new levy proposition before the voters. I think this because not putting a levy on the ballot denies folks a chance to accept a different proposition.

That doesn't mean that if a levy fails I advocate running a levy at every single opportunity following until one finally passes. I think that would annoy the community, and unreasonably burden the emotional, physical and financial resources of the levy campaign team. I think there's a better way to go about this - more later.

In this case, the community rejected the proposition offered in May, but accepted the proposition offered in November, which included the commitment to not ask for more money until 2014 at the soonest (but we have to be realistic and say that we might have to revisit that if the State of Ohio makes further significant cuts to our funding).

As a result of the levy passing, here's what our Five Year Forecast looks like in graphical form:

click to enlarge

As has been the case for years, 88% of our spending is on comp and benefits, which is as it should be. It's also the only part of the budget which is growing materially. That's good too - it indicates that the 'overhead' part of spending is being held constant.

click to enlarge

Notice that the projected spending for Compensation and Benefits for future years is well less than it was projected to be just a year ago - by about $18 million in FY15. This reflects the terms of the new agreement with the unions for 2011-2013 - including the projected impact of the early retirement incentive program for the teachers and additional contribution toward the health insurance premium.

It also assumes a resumption of annual 4.15% step increases in 2013 (which is effectively 2.3% given the mix of teachers on and off the step years), but with only 1% base pay increases starting 2014.

Since the most significant of the budget, and the only part that's growing is comp and benefits, that's where we need to focus our attention. So what drives up the cost of compensation and benefits?

Clearly, the most significant driver is whatever gets negotiated into the teachers' contract in terms of the salary grid. If you're not familiar with how this works, I recommend that you read an article I wrote titled Teacher Salary History. Their current contract runs through 2013, and I don't anticipate engaging in negotiations again until then.

So in regard to teachers and staff, the labor rate is set, but that's only half of the equation. The other half is the number of teachers and staff we choose to employ. At the end of FY11, our district employed the equivalent of 1,716 full time employees, 1,117 of whom were teachers. The remainder includes 202 pupil and teacher support staff, 131 building and grounds maintenance personnel, 125 bus drivers and other transportation staff, and 108 administrators (source: 2011 CAFR, page 110).

So what determines the number of teachers we employ? It depends on the grade level. At the K-5 level, it's mostly about the number of students we want to have in each classroom. As you can see from the monthly Enrollment Report, the overall K-5 ratio is 23.6 students per classroom.

When you get to the high schools, the variety of course offerings also becomes a driver. Our high school catalog offers over 300 courses, although not every course is offered every semester. Some classes are pretty large, with 30+ kids, and some - such as our new Chinese foreign language offering - have single digit enrollment.

Overall in our district, the student-teacher ratio is 22.5/1, while the average for our region is 25/1, and that ranges from 18/1 in Upper Arlington and Bexley to 35/1 at Groveport-Madison.

If we increased our student-teacher ratio to 25/1, our need for teachers would diminish by 70, which could reduce our spending by about $3.5 million per year (assuming junior teachers averaging $40K+benefits). We have a unique opportunity to do such a thing in the coming year, with potentially a large number of teachers retiring to take advantage of the early retirement incentive program. It's an opportunity to adjust staffing levels without layoffs, and that must not be ignored.

In addition to their normal pay, many employees of our district also receive stipends and supplemental salaries. Once again, these rates are set in the union agreements, but there is a choice as to how many of these roles will be funded each year.

As is shown on the agenda for Monday's School Board meeting, we will be considering a resolution to authorize stipends for the 2011/12 school year for about 1,000 roles, ranging from $350 each for the 182 participants on the School Improvement Teams ($64,000 total cost), to $1,200 per semester for supervising the high school weight rooms (12 person-semesters/yr for Davidson, 3 each for Darby and Bradley), adding up to about $22,000 each year. The total outlay for all stipends will be more than $600,000 next year.

The resolutions to approve supplemental salaries are dealt with a couple of times during the year. A complete list of these are included in Appendix L of the teachers' contract, starting on page 94 of the Master Agreement. These are expressed as a percentage of the base salary for each teacher, ranging from 15% for the head football, basketball and wrestling coaches, as well as the head instrumental music directors, to 5% for an assistant drama director or an assistant middle school tennis coach.

Administrative contracts have terms of varying terms and expiration dates. You'll see these come before the Board for action at the appropriate times.

My opening statement was to describe levy issues as the way the School Board facilitates a negotiation within the community. I also think it's an extraordinarily inefficient way of accomplishing this task.

We have lots of things to talk about in regard to our community and our schools, and with the passage of this levy, we've bought some time to figure out a better way to get this done.

My suggestion is that we use a process that has worked pretty well for us over the past few years - a large committee (~100 members) of diverse viewpoints called together to deal with a challenging question. It has been used for adjusting attendance boundaries when Bradley and Washington were built, for looking at student housing alternatives, and most recently for developing an approach for Pay-to-Participate fees.

What do you think of that? Would you participate?

Election 2011 Comments

2011-11-09T11:02:00.003-05:00

I'll write about my thoughts on the election when I've had a chance to digest the numbers, and we have a final tally on the levy. Meanwhile, feel free to post thoughtful comments here, but be forewarned that I'll not publish comments I find to be hateful, which make personal attacks, etc.

Unfunded Mandates

2011-10-30T16:09:00.001-04:00

One often hears the phrase "unfunded mandates" when discussing the economics of public schools. This is a disparaging term, meant to criticize an action taken by the government - usually the State government - to impose new requirements on a school district, but not providing the funding for implementation.

When drawn into such a discussion, my suggestion to folks is that they're concentrating on the wrong word. Most folks think it's the unfunded part which is the problem. I think it's the mandate which is the root problem. Here's what I mean.

One of the most recent examples of this was the requirement enacted in 2009 by the Governor Ted Strickland and the 128th General Assembly that all public school districts implement all-day kindergarten.

This was a big deal. According to a story that ran in the Columbus Dispatch, Hilliard City Schools had 640 kids who were in half-day kindergarten (of about 1,000 total kids enrolled in kindergarten). Here's how the math comes out:

We can consider 640 kids in school for half-days to be the same as 320 kids in school all day. With an average classroom size of 23.43 for kindergarten (as of the Oct 2011 enrollment data), 320 kids would require 27 teachers. Those teachers would each have 23 kids for the morning, and a different set of 23 kids in the afternoon.

To have these same 640 kids in all-day kindergarten, we would have to double the number of teachers, from 27 to 54.

While our average classroom teacher salary is $69,369, according to the 2010 CUPP report from the Ohio Dept of Education (plus 34% for taxes and benefits, or $90,000/yr total cost), if we were to hire 27 new kindergarten teachers, most if not all of them would be at the low end of the pay scale, around $45,000/yr. With benefits, the cost would be about $60,000/yr for each new teacher, or $1.2 million/yr.

The Dispatch story says our cost would be about $1.7 million/yr. I can accept this number, as in addition to these new teachers, we would have the cost of 27 new classrooms, probably in the form of leased 'modulars' that we'd have to park at every elementary school.

And so the cost of this "unfunded mandate" was seen to be $1.7 million/yr, because the State was telling us we had to do it, but wasn't backing it up with any new money.

Turns out it's a bit more complex than that.

For decades, the State funding model has used the number of students in a school district as the primary basis for determining the amount of State funding that would be granted. Actually the number used is called "Average Daily Membership," or ADM, and it is close to the number of students, but with some adjustments. For example, kids with disabilities are counted as a little more than one student, depending on the severity of disability. In this way, the State helps underwrite the greater costs of serving students with special needs.

In the case of kindergarten, each kid is counted as one-half student, reflecting the assumption that these kids would be in school for only a half-day, therefore creating half the cost burden of an all-day kid.

So with the mandate that all school districts be required to offer all-day kindergarten to all kids, the State did indeed create a funding stream to help support the mandate by simply allowing school districts to count kindergarten kids as a whole kid, rather than a half. This doubles the amount of State funding granted to a district for kindergarten. Does that sound unfunded to you?

But here's the catch: for districts like ours, as well as most suburban districts in Ohio, the funding models had a mechanism called the "Transitional Guarantee," which was created to ensure that in the transition from one funding model to the next, no school district would see a dramatic reduction in its State funding. This guarantee existed in Ted Strickland's Evidence Based Model, and it existed in the model before that (to smooth the transition from whatever was before that model). One could say that the funding model used by Gov. Kasich and the 129th General Assy was nothing but a transitional guarantee approach - allocating new funding based on prior funding and not worrying so much about all the components of the prior two funding models.

For districts 'on the guarantee,' this change in the counting of kindergarten kids wouldn't have much impact on State funding. So from a practical standpoint, the requirement to implement all-day kindergarten would be unfunded for us - meaning we would have to bear the full incremental cost locally. That's the reason the School Board has opted to request waivers from this mandate each year. Fortunately, subsequent to the passage of the last budget bill by the 129th General Assembly, all-day kindergarten is no longer a requirement.

However, this still isn't quite the full story.

We have to step back and ask "where does the State of Ohio get the money it passes out in the form of State funding to school districts?" Of course the answer is that most of it comes from us. According the Budget submitted by Gov Kasich, 80% of all State revenue (excluding that associated with the pass-through of Federal subsidy for programs such as Medicaid) comes from individual income taxes and sales taxes.

According to the CUPP report, the our school system gets back 41 cents for each dollar of State income taxes paid by the people of our community. One could say that this means that to get back $1.7 million per year from the State to fund all-day kindergarten, our State income taxes would have increase by $4 million.

So if we were mandated to implement all-day kindergarten, wouldn't it be better to fund it with a local tax that raises $1.7 million/yr (about 0.7 mills), than to be taxed $4 million more by the State?

Of course I'm oversimplifying things. Funding new things doesn't always have to mean more taxes. In these tough times especially, spending has to be prioritized, and that often means that new programs have to be funded by discontinuing other programs.

But the purpose of this article is to point out that often the most efficient way for communities like ours to fund new mandates is with local taxes. The real fight needs to be over whether the mandate should be enacted in the first place.

If we want to have all-day kindergarten in Hilliard schools, let the people of our community make that choice, and back it up with local funding. Nor do we want the State to be telling other school districts that they must have all-day kindergarten, and then funding it with our income tax and sales tax dollars.

Five Year Forecast: Oct 2011 version

2011-10-25T20:17:00.001-04:00

At the regular School Board meeting on October 24, 2011, the Board, on the recommendation of Superintendent Dale McVey, voted unanimously to accept the latest Five Year Forecast as presented by Treasurer Brian Wilson. For the visual folks out there, here is the forecast in chart form:

click to enlarge

The yellow area in the chart represents the gap between spending and funding. By state law, the District cannot operate without cash reserves, nor can these forecasts - which must be submitted each May and October to the State Board of Education - show anticipated revenue from levies that haven't been passed. That means that we cannot in fact operate the district past FY12 (this year) without less spending than shown in this forecast, more revenue, or both. That's the reason we have a levy on the ballot.

If our 5.9 mill levy issue passes in two weeks, it would make the chart look like this:

click to enlarge

Now the yellow area - the revenue/spending gap - is smaller, but still there. That again means we need to have less spending, more revenue, or both. Let's say that the spending is left as Mr. Wilson projected; what size future levy is needed to close the gap?

Back in April, I wrote an article in which I described the four primary knobs we can turn in the budgeting process: 1) the rate of spending growth; 2) the interval to the next levy; 3) the size of the next levy; and, 4) the size of the "rainy day fund" we want to keep.

So let's say the 5.9 mill levy passes. The Board has committed that it will be at least 3 years before another levy is proposed. Board policy is that the rainy day fund should be kept at about 10% of annual spending, and the Audit & Accountability Committee has recommended that we restore this level of reserves as well.

The spending plan in this forecast is a little unusual. In their current contract, the teachers have been offered an early retirement incentive package that the Administration forecasts will be accepted by 75% of those eligible. Combined with the three year base pay freeze, and the postponement of step increases until 2013, this actually makes our compensation expense go down in FY13. However in FY14 spending is forecasted to rise 2.3%, and then 4.1% in both FY15 and FY16 (it was 4.8% in the years FY03-FY09).

Given those inputs, the size of the next levy would need to be 7.1 mills, which looks like this:

click to enlarge

So what if we lower the rate of spending growth? Note that projected spending has already been reduced compared to the May 2011 Five Year Forecast (the dotted red line). No, I'm not getting caught in the semantics of claiming that there has been a spending cut because one forecast projects less future spending than the last forecast did. There has not been, nor is there projected to be, any year in which the total spending is less than the year before.

Nor am I at this time advocating spending cuts, although that will certainly happen if this levy doesn't pass.

But I think we can and must continue to consider ways to decrease the rate of spending growth. For example, if we lower the annual growth rates for FY15 and FY16 from 4.1% to just 3.5%, we can lower the size of the levy needed in 2014 to 6.1 mills, which would look like this:

click to enlarge

So how do we go about changing the growth rate in spending? Let's look at how the money gets spent:

click to enlarge

As has been long clear to readers of this blog, 88% of our spending is for compensation and benefits. Our spending for compensation and benefits increases faster than the rate of student growth, and it increases faster than the rate of employee (FTE) growth. In other words, the average cost per employee for compensation and benefits is going up.

As you can see in the chart above, that growth rate has been substantially reduced compared to the Five Year Forecast published one year ago (the dotted line). That's because of the projected effects of the early retirement incentive program, and the very real effects of the base pay freeze and accompanying step delays (one step will be eliminated altogether).

However, this is being offset by the increasing cost of benefits, in particular health insurance. Even though the teachers and support staff have agreed to pay 15% of the health insurance premiums (it was 10% in the prior contract, and before 2008 was 0%), the total new dollars we'll spend over the next five years on health coverage will be $6 million more than we spend on increased compensation.

Some advocate demanding that the teacher take pay cuts. I don't. That might have to be put on the table if things get really bad, but we're not there yet, in my opinion. The thing that could really nail us is having the State of Ohio further reduce our state funding. We cannot continue to ask the people and businesses of our community to keep filling the deepening hole created by a bad economy. If there are significant further reductions in state funding, pay cuts might have to become part of the solution to keeping our district solvent.

There are no easy answers. We'll all have to participate in finding solutions. I hope this article helps inform the conversation.

(Part 2)

At M's request, here are a couple of additional charts.

The first is a chart that shows what happens if the levy fails and the approved cuts are implemented. All other assumptions in the Five Year Forecast are kept in place:

click to enlarge

This shows that cutting $10.2 million from each year of future budgets extends the time until we are out of cash by just one more year. Without question, there would be discussion about putting a levy on the ballot again in 2012. If we modify the goal to say that we want to get the cash balance to 7% by the end of FY14, then a 2012 levy of at least 3.6 mills is required, but the interval to the next levy would need to be only two years:

click to enlarge

To make the interval following a 2012 levy at least three years, the 2012 levy would need to be on the order of 5.5 mills.

There are an infinite number of permutations we could explore. but the point remains the same: there are four knobs to twist, pick three and you get the fourth.

There is no right answer. Some people in our community want the Board to spend less, whether that be cuts to academic and extracurricular programming (which reduces staffing needs), or by pay cuts, or both. Others are concerned that we might not be spending enough - that we are depriving the kids of opportunities by not spending more. There is no majority position, only a spectrum of individual opinions.

That's the way democracy works. Candidates run for office, and issues are put on the ballot. The winners get to choose how things go until the next election. If folks with extreme positions are elected, we tend to get legislation that brings extreme changes.

SB5 is the current right-wing example. But we've already forgotten that not so many years ago, the left-wing prevailed, and we got all kinds of legislation that tipped the laws in favor of their views.

This whip-sawing can't be good for Hilliard, for Ohio, or for America. We have to again learn how to communicate (listening is at least as important as talking), negotiate, and live with compromise.

Moneyball and Education

2011-10-20T16:12:00.002-04:00

I read a number of education-oriented publications and blogs, but have rarely come across articles that I thought would be of much interest to folks who come here. But this one by Rick Hess in the EdWeek blog made a point worth passing on.

I haven't seen the movie Moneyball, but I understand the premise. Baseball is as much a playground for numbers geeks as it is for athletes. All kinds of statistics are kept, reported, and memorized by the most left-brained of baseball fans.

The storyline in Moneyball is that one particular numbers geek suggests to a major league manager that the statistics that get all the attention, like batting average, home runs, and RBIs, are perhaps not the ones that are good predictors of future success in winning games. So he proposes using a different set of statistics to predict which players would be most valuable to the team, and how they should best be utilized.

Hess suggests that the growing infatuation with value-added measures and test scores might lead to the same kind of misguided assessment of effectiveness as do the high-visibility statistics in baseball. He's suggesting that in the effort to develop effective measurement systems for education system performance - whether we're talking kids, teachers, or schools - we need to accept that this kind of statistical analysis in the education domain is still in its infancy, and that we have a way to go before this body of research evolves to really meaningful statistics, like the ones the numbers geek derived in Moneyball.

Lots of folks would like to use the standardized test scores and other existing measures to determine all kinds of very important stuff, in particular the allocation of resources and the evaluation of teachers. SB5, if it withstands the repeal initiative, mandates merit-based evaluation of teachers, but conveniently doesn't say how it should be done.

Most teachers I've talked to don't have a problem with the theory of a merit-based system, they just don't trust that it will be administered fairly. Hess's article points out another potential flaw - using the wrong statistics to measure effectiveness.

I spent my career in cahoots with some pretty tremendous sales folks. One of the main challenges of my colleague, the Sales VP, was to come up with an annual commission plan for his sales team that motivated them to sell the right set of products for the right set of terms so as to meet the strategic goals of the company. The sales folks - as smart as they were - would most assuredly figure out how to maximize their compensation given whatever rules the Sales VP set, regardless of whether or not their efforts contributed to meeting the company's strategic goals. So the Sales VP had to put a great deal of thought into how to design the plan to get the behavior and results he was looking for.

We have to take the same kind of care if and when a merit-based system is put into use to determine teacher compensation. Otherwise there will be some unintended and expensive consequences, and we still might not achieve our strategic goals.

Retirement Pickups: Correcting the Dispatch

2011-10-16T13:32:00.001-04:00

The Columbus Dispatch today published a story titled "Is SB5 good for Ohio?" SB5 = Senate Bill 5, the law whose fate is being determined by referendum (Issue 2) on the November ballot.

The story addressed a number of topics, including an often misunderstood concept regarding pension plan contributions called "pickup." Unfortunately, the Dispatch didn't quite get it right.

The first point to understand is that the teachers' pension program is not operated by our school district, but rather by a quasi-State agency called the State Teachers Retirement System (STRS). STRS was created by State law, and the State retains a certain amount of control over its operations. But the primary governance of STRS is handled by a Retirement Board, made up of five elected contributing teacher members; two elected retired teacher members; an investment expert appointed by the governor; an investment expert appointed jointly by the speaker of the House and the Senate president; an investment expert designated by the treasurer of state; and the superintendent of public instruction (ie the State Superintendent) or his designated investment expert.

The STRS pension fund gets its money primarily from contributions made by working teachers and by the school districts which employ them. The maximum contribution rates are set in the law, but may be set to lower numbers if the Retirement Board feels the fund can be kept solvent with smaller contributions (STRS is not solvent, by the way). Currently, the Retirement Board has the contributions rates set to the maximum amounts allowable by law: 10% of the teacher's salary paid by the teacher, and another 14% of the teachers salary paid by the school district.

Article 32 of the Collective Bargaining Agreement between the Hilliard Education Association (HEA, the teachers' union) addresses retirement system contributions. In this article, you see the use of the word "pickup," and it has confused many people over the years, including me. While the language of Article 32 is accurate, if you don't know that "pickup" is a code word in the world of public employee retirement systems, it's easy to misinterpret this section.

Here's what "pickup" means in the context of our contact with the HEA. It DOES NOT mean that the school district (ie we the taxpayers), is paying both the 14% employer and the 10% employee shares. Rather, it is a mechanism which allows the teachers to make their share of the retirement contribution with pre-tax dollars, in a method no different than that used by those in the private sector to contribute to 401(k) plans with pre-tax dollars.
Mechanically, it works like this:

Let's assume that the teacher has 10 years of experience and a Master's degree. According to the pay scale in their Collective Bargaining Agreement, this teacher would have a Base Pay of $64,525. Let's make it $65,000 just to use round numbers.
The employer's share of the contribution to STRS is 14%, or $9,100.
The teacher's share is 10%, or $6,500. This is deducted from the $65,000 base pay, reducing the take home by $6,500.
However, for purposes of the W-2, the teacher's gross salary is reported as $58,500. This is what makes it a "pre-tax" contribution.
STRS recognizes the whole $65,000 for purposes of calculating pension benefits.

There is another code-phrase which gets used in regard to pension payments: "Pickup on the Pickup." This DOES mean that the school district pays both the employer and employee shares. This benefit appears in the contracts of our administrators, and it works like this (go here to see an example, and click "Read More..."):

Let's use the average administrator salary of $90,000
The administrator's share is 10%, or $9,000, but this is paid by the District.
This extra 10% is treated as income as well, increasing the total employer contribution to 14% of $99,000, or $13,860, and the 10% employee contribution to $9,900. This means $23,760 in total is paid to STRS, all by the school district. The administrator has no money deducted from the $90,000 base pay for retirement contributions.
The administrator's salary is reported on the W-2 as $90,000
For purposes of calculating pension benefits, the administrator's salary is reported as $99,000.

I hope this helps straighten out what goes on with retirement plan contributions in our school district. Please let me know if you have any questions.

By the way, the teachers and administrators do not participate in Social Security, neither making contributions, nor getting any benefits.

Reply to a Taxpayer

2011-10-03T20:04:00.000-04:00

A retired gentleman who has been actively engaged in matters concerning our schools recently sent the members of the School Board a very thoughtful message describing why he was going to vote against the levy, Issue 17. The following was my response to him:

Thanks for your note. I'll respond, but please allow me to repeat the disclaimer that my response represents how I feel, and in no way represents the opinions of the other four Board members, or the Administration...

First, I absolutely agree with your economic analysis, and would extend it to say that our goverments have made unfulfillable promises to not only employees, but to the people of the country as well. It's going to take rare leadership and even more rare 'followship' for us to restore economic stability to our country. I'm reminded of a poster I once had which said "Lead, Follow, or Get Out of the Way!"

There is no one description that fits everyone in our community. Some are elderly, barely getting by, and having to make choices between utility bills, taxes and medicine. Some live in million dollar homes, and their tax bills are insignificant to them. More than half the households in our district have no school age children. Others live in extended households with many school age children. Increasingly there are families who were doing okay when both parents were secure in their jobs, but are now struggling after one or both of the parents have lost a job and remain unemployed. There are as many foreclosures in wealthy neighborhoods as in those of more modest incomes.

It doesn't matter whether an organization exists in the public or private sector - when revenue takes a dive, survival is threatened. It is crucial for the leadership to ascertain whether the situation is temporary, and can be weathered with temporary measures (e.g. spending down cash reserves), or whether a structural change has taken place, demanding commensurate structural change in the enterprise.

The American auto industry got this exactly wrong. They thought the "oil crisis" of the 1970s was a temporary situation, and that they could keep selling huge, expensive, unreliable gas-guzzlers once the oil situation resolved. Both management and labor misjudged the situation, creating an opportunity for the Japanese automakers to go from a tiny piece of the market to being the market leaders. Only after near collapse did the American management create world-class products, and the labor unions agree to comp structures which allow for competitive pricing.

Excluding the banking industry, which is still very much screwed up, American businesses have either been successful in restructuring to our 'new normal,' or they've gone out of business. It's been gut-wrenchingly painful, and the pain likely isn't over, but those who have taken the steps necessary to survive so far have a fighting chance.

It's time that the public sector face up to this situation as well. As citizens, and consumers of government services, we may need to be willing to accept a diminished level of service. The Post Office is likely to drop Saturday delivery. I think that would be a good move. I think they should raise the price of stamps as well - especially for junk mail, which is easily 90% of the mail we receive at our house. Are there other government agencies doing stuff we can live with less of, or without, so we can preserve those few things which are truly essential?

And just like the auto industry, we need to have a tough conversation about the number of people we employ in the public sector, and what they receive in compensation and benefits. Senate Bill 5 is a spectacularly clumsy way to start the dialog, but that doesn't mean the conversation isn't needed. Whichever way the vote on SB5 goes in November, we still need to have an honest, empathetic, and solution-oriented conversation with the public sector unions about how to align their expectations for comp/benefits with the capacity and willingness of the public to pay the taxes necessary to support those expectations.

We haven't yet had that conversation in our school district. Most people - whether taxpayer or district employee - don't even understand the issues. So the discussion remains mostly on an emotional level, and that's what this levy vote is going to be as well. With the teachers and staff freezing their base comp through 2013, steps through 2012, and increasing their health insurance contribution to 15% starting this year - had the State of Ohio not reduced our funding by $10m/yr (FY13 vs FY09), then we could have funded the district at our current spending level for three more years with a 2 mill levy, by my calculations. But with the deep State funding cuts, it's going to take the 5.9 mills we have on the ballot to keeps things as they are. Few folks understand this situation.

If this levy is defeated, we have to take $10m/yr out of the spending plan. That's not optional - we have insufficient cash reserves to just hold on until the next State budget and see how that one looks for us. So the Administration recommended, and the Board approved unanimously, a list of cuts which will take place if the levy fails. None of us on the Board want to see that happen, which is the reason I support this levy.

Some in our community are angry about this cut list. They feel the community - and our kids - have been taken hostage, and the 5.9 mills is the ransom payment. That's it not so much a 'cut list' as it is a 'threat list.' I understand that. It does feel that way if you don't understand the economics.

But if 90% of our costs are determined by how many folks we employ and how much we pay them, and if the 'how much we pay them' is set by collective bargaining agreements, then the only option available to the Board when spending must be reduced is to reduce the number of folks we employ. That results in a cut list exactly like what has been presented.

There are some in our community who feel the $10m/yr spending reduction can be achieved by having the teachers, staff and administrators take pay cuts. With ~1700 FTEs, that would be base pay cuts averaging $4,700 (+ 25% benefits), or 7.3%. Interestingly, this is the same percentage increase one gets with a 3% base pay increase and a 4.15% step increase (compounded), which were the terms of the 2008-2010 HEA contract. I am not advocating pay cuts at this time, but respect the reasoning of those who are. At least they understand the math.

So I go back to the point that we need to have a reasoned and empathetic conversation with all the stakeholders - parents, non-parents, business owners, and employees - and figure out a long term strategy for funding our schools. It can't be a static strategy - it looks like the Statehouse is going to swing to extremes from election to election for the foreseeable future. But there has to be some thought put into a few different scenarios so the people of the community and the employees know to expect X if Y happens.

We're not going to have that conversation until more folks understand the problem in economic terms, not just with their emotions.

The 1.7 Mill Levy

2011-09-16T23:35:00.000-04:00

Conventional wisdom concerning school levy issues is that about 40-45% of the voters will always vote against any tax increase, and 40-45% of the voters will always vote to support our schools, regardless of the levy size.

I don't know if those numbers are real, but I suspect that they're not that far off. If so, it means that any school levy election is decided by two things: a) who decides to show up from the Always-Yes and Always-No groups; and, b) the 10-20% of the voters who are undecided.

I suspect that the reason the levy issue didn't pass in May was that the Always-Yes folks didn't show up in sufficient numbers. But then, hardly anyone showed up at all - fewer voters than we have students in the District.

I wish there weren't these huge sets of Always-Yes and Always-No voters. Neither represents healthy democracy in my opinion. It's the reason Congress has become so polarized, making it difficult and frustrating to work anything out. Consequently, the legislation they develop swings from one extreme to the other, passed in one term and reversed in the next. That's got to stop before it tears our country apart.

My consistent position over the years I've been writing this blog has been that we need to first educate the community about the basics of school economics and then collectively debate and negotiate until we arrive at a compromise position which an overwhelming majority of the voters - on the order of 80% - will support on Election Day.

Instead, we allow ourselves to come to Election Day without having had that period of debate and compromise, and consequently have to live with the unpredictability of an election of voters who make decisions based on ignorance and emotion.

So my goal for these many years has been help folks understand the key elements of school economics in the hope that more folks would engage in the debate, and in doing so, provide direction to the School Board as to what they want their School District to be, and how much they're willing to invest to make it so.

We still have a way to go, but I feel progress has been made - through the efforts of many folks. Today most people understand that we spend nearly 90% of our operating budget on the salaries and benefits of our team of teachers, staff and administrators. There's nothing wrong with that. In fact, we should want most of the money spent on the people who have the most direct contact with the kids.

More of us now understand that when we have discussions about the need for more funding, it's really about how many people we want to employ, and how much they will get paid. It's not about paper clips and stadium lights. It's about people. The purpose of levies is to expand the staff and/or to pay them more.

But this time around, there's something different is going on, and it's significant: A radical decrease in State funding.

It didn't matter who was elected Governor or who controls the Statehouse, the Governor and the General Assembly were going to have to deal with a budget shortfall in the biennial budget on the order of $8 billion. That shortfall wasn't so much due to excessive spending growth as it was that the US economy tanked, reducing significantly and rapidly the personal and corporate incomes which are the primary basis of tax revenue for the State of Ohio.

Education represents one of the three primary spending categories for the State of Ohio; the other two being Medicaid and the operation of our prison system. So there was no question that the State would need to consider making cuts in these three categories to have any shot of closing this huge deficit.

That's the reason the Governor is seeking to sell some of the prisons and turn them over to private contractors. I'm not saying that it's the smart move - only that it had to be an option on the table. Likewise, some tough choices might still have to be made in regard to Medicaid.

Education took its share of cuts and more. Every school district in Ohio receives some amount of funding from the State of Ohio, inversely proportional to the affluence of the school district, as measured by its collective property values. By that standard, Hilliard City Schools comes out on the more-affluent end of the spectrum, and consequently receives a smaller portion of its funding from the State - about 34% in 2010 (according to the CUPP Report published by the Ohio Dept of Ed).

Still, we shouldn't complain - Olentangy spends only 80% of what we do per pupil (because they have lower personnel costs, because their teachers are younger), and still gets only 16% of their funding from the State. Compare that to Hamilton Local Schools which receives 66% of its funding from the State, equal to 1.5x the per-pupil State funding (in dollars) that we receive.

The Governor and General Assembly did indeed choose to balance their budget in part by cutting State funding to public school districts, taking more money from the affluent districts than it did the poor ones - and I don't disagree with this approach.

Our share of the bill is on the order of $10 million per year, calculated by comparing the amount of State funding we received in FY09 to what we are projected to receive in FY13.

I should note that I included the accelerated phase out of Personal Property Tax reimbursements in this calculation. While Personal Property Taxes are technically a local tax in that the revenue is collected from local businesses and distributed the local school district, the tax rate - indeed the very existence - of PPT is set by the state government rather than by local levy vote. That makes it a state tax in my opinion.

So what's this stuff about a 1.7 mill levy?

It's simply this - at the new valuations of all the properties in our school district, 1 mill of new taxes will collect about $2.375 million/year of revenue. Divide that into $10 million, and you get 4.2 mills.

The levy issue the School Board has put on the November ballot is 5.9 mills. That means only 1.7 mills of that money will be used to fund spending growth. The rest just replaces the State funding that has been lost.

People have asked me why - if 90% of our spending is on compensation and benefits, and the teachers and staff have accepted a salary freeze until 2013 - do we need any new funding at all? The answer is that our current spending is already greater than our current revenue, to the tune of $3.3 million in FY11, the equivalent of 1.4 mills. So the 1.7 mills is needed to cover that and to preserve a 8% cash reserve, which is still less than our 10% goal.

If the community votes to deny this levy, then there is no choice but to reduce spending by at least $10 million per year. The 'cut list' presented is how that spending reduction would be implemented. We'll also go to a Pay-to-Participate fee schedule that I'm sure will deny opportunities to some kids in our community.

I for one would not like to see that happen. That's the reason I'll be voting in favor of this levy. I hope you will consider doing so as well.

Hilliard Comprehensive Plan

2011-09-05T11:56:00.000-04:00

Let me start by apologizing for the length of this article. I'm still learning how to be more concise, but my training is in engineering and business, not journalism. I think this is important stuff, and hope you have the patience to wade through what this 30+ year resident of our community has learned in the past six about community economics. It certainly woke me up, and I hope it motivates you to action as well.

Whether you live within the boundaries of the City of Hilliard or not, as a member of the Hilliard City Schools community, the City's new Comprehensive Plan should be of interest to you.

But the first thing to clear up is that the City of Hilliard and Hilliard City Schools are two distinct and separate government entities. The Hilliard City School District is not 'owned' by the City of Hilliard, nor does the Mayor or the City Council have any more authority over the schools than they do any commercial entity within the City's boundaries. The Board of Education of Hilliard City Schools is an independent, elected legislative body, chartered to operated a public school district under the laws and regulations of the State of Ohio.

The boundaries of the Hilliard City School district were set by the Ohio Board of Education many decades ago, and have not been expanded since. In fact, the area served by our school district has shrunk in the past 20 years under the terms of the Win-Win Agreement which specifies, among other things, that when undeveloped land in a suburban school district is annexed to Columbus, that land automatically transfers to Columbus City Schools. The best example of this is the large tract north of Hayden Run Rd, between Cosgray and Avery, which became part of Columbus City Schools when it was annexed to Columbus a couple of years ago.

City and township boundaries have been shifting more or less continuously since the start of the suburban housing boom in the 1970s, which was triggered by the 'White Flight' that followed implementation of court-ordered busing to achieve racial desegregation in Columbus City Schools. Although our school district has always been comprised of the entire City of Hilliard and some or all of Brown, Norwich, Franklin, Prairie, and Washington Townships, some of the land that was in the townships has been since annexed into the Cities of Columbus and Dublin.

The whole purpose of the Win-Win Agreement was to keep these parcels in our school district after annexation into the City of Columbus. This was desired by the homeowners who built homes on these annexed parcels (I was one of them!), and also by the real estate developers who knew that if their land was reassigned to Columbus City Schools, its value for home building would be about zero.

I first became involved in local politics when I was invited to participate in the development of the 2005 Comprehensive Plan for Brown Township (warning: 50mb document!). It was then that I came to understand the connection between the development policies of municipalities and the economics of school districts.

This is it in a nutshell: Local school districts are funded by three sources: a) property taxes on farms and residences within the district; b) property taxes on commercial property within the district; and, c) grants from the State of Ohio. Therefore:

If the funding from the State of Ohio, and the taxes generated by new commercial property do not grow at the same rate in which the school district's spending is growing, the incremental funding burden falls fully on the existing homeowners, businesses and farmers in our community.

Before anyone starts yelling at me, let me say that I do acknowledge that raising taxes isn't the only way to align revenue with spending. We have to be willing to dig into the spending side too. But let's address that in a later article - this one is about the effects of a city's development policies on a public school district.

Because of the current state of our economy, we haven't had to worry about new residential development for the past few years. It wasn't so long ago that we were opening a new school every year. For now the growth pressure is off. Our student census grew from 15,029 kids in 2007 to 15,635 as of last week, an annual growth rate of just 0.6%.

But if we wait until housing demand heats up again to talk about the City's development policies, it will be too late. I think we need to talk about this now - while the Hilliard City Council has this new Comprehensive Plan under consideration.

The largest remaining tract of land suitable for residential development lies west of Alton-Darby Rd, between Hayden Run Rd to the north and Roberts Rd to the south. Much of this land is already owned by large home builders, notably Homewood Homes and Planned Development.

In 2000, the City of Columbus placed this tract in an "Environmentally Sensitive Development Area," and refused to extend water/sewer service into the area until all the municipalities in the Big Darby watershed came together to develop a common agreement for how this area would be developed.

That argreement is the Big Darby Accord, and includes all the land between Alton-Darby Rd and Big Darby Creek. I've never quite figured out all the political maneuvering associated with the crafting of the Big Darby Accord, but I know that it was a time of frustration, especially for the developers who wanted to open this tract to homebuilding while the market was hot. I've always suspected that the abandonment of the Grener Property near Homestead Park as the site for our third high school (the school district still owns this land by the way), and the selection of Emmelhainz property was the result of such maneuvering.

The Brown Township Comprehensive Plan specifies that this land to the west of Alton-Darby Rd is to be developed in a 'conservation' style, meaning that the typical rural development pattern of single family homes on 5+ acre lots would be abandoned, and instead homes would be arranged in to dense clusters surrounded by substantial open space.

The Big Darby Accord repeated this specification, and I'm happy to say so does Hilliard's new Comprehensive Plan (see Chapter 5). It says that the development density will be one home per acre, but with 50% open space. This means 100 houses can be built on a 100 acre tract, but all the homes must be concentrated on 50 acres, and the remaining 50 acres left as open space.

What we don't know is if the economics of this will work out for the developers. After all, they have much experience that tells them that people are willing to buy fairly expensive homes sited at 2-3 to an acre, and entry level homes packed in at 4-6 homes per acre. Why would they ever want to leave 50% of their land undeveloped?

It's going to take developers who are willing to try something new, and a city government willing to stick by its guns, even if the developers start crying that this conservation development isn't working for them.

So why do the rest of us need to care which kind of development approach is used?

Because it is one of the primary drivers of future revenue demands, for both the schools and the municipalities!

The average new dwelling in our school district will add 0.8 new school age kids to our school population. Since we currently spend $11,475/kid to run our school district, the building of a new house adds $9,180 in new expense (yes, I understand the difference between fixed costs and variable costs). If the average new home costs $200,000, then it will generate roughly $5,000 in property taxes.

Who funds the other ~~$6,475~~ $4,180?

It's not the State of Ohio. Even before the State got into its own budget mess, the incremental funding for new students had been approaching zero. In the current biennial budget, the funding from the State of Ohio has gone down - substantially. It's one of the key reasons that there's a levy on the November ballot.

Nor are we seeing much new revenue from commercial sources. There has been some, notably the construction of the building housing BMW Financial. But we haven't seen much of that lately, and one of the most promising projects, the Hickory Chase retirement community, flamed out before it was ever occupied, and is currently $1m behind on its property taxes.

So the answer is that the ~~$6,475~~ $4,180 has to be picked up by the rest of us - the current homeowners and business owners in our school district.

The deal the City of Hilliard has with the City of Columbus allows the construction of 2,000 new dwellings in the tracts along Alton-Darby Rd. That means 1,600 new kids times ~~$6,475~~ $4,180, or $10.4 million that we have to subsidize. This would require ~~4.4~~ 2.8 mills of new property taxes.

If the developers chicken out on the conservation development approach and convince the Mayor and City Council that they need to go back to their old way of doing things and the City of Columbus is convinced to provide the necessary water/sewer service, then we could potentially see 10,000 homes built on this tract.

That would mean 8,000 new kids, and ~~$52~~ $33 million in subsidy required, or 22 14 mills!

I'll admit that I'm engaging in a little sensationalism. The housing market isn't going to heat up all that quickly, and the City of Columbus is unlikely to provide additional water/sewer capacity to the area until they are assured that someone else will pay for the necessary new main pipelines, water towers, and sewer pumping stations.

But we - the people of the community - got caught sitting on our hands during the last housing boom. We ended up with crowded schools and rapidly escalating property taxes as a result.

It will happen again during the next rise in housing demand if we don't pay attention to what the Hilliard, Dublin and Columbus city governments intend to let happen within the boundaries of our school district.

Another thing we need to pay attention to is the use of Tax Increment Financing, or TIFs, by the City of Hilliard. This is a mechanism made available by the State of Ohio to municipal governments. It allows the municipality to redirect the property taxes on a new development, whether commercial or residential, to fund infrastructure projects in the municipality.

This would be all well and good if the redirected property tax revenue would otherwise go to the city anyway. But it doesn't - it's not their money! Rather it's the key revenue source for the local school district and other agencies. In our community, that includes the Norwich Twp Fire Department, which provides fire/safety services for many of us.

So many of us on the School Board were alarmed when the City of Hilliard granted a TIF to Schottenstein Homes for their new residential development at the corner of Alton-Darby Rd and Roberts Rd. That TIF was used to fund the construction of the new realignment of the Roberts/Alton-Darby intersection.

In other words, revenue was taken away from the school district to pay for a road. The last I checked, public roads are the responsibility of the City or the County - not the school district. Several members of the School Board let the Hilliard City Council know that we objected to this use of our revenue. I made comments during the City Council meeting when this TIF was being considered, stating that this was a bald political maneuver - allowing the City to get a new road at the expense of the School District, essentially making the School Board be the bad guys for raising taxes.

The Norwich Township Trustees also spoke at this City Council meeting, making substantially the same point.

In their new Comprehensive Plan, the City of Hilliard makes it clear that they intend to continue using TIFs. TIFs aren't a new thing for the City of Hilliard, but they are being configured in a new way. The law says a municipality may redirect up to 75% of the property taxes without permission of the affected school district. In the past, TIFs have been like the one granted to BMW Financial, in which the School Board gave the City of Hilliard authority to grant a 100% TIF, but the TIF agreement specified that the school district would receive 100% of the revenue it would have otherwise received.

This one for Schottenstein Homes is different. The City granted a 75% TIF - which it can do without permission of the school district - for the multi-family part of their development, but will not attempt to keep the school district whole. This is why I say that the school district is funding the new Roberts Rd connector. I recall hearing the City leaders state that the multi-family part of this Schottenstein development would be for folks aged 55+, like their Tremont Club development, and therefore would not be bringing new kids to the school district. That made the TIF a little more palatable.

But those plans have apparently changed. Instead, Hilliard Summit is to be an apartment complex without age restrictions. The web site even shows a photo of a couple with young children. So it seems to me that not only is the school district losing out on critical new funding, there is also the potential that a number - maybe a large number - a new kids will come from this development. In today's real estate market, more families are choosing to rent rather than buy a house, and upscale apartment complexes in desirable school district may be in high demand.

So the school district might get double-screwed in this deal: no new tax revenue and more kids. And that means even more tax burden on the rest of us as we subsidize the cost of educating those kids.

As much as I've complained about the City of Hilliard in this article, the City of Dublin has its own strategy to protect its economics at our expense. At a meeting last year at Bradley High School, a representative from Dublin's planning department told us that Dublin's master plan keeps all new commercial development in the Dublin school district, and puts only residential development in the Hilliard school district. So we get the kids, and they get the commercial revenue. Thanks for being good neighbors.

By the way, their school district's service facility and bus garage is within the boundary of our school district, as is Upper Arlington's. In both cases, they're occupying valuable land zoned for commercial uses, but as government entities, pay no taxes to our school district. Meanwhile, they preserve their own commercial land for revenue-paying businesses.

The City of Columbus is often painted as the bad guys in these matters. But we have to remember that while there has been about the same amount of residential development in the Columbus part of our district as there has been the Hilliard part, the amount of commercial development in the Columbus part has been double that in Hilliard. That whole huge retail zone at the intersection of Hilliard-Rome Rd and Trabue/Renner is in our school district, and it is contributing a substantial amount of funding to our operations.

A couple of new members will be sworn onto the Hilliard City Council this January - Nathan Painter and Joe Erb. Nathan was a member of our school district's Audit and Accountability Committee, and through that process had the same kind of awakening I did to the realities of the school district economics, and the role the municipalities play in helping create economic sustainability for the schools. His voice on the City Council will be vital.

But it is also vital that you understand and speak up about these things. Our school district can't raise new revenue by any means other than asking you to raise your taxes. Only a municipality, like the City of Hilliard, can control how and at what pace our community develops. If they make sure that there is plenty of new commercial development to subsidize the cost of all the kids that come with new residential development, then our school district has a chance.

If however, the City of Hilliard just allows thousands of new residences to be built without corresponding commercial development, the tax burden on all of us will continue to escalate. Or the breadth and quality of programs offered in our school district will continue to diminish. The only winners will be the real estate developers and their friends.

Meanwhile, if the City of Hilliard wants any more new roads or water lines or sewers, let them raise taxes to pay for them and quit using the school district as a piggy bank.

Special Board Meeting to Discuss the Cut List

2011-08-17T10:36:00.000-04:00

HILLIARD CITY SCHOOL DISTRICT

BOARD OF EDUCATION

NOTICE OF SPECIAL MEETING

(RC 3313.16)

Notice is hereby given; there will be a SPECIAL meeting of the Board of Education of the Hilliard City School District on MONDAY, AUGUST 22, 2011 at 5:00 P.M. located at the Hilliard City School District Administration Annex, 5323 Cemetery Road, Hilliard, Ohio. The meeting will be a work session held in regular session to discuss regular business as deemed necessary by the Board of Education and any other business that may be lawfully considered. The regularly scheduled meeting will be held immediately following the special meeting and will begin at 7:00 P.M.

The meeting is called by Brian W. Wilson, Treasurer/CFO of the Hilliard City School District Board of Education, at the direction of the President of said Board.

August 17, 2011

Signed:

Brian W. Wilson, Treasurer/CFO

Hilliard City School District

Board of Education

The Cut List

2011-08-10T14:15:00.001-04:00

At the Aug 8 School Board meeting, this draft "cut list" was presented by the Administration to the Board. It is the Administration's top-level recommendation of what should be eliminated from programming and services should the operating levy issue fail in November.

I'll write more about this as soon as I have the opportunity, but wanted make sure all of you saw it.

Again, this is a draft version - the final version will be determined after further information gathering and discussion by the Board. I'd certainly like to hear your thoughts before that discussion takes place.

Please keep your comments civil and productive. I'd also like to impose this rule: If you want to see something taken off the list, then make a recommendation for what programs/services of approximately equal cost should take its place. And please indicate whether you have any "skin" in your answers (ie you now, or will likely have a kid involved in whatever you advocate keeping/cutting).

It would also help if you post your comments using a unique moniker. Just click the pull down arrow in the "Comment as:" box (an example image only shown here, scroll down to actually post a comment)...

... and select "Name/URL", then in the dialog box that comes up just fill in the "Name" box with something unique (and tasteful!). You can leave the "URL" box blank.

Looking forward to hearing from you.

Pleasing Everyone

2011-07-30T11:34:00.006-04:00

You'd have to be living under the proverbial rock to not know that there is a battle royale going on in our nation's capital in regard to raising the Federal debt limit. And I'll go on record as being one of those who believes that if the US Treasury defaults on its obligations, it would put our country on a path with known and completely unexpected consequences that will negatively impact us for a long time - maybe a generation or two. Maybe forever.

Nonetheless, the resolution to this situation is not in our hands. It will or will not be settled by our elected representatives - all we can do is watch and decide whether or not we'll vote for their re-election next time they're on the ballot.

We can be confident that each and every one of the 535 members of Congress, as well as the President, are looking for ways to collect favors and make side deals that don't often get put on the table except in a high stakes situation such as this one. I'm not particularly surprised that they're waiting to the last possible second to close their deal-making, because some the of side deals will get better the closer to the deadline we get.

I'm highly confident they'll figure something out before a financial meltdown. Otherwise I'd be buying all the gold I could afford right now.

In a little more than three months, we'll be in an analogous situation in our community - trying to deal with the tough issue of a school tax levy. But the process is different in a significant way: you - the members of the community - get the last vote.

Within two weeks, the Hilliard School Board needs to submit the resolutions necessary to put a levy on the November ballot, with the first step taking place at the special August 1 meeting, followed by the resolution to place the issue on the ballot, which is planned to be on the agenda for the regular August 8 meeting. At that point, the "knob-turning" debates will be over, and the levy size will have been selected. In terms of formal process, at that point the School Board is out of the levy game for this cycle.

Then it will be up to you - the voters of our community - to decide whether or not the right number has been nominated by the Board. Or more precisely, we'll find out whether the 50%+1 of the voters who bother to show up can live with the levy size the School Board has settled on. The rest of the community will have to live with their decision.

It's too bad it comes down to this set of YES/NO decisions, first by the School Board, and then by the community. Whatever number the School Board nominates will be too much for some, not enough for others, and about right for the rest.

But the levy either passes or it fails.

Wouldn't it be interesting if Ohio law allowed for multiple-choice levy options. We could for example make the choices 0, 4, 8 and 12 mills, and each voter picks the levy size acceptable to her/him. Then the levy put in place would be the one with the most votes. Or perhaps better would be to use a weighted average - if 10% voted for 0 mills, 50% for 4, 30% for 8 and 10% for 12, the levy that gets enacted would be 5.6 mills.

The best thing about that kind of approach is that the matter is settled on election day. A levy of some size will be enacted, allowing the Board and Administration build a budget where spending fits the revenue.

But that's not the way it works. On election day, the voters will have one choice, and the levy passes or it fails depending on tally. Either the full amount of new funding is provided, or none at all. If it fails, cuts are made, and the whole process starts over.

That's not to say the Board and Administration still doesn't have work to do. The cost of compensation and benefits will always drive the economics of our school district, and this the product of the salary and benefits cost times the number of employees.

Using the data published in the 2010 Comprehensive Annual Financial Report, the number of students per full-time employee equivalent* has dropped from 10.28 in FY01 to 9.79 in FY10 (however, the relationship between students and Regular Classroom Teachers has remained fairly constant at 20 to 1 during that whole decade).

The change from 10.28 to 9.79 may not sound like much, but if the 10.28 for FY01 were kept constant through FY10, the total number of FTEs* employed today would be 75 less (23 fewer teachers/tutors and 52 fewer in other roles). If the average cost of an employee is about $80,000 (per FY10 numbers), then 75 people cost $6 million/yr.

As I have said, the new union agreements go a long way toward holding down our spending growth, and the I'm thankful for that. That was a "big knob," and the most important knob to turn in this process. Now we have to start looking into finer detail.

And the community needs to tell the School Board how much more it is willing to contribute to funding its public school district, recognizing that the State of Ohio has reduced its funding to us by the equivalent of 3.3 mills.** In other words, a 5.9 mill levy would replace the 3.3 mills the State has taken away from us, and provide 2.6 mills of new funding.

That seems pretty reasonable to me.

* Because the method for counting Full Time Equivalents (FTEs) for bus drivers changed dramatically in the past few years, bus drivers have been excluded from this analysis.

** In FY09, our state funding was primarily made up of $37m in Unrestricted Grants, $18m of reimbursement for state mandated property tax rollbacks and the phase-out of Personal Property Tax (PPT). Actual PPT collection in FY09 was $8.5 million, making the total state funding approx $64m.

For FY12, the Unrestricted Grants will be $34m, reimbursement will be $19m, and actual PPT collection will be $3.8m, making the total $56.7m, or $7.5m less than in FY09.

Since each 1 mill of property taxes will generate approximately $2.3m/yr, the loss of state funding is equivalent to 3.3 mills of local funding.

Levy Step 3.0 - Selecting the Parameters

2011-07-09T14:08:00.003-04:00

The last item on the agenda of last week's School Board meeting was a discussion of an operating levy in November. The discussion was inconclusive.

As I described earlier in "Four Knobs," a levy isn't just about the millage. I believe that the School Board must inform the community of its intentions in four dimensions:

The size of the levy.
How long the Board commits to waiting until the next levy is put on the ballot.
What rate of spending growth the levy is intended to fund.
How many dollars will be kept in reserve (ie in a 'rainy day' fund)

Unless the School Board discloses its intentions in regard to all four of these parameters, I believe that the public doesn't really know what it is 'buying' with a decision to increase property taxes.

At the Retreat two weeks ago, we had consensus that we want it to be three years or more until the community is again asked to raise its taxes. That's one parameter down, three to go.

For my own decision process, I selected the rate of spending growth as the next 'stake in the ground.' In the current Five Year Forecast, the annual growth rate for the period FY13-FY15 is 4.8% after backing out the 'make work' numbers that were inserted in order to allow the certification of the new union agreements.

I think a 4.8% annual growth rate is too high for our current economic situation. In dollars, it is about $7.8m/yr, which is larger than any year-to-year increase in the last five years. In other words, while the new union contracts help a great deal by freezing costs over the next three years, this 4.8% annual growth rate puts us afterward right back on the same spending trajectory we were on before the new contracts.

I'd like to see our annual rate of expense growth reduced to about 3.5%. Note that I didn't say we should reduce spending by 3.5%. I said that we should restrict the rate of spending growth to about 3.5%. In dollars, that would add about $5.5 million dollar per year to our FY13 budget of $159 million.

... that's two of the four: levy interval (3 years) and expense growth rate (3.5%).

Next, I believe we should have a goal of restoring our cash balance to at least 5% by the end of FY15. That won't be without cost. I estimate that it will require about 1.3 mills of our next levy just to get us back to a 5% cash balance by the end of FY15 (we'll run out of money in FY12 without a levy or more than $3 million in spending cuts). But we need to keep some cash reserve on hand to create 'wiggle-room' to deal with unexpected expenses. The current Board policy, set in 2006, is that this operating reserve will be kept at 10% of our annual operating expenses, which in FY11 would be about $16 million given our annual spending of $160 million. In recent years, this has been as low as 4.4% in FY05 and as high as 12.2% in FY07.

That's three of the four parameters, and once you have three, the fourth is determined. In this analysis, the fourth parameter is the levy size. My calculations show that the answer is 5.9 mills in Nov 2011 and around 5.9 mills again in 2014, the three year interval.

What if we don't want the next levy before 2015 - an interval of 4 years? Keeping the spending rate and cash reserve target the same, that means we need would need a levy of at least 6.4 mills. And there are many other scenarios we could talk about. Here are some I've been looking at in this process (warning: 3.5meg file).

Last September, the School Board was asked by the leadership of the Columbus Metropolitan Library System to pass a resolution in support of their new levy, which appeared on the November ballot as Issue 4. I voted against this resolution, which passed 3-1 (Dave Lundregan was absent due to a business conflict). My reason was that the Library system was asking for a levy large enough to fund their operations for a 10 year interval, and I didn't feel comfortable turning over that much money to them, and trusting their current and future management to use it as promised.

I have some of the same concerns in regard to our own school district. While few of us like the idea of having a levy issue on the ballot every 3 years, the reality is that - given any particular rate of spending growth - the longer you make the levy interval, the larger the levies have to be. And it also means that in the first years of a levy designed to last 4-5 years (or 10 as was the case with the Library levy), there will be large cash reserves in the early years, and it could be pretty tempting for future School Boards to dip into those funds, forcing an early return to the ballot.

So it seems to me that a three year interval strikes a reasonable balance. It's significantly less annoying and painful than every other year, but it's frequent enough to keep the levy size somewhat palatable. I also think it doesn't hurt that it forces the District leadership to stand before the people of the community and be held accountable for the way their money has been spent, if people care to ask the tough questions that is.

So here's the numbers I'd like to see for this levy:

Interval to the next levy: at least 3 years
Rate of Spending Growth: 3.5% per year (with a stable student population)
Cash Reserve Target: 5% by the end of FY15
Therefore: Levy Size: ~~5.6~~ 5.9 mills

Graphically, it looks like this:

click to enlarge

What happens next will depend on how important President Maggied feels it will be to have a unanimous vote on the levy resolutions. Ohio law requires that 4 of the 5 Board members must vote in favor of the resolutions necessary to submit a levy issue to the Board of Elections. So it is possible for a levy resolution to go forward without my vote.

However, I remain open to considering other combinations of the four parameters provided a meaningful reduction of the planned rate of spending growth is part of it.

As always, I appreciate your input.

Retreat 2011 - After Action Report

2011-06-25T16:23:00.003-04:00

It was a good two days.

Long time readers of this blog know that I have been critical of the annual Board retreats, not so much because of what was discussed as much as what wasn't. Namely the long-term economic outlook.

I felt this year was different. After the routine matters were quickly dealt with Thursday evening, the rest of that session was devoted to discussing economics. I described to the group my "Four Knobs" approach to looking at fiscal structure - which is that once you set the goal for three of the four parameters: spending growth rate, cash reserves, levy size and levy interval - the fourth is determined.

I suggested that the first 'stake in the ground' should be the interval to the next levy - and that it should be at least three years. There seemed to be general agreement that this was a good target.

No doubt, some will say that any more levies are too much. Others will demand evidence of "cutting the waste" be presented before any levy gets their yes vote. We'll hear about school buses that always seem empty, or lights left on at the football fields when no one is there, and how we have too many highly paid administrators.

In truth, what we have is a school district which has evolved - from the very good, smallish and rather ordinary school district which was Scioto Darby Local Schools back when we moved here over 30 years ago - into a school district which is among the 10 largest in Ohio, offering a rich array of programming and services, and which excels in academics, performing arts, and athletics. We are one of a handful of the 600+ school districts in Ohio which has been rated by the State Board of Education as "Excellent with Distinction" three years in a row.

Attached to every one of those programs and services - added incrementally over many years - is a constituency. Also attached is an expense stream. We know that nearly 90% of our operating budget is spent on compensation and benefits. That's because every program and service is provided by a person. Or a team of people. Good people. Talented and experienced people.

The catalyst for Hilliard's rapid growth was the strife created by the Penick vs. Columbus Board of Education lawsuit in the late 1970s, which ended with the Federal court ordering the implementation of busing to achieve racial integration of the Columbus City Schools (a failed effort), which in turn motivated many families to seek housing in the suburban school districts. The suburban building boom started in the late 1980s, when the economy began heating up, and most of us were feeling pretty good about the economic future.

And so the student population of our schools boomed as well. Prior to 1988, the last new school building opened in our district was Britton Elementary in 1968 (which was being used as a "Freshman Building" when we moved here). Then in the period between 1989 and 2002, we constructed 13 new school buildings - a rate of one per year.

Each of those new buildings required a new team of teachers, staff and administrators. Many were teachers just beginning their careers, and consequently at the bottom of the pay schedules.

Those who were hired during this period of rapid expansion are now 20 or more years into their careers, and consequently are in the upper half of the pay grid, where there are no step increases. This is approximately 35% of the teachers.

Let's pause to recognize what the new collective bargaining agreements means to these folks: their last pay increase was January 2010, and they won't get another one any earlier than January 2014 (what happens after this contract expires is yet to be determined). In other words, our most experienced employees - the ones who were instrumental in building this District into what it is today - will have their pay frozen for four years, and by the way will also be making a slightly larger contribution to their health insurance coverage, about $60 more/mo for family coverage.

So our compensation costs have risen at the rate they have over the past 20 years largely because we have a huge body of employees who were hired young and have been since steadily marching through a fairly aggressive step schedule accompanied - until the last year - by 3+% base pay increases.

If our growth period as a district is over, then we could enter a time of much slower compensation growth as more teachers and staff advance past the years when step increases are applied. Our average compensation would still be much higher than it was 20 years ago, but the year to year changes would be expected to be smaller.

Having smaller growth in compensation costs ties right back to the Four Knobs. That is, if the rate of compensation cost growth slows, it would allow for less frequent and/or smaller levies going forward.

Andy Teater made an important observation in this regard: that if many of our most senior teachers accept the early retirement incentive offer that was part of the most recent contract, then the teachers we hire to replace them will receive much lower pay (about half) than the senior teachers, but they'll also be receiving step increases for a number of years.

A school district with a stable population tends to also reach a stable cost of labor. The number of teachers and other staff remains relatively constant, as does the distribution by length of service. In that circumstance, the year to year change in personnel costs is likely to be driven as much by rising health insurance costs than salary increases.

At this moment in time, we are not a rapidly growing district, but we still have thousands of acres of developable land within our boundaries, including most of the land surrounding Bradley High School. If and when the market for new homes takes off again, we'll again become a high growth district -- if our school district remains desirable. And remember, that if we aren't a place where people want to built new homes, we won't be a place where people want to buy our existing homes either. Low demand = low selling prices. Not good.

The decisions we - Board and Community alike - make over the next four months will set the tone for the future of our school District. The Board seems to be in agreement that we want to aim for at least three years before asking for another levy. We still have to settle on the levy size (and structure), and the rate in which will allow our spending to grow. We also need to decide what level of cash balance (call it the 'rainy day fund') we want to hold, and how quickly we want to get there.

The Superintendent calls our current situation a 'financial crisis.' I cringe at the use of that word - it implies "out of control" to me.

It's really a decision point. We have to decide how to twist the four control knobs. For those who want to go after the rate of spending growth, I'll suggest that the teachers and staff have done their part by agreeing to go three more years without base pay increases.

That means that to further cut the rate of spending growth means reducing headcount (ie layoffs), which requires cutting programs and services. The common refrain is "Cut program X (which I don't care about), but retain program Y because it's important to me." If you think this problem is easy, just observe all the people who have showed up to object about the cuts after the failure of the levy in May. As I said, every program and service has its constituency.

Or we can leave the rate of spending growth as forecasted, and pass a levy big enough to support it.

Or we can keep defeating levies and watch one of the top school districts in Ohio get disemboweled one program at a time.

There's only one stake in the ground right now: 3 years to the next levy. What do you feel about the other three?

Retreat 2011

2011-06-18T09:31:00.001-04:00

The Hilliard School Board will be holding its annual planning Retreat next week, starting with a 6pm session on Thursday June 23, and continuing into another session on Friday June 24, starting at 8am. Because of this meeting, the regular Board meeting scheduled for June 27 has been cancelled.

This will be my second Retreat as a Board member, although I observed the Retreats in 2008 and 2009 as a member of the public, making this the fourth in which I have been present (you are welcome to attend as well).

This Retreat has to be different than the prior three. When we were asked by President Doug Maggied for suggestions as to agenda items for this retreat, I asked that the focus of this retreat be on strategy, and in particular, the financial component of our strategic plan.

In past years, the bulk of the time has been allocated to briefings given by the department heads. It is good to know this information, but I look at it this way - our District is performing well in all aspects: academics, performing arts and athletics. That's an indication that our appointed leadership is doing a pretty good job delivering what we asked.

The critical questions this year have to do with funding and spending - in other words, the financial situation.

On the funding side, we've taken a whack from the State of Ohio. We knew it was coming, and it didn't matter who was elected as Governor, or who controls the General Assembly, the State has the same problem as every other government that has an revenue stream sensitive to personal and corporate income taxes - a sudden drop in revenue.

Some say that our State government does three things: educate, medicate and incarcerate. If the State government is going to balance its budget - and by law it must - the bulk of the cuts were going to come from public education, Medicaid and our prison system. And since the bulk of the State's funding of public education is via direct grants to local school districts, we shouldn't be surprised that this is where the cuts were made.

Nor should we be surprised that the funding cuts were disproportionately loaded onto the most affluent districts, which we are in the eyes of the State Board of Education. Not counting the one-time Federal stimulus money that was doled out via the States, our State funding will be $7.5m lower in FY12 than it was in FY09.

That's not an insignificant amount of money. Had it not been for the one-time Federal funding, and the decision to drain our piggy bank (our cash reserves), the impact of these cuts would have been felt a couple of years ago. Now, with the one-time Federal money running out, we finally have to face this State funding reality.

On the spending side the issue is, and will always be, the spending for compensation and benefits. As I wrote in the preceding article, the effect of the new contracts with the teachers and staff will be to take a good sized bite out of the projected spending on comp and benefits for the next three years...

click to enlarge

... but we still have a substantial gap to close (depicted as the yellow region). In order to legally sign the union contracts, we had to approve a Five Year Forecast which portrays a non-negative cash balance for the term of the contracts. That was done, and graphically it looks like this:

Click to enlarge

However, this new Five Year Forecast was constructed by portraying massive spending cuts in FY12-FY15, totaling nearly $45 million dollars. Making cuts of that magnitude AFTER the teachers and staff have already made major concessions would be difficult, to say the least.

And so we're at the point I've always said we would get to. If we want to keep the programming and services which are most important to the people of the community, we're going to need more revenue. I support placing a levy on the November ballot. The only questions are the structure, the size and the desired interval to the next levy. As I wrote back in April, these choices represent two of the four knobs we can turn.

Still, there's no way we're going to make up this budget gap with new taxes - it would take levies on the order of 5.5 mills every 3 years to produce the level of funding necessary keep our cash balance above zero through FY15.

We're also going to have to take a hard look at programming and services - the third of the four budget knobs. I'm just beginning my examination of data (thanks to Justin Gardner for sharing data he had requested from the District) regarding class offerings at the secondary level, but I suspect that we'll have to take a look at the breadth of subjects we offer, especially those which attract small numbers of students.

By the way, folks have frequently mentioned the "Global Gourmet" course offered in our high schools, citing it as an example of misspent resources. You might be interested to know that this is a very popular class, with 15 sections across the three high schools, serving 529 students, an average of 35 per class. We might debate as to whether we should be spending the money to offer such a class, but it is certainly in demand.

We also must use care when examining this kind of data. For example, "Photography 3" is offered in all three high schools, in a total of 6 sections with a total of 13 students enrolled. It would be easy to say "let's just drop Photography 3 from the curriculum," except that a closer examination of the data shows that Photography 3 is combined in the same classrooms, with the same teachers as Photography 2, making the average number of kids in each section more like 16.

The cost of labor is the product of the average compensation of the employees and the total number who are employed. The new labor agreements addressed the first component, and it is much appreciated. Now we're going to have to start looking at the second component: the total number who are employed.

But I think we should do that by first making a pass through the course offerings at the secondary level, and seeing if there are some things we can do without. Certainly every subject has its constituency, driven in part by the importance of the subject matter to our kid's education, and also by the respect and friendship which is developed in regard to the teachers. This is emotionally challenging stuff, but we need to take a look nonetheless.

There's no way the School Board has the training or time to look through all this data and make decisions, nor should it. It is the function of the Administration to execute policy created by the Board.

So we may need some new policies in regard to academic offerings. Perhaps those policies will sound something like "Elective Courses at the secondary level will be offered only when there are at least 20 students enrolled in each section."

Here's some back of the envelope noodling:
- We are projected to have about 4,600 total students enrolled in grade 9-12 next year
- Let's say that we want the size of each class to average 25. That says that at any given time, the 4,600 students would be distributed over 184 classes.
- Another way to look at it is that these 4,600 students have 7 academic periods each day. That means at least 32,200 "seats" have to be available. If each section provides 25 seats, then we need 1,288 sections of classes to be offered, or 184 sections each period.
- So regardless of which calculation path one uses, we need at minimum of 62 teachers in each high school to lead classrooms of 25 kids each.

So how many do we actually have? I don't know. And I won't try to go any further in this analysis without learning a lot more from our leadership team. All my calculations do is discover the absolute minimum number of high school teachers we need to operate with every classroom at 25 kids. I'm confident that it's not practically possible to operate with a teaching staff that small - there's always going to be some classes we'll generally agree are desirable to have in our curriculum, but few kids will take.

In the end, we as a community will need to decide how much more than the required basics we're going to offer, and how much we're willing to spend to offer them competently.

That will have to be balanced by what we think it does to our personal net worth, which I think is simply a function of the amount of cash we pay out in taxes versus the impact on the selling price of our homes.

Some of us will stay in our current homes until we die. The eventual selling price of our home is far less important than the affordability of our property taxes. I might be one of these people - retired and living off our savings. Every tax increase is painful.

But most of us will someday sell our home, and its selling price will be significantly influenced by the value a potential buyer puts on the school district. That's the reason a home in Upper Arlington is generally valued at about 25% more than a comparable home in Hilliard.

Many things make a school district desirable. For some it is the academics, measured mostly in the success their kids have gaining admission to highly respected universities. For others it is the athletics, and even though few win athletic scholarships, the experience is felt to be very important for its character-building element. Other value the performing arts, which has both academic and team membership benefits. Others desire particular demographics - or rather to avoid diversity - a darker side of our nature.

Whatever the criteria, once the gleam is lost on a school district, it's hard to recover. There are a number of Central Ohio school districts which were once well regarded, but are not so much so any more. It's hard to say which came first, a change in demographics (e.g. Columbus during the 'White Flight' of the 80s) or a decline in resources (e.g. Groveport-Madison when Rickenbacker AFB was closed).

Our task is to keep our school district one of high regard, yet reasonably affordable. It won't be easy, and will require a lot of dialog and compromise.

Please engage in the process.

Thank You Teachers and Support Staff

2011-06-03T17:27:00.000-04:00

At a special School Board Meeting scheduled for 5pm on Monday June 6, 2011 at the Central Office Annex, the Board will be voting on a resolution to accept tentative agreements with both the Hilliard Education Association (HEA) and Local #310 of the Ohio Association of Public School Employees (OAPSE), which are the two unions representing the employees of our school district.

The Administration has distributed a number of communications pieces to let folks know what the agreements looks like. Suffice it to say that the compensation terms of these agreements are much different than those which have been signed over the past decade, reflecting the level of investment our team of teachers and support staff are willing to make in our school district during these challenging economic times. Using the chart format you have seen many times before, the effect of these new contracts looks like this:

Click to enlarge

Barring some unforeseen complication, I'll be voting in favor of accepting these agreements on behalf of our community. Here are links to the new agreements: HEA and OAPSE.

Ohio law prohibits a school district from signing a multi-year agreement which spans years in which the Five Year Forecast shows a cash deficit. Consequently, a new Five Year Forecast has been prepared by Treasurer Brian Wilson, and it looks substantially the same as the Five Year Forecast approved by the School Board at our last meeting, except with some large, unspecified spending cuts shown in FY13-FY14.

Barring unforeseen complications, I'll be voting in favor of accepting this Five Year Forecast.

So, it would be fair for you to ask why - less than two weeks ago - I voted against accepting the Five Year Forecast presented then, but intend to vote in favor of this version of the Forecast.

It's for practical reasons. In order to sign the new union agreements, we need to play games with the Five Year Forecast.

Except it's not a game. The numbers that get loaded into the Five Year Forecast as the unspecified spending cuts are real. They're just not specific - that is, they won't specify exactly what would be cut to balance the budget. But they represent the size of the gap between funding and spending in future years, and we'll have to close that gap somehow.

Nor does this new Forecast reflect any new revenue which might result from the passage of a levy. Again, Ohio law prohibits showing projections for future local tax revenue that hasn't yet been passed by the voters of our community.

Both of those things still need to be discussed: how much more money we're willing to invest in our school district over the next several years, and what programs and services we wish to offer. I hope you are willing to engage in the dialog.

The teachers and support staff took a crucial step in the process, and again I thank them for it.

Now it's the community's turn.

Setting the Next Levy Size

2011-05-30T12:21:00.002-04:00

At the May 23, 2011 regular meeting of the School Board, I voted against acceptance of the latest rendition of the Five Year Forecast, reading this statement into the record.

Does that mean that I am opposed to any new levy?

No. In fact, I voted in favor of the resolution to put a 6.9 mill Permanent Operating Levy on the May ballot, and voted YES on Issue #7 in this month's election.

As we all know, Issue #7 was defeated in an election in which fewer people bothered to vote than we have students in our school district. That doesn't mean the situation is resolved. We have, as a community, allowed the annual spending of our school district to grow well beyond our funding - a situation which is further exacerbated by significant cut backs in State funding. Barring unforeseen circumstances, I am confident that there will be a levy on the November ballot. The only questions are the size of the levy, and what gets cut if the levy issue fails.

Levy math is pretty simple. In our school district, we will raise about $2.2 million per year for each new mill of property tax. Last year, 1 mill would have raised $2.4 million/yr, but we are now operating on the assumption that the Franklin County Auditor will be reducing property valuations by about 8% in our community. This means that we now need about 1.09 mills to raise the same amount of money as 1 mill raised last year.

As I described in "Budget Knobs," another parameter we need to decide is how often we want to be asking for more money. To cover any particular rate of spending increase, the frequency in which new levies are enacted is inversely related to the size of the levy that will be needed. In plain English, the more often a levy is passed, the smaller it can be each time, given any particular rate of spending growth.

For visual folks like me, I thought a chart which shows this relationship might be helpful:

click to enlarge

The reason for looking at such a chart is that I propose that we reverse the way we think about budgeting in our district.

The traditional approach is to determine all the new ways in which we're going to spend more money, then propose a levy of whatever size the Board thinks the public will tolerate, and then come back to the community again when that new level of funding is no longer enough.

How about if we go at this from the opposite direction?

What if we decide how often we are willing to let our property taxes increase, and by how much, and use that to determine the rate in which our spending can grow?

Isn't that more like the way we budget in our own households? After all, we don't make up a wish list of all the stuff we want, then go in to our boss' office and say "I've determined all the things I want to do and have, and you're going to have to commit to giving me a 10% raise every two years to support it!"

Don't we instead try to make some reasonably conservative projections of future income, and adjust our wants and desires to fit within that projected income stream?

Not everyone did of course, instead choosing to finance their unsustainable level of wants and desires by borrowing from credit cards and from the equity on their homes. The current economic situation in our country is caused largely by that behavior.

We've done a little of that in our school district as well. We didn't borrow money for daily operations - the law does not permit borrowing to fund current operations unless a school district has been declared to be in Fiscal Emergency by the State. But we did allow our spending to grow in excess of our revenue, in part by using one-time Federal stimulus money to fund current operations, and in part by emptying our rainy day fund.

Back to levies.

Now that we have this chart in our mind, is it as simple as saying "I'm willing to see my taxes go up by 5 mills every 3 years?" Unfortunately - no. There is also a structural reality we need to need to come to grips with: Compensation and benefits - which are approaching 90% of our spending - tend to rise exponentially, rather than linearly. This is what I mean:

Let's say a person is paid $10,000/yr, just to keep the math simple. Let's also say that the person has an employment contract specifying that the person will receive a 10% salary increase at the beginning of each year for three years. Since 10% of $10,000 is $1,000, that means the increase is $1,000 in the first year, making the new salary $11,000. What about year 2?

If the contract had specified that the person would receive a $1,000 raise each year, then the year 2 salary would be $12,000. But the contract said that the increase would be 10%. That means the raise would be $1,100 (10% of $11,000), and the new salary would be $12,100. The following year the salary would be $13,310. Graphically, it looks like this:

I wrote an article last July called "Teacher Salary History" which describes the compensation structure used in the current agreement with the teachers' union, the Hilliard Education Association. As I described, the two main components of that structure are the year to year base pay increases, and the step increases granted to teachers in years 0-15, 20 and 23 of their careers. Mathematically, this structure could be represented as follows:

f(n) = C((1+s)(1+b))ⁿ

Where:

n = the number of years into the future for which pay is being calculated
C = the current salary for a teacher
s = the step increase factor, which is 4.15% in the current contract
b = the base pay increase factor, which was 3% for 2008-2010

So if our labor agreements cause compensation costs to rise exponentially, then it would seem that we need to come up with a revenue plan which grows exponentially as well.

As it turns out, this is exactly what we've been doing over the past 35 years. Except that it's not just the size of the levies which have been increasing, it's also been the frequency:

click to enlarge

So what now - levies every two years? How long before we get to levies every year?

Maybe we need to think about a different approach altogether.

Many people believe the Ohio Supreme Court said property taxes are unconstitutional. That lawsuit - Derolph v. State of Ohio claimed that the State funding was insufficient, causing school districts with low property values to either tax themselves excessively, or have underfunded schools. In fact, in one of it's many opinions on this case, the Court noted that property taxes are the most stable means to fund schools.

Governments which are dependent on income taxes for revenue are hurting deeply these days, from local towns to the State of Ohio. Conversely, school districts which depend on property taxes - which is our case - have not taken any significant revenue hits in The Great Recession.

For many years, school leaders - especially those in affluent districts like ours - have complained that a law enacted in the 70s, commonly called "HB920" prevents property taxes from rising automatically with property values, and that this is the reason school districts had to keep coming back to the voters for more and more levies. As is often true with political statements, this one has some truth to it, but it's not the whole picture.

You see, HB920 also prevents property taxes from going down when real estate values tumble, as has happened in the past few years. So when you receive your new property value determination from the Franklin County Auditor later this summer, you'll probably see that the value of your home has been set about 8% lower than it was before. But that won't mean that your property taxes will decrease.

And it means the school district won't have to deal with a loss in local revenue.

So here is our structural problem: The thing which drives our spending is compensation and benefits, and it rises exponentially. Our local revenue stream - upon which we will increasingly depend for additional funding - is very stable, but changes only upon passage of a new property tax levy. For our property tax revenue stream to grow exponentially, levy issues have to passed in exponentially larger sizes (not likely), and/or the frequency of levy issues has to increase exponentially (what's more frequent than every year?).

However, there is another tool available to us: Ohio law permits communities to impose school income taxes. Approximately 30% of all school districts in Ohio currently impose income taxes, collecting from a low of $3.01 per student in Zane Trace Local Schools (Ross County) to $3,091/student in Oberlin City Schools (Lorain County). For those districts with school income taxes, the average and median income tax collected per student is about $1,000.

It should be noted that districts with high school income tax rates, like Oberlin, tend to have much lower property tax rates. The high dependence on school income taxes would expose them to the same revenue risks as municipal government, although it should be noted that Oberlin is a community built around a college, which tends to make incomes more stable.

One more point deserving mention: Ohio law allows school districts to base income taxes on all income, just 'earned income' or a combination of both. The option of 'earned income' taxes came about to allow school districts to excuse those who have little or no earned income, notably senior citizens who tend to be living on pensions, retirements savings and Social Security (disclosure: I'm one of these people, so an earned income tax would be very beneficial to me). Politically, these levies tend to be much easier to pass, as senior citizens are much more likely to vote than the general population, and earned income taxes are an easy sell to them.

So is there a place for school income taxes in our school district?

PROS:

Since nearly all of our tax dollars are used to pay for the salaries and benefits of our district's employees, if we can negotiate labor agreements which are coupled to community income, a revenue stream derived from community income should automatically track funding needs, and significantly reduce if not eliminate the need for future property tax levies.
Likewise, if our incomes go down, the amount of tax we have to pay diminishes as well. We can't be 'taxed out of our homes' in this case. But it means it is crucial that the labor agreements with the school employees have automatic adjustment clauses that reduce compensation commensurate with the revenue loss. Otherwise the loss of revenue will require layoffs to bring the spending back into alignment with the reduced revenue flow.

CONS:

When our incomes go up, the amount of school taxes collected will increase correspondingly, without the need for a property tax levy vote (school leaders typically view this as a PRO).
Without the need for a property tax levy vote, there will be a diminished need for the School Board and Administration to be accountable to the community. I personally like that we have that accountability today.

I'm beginning to think that a mixture of property tax levies and income taxes might be the best way to go. We would pass property tax levies of a reasonable size (e.g. 3 - 4 mills) every 5 years or so to provide a stable funding base. On top of that base, we would use income taxes to provide a revenue stream which changes with the state of the local economy.

The fiscal strategy we've been using for many years to operate our school districts just isn't going to work going forward. The compensation mechanism is no longer compatible with the funding realities. We need to look at new structures for both.

And we're running out of time to act.

Five Year Forecast - May 2011 update

2011-05-22T08:26:00.001-04:00

At the School Board meeting on Monday, May 23, 2011, Treasurer Brian Wilson will be presenting an update to the Five Year Forecast, which is prepared and submitted to the State Board of Education by all school districts in Ohio. A copy of what will be presented is available here.

For those who prefer a graphical presentation, here is a chart in the same format I've used before:

click to enlarge

You'll notice that it looks much like the chart I presented in the article "Pay to Play"...

click to enlarge

... in which I tried to estimate the impacts of the state funding cuts and the spending reductions enacted after failure of the levy. So my numbers were pretty close to the Treasurer's.

And it means we still have a problem: The forecasted spending trajectory remains unsustainable. That's not just my opinion: The district's Audit & Accountability Committee used this word multiple times in their June 16, 2010 report to the School Board.

Here's what the forecast looks like if a 6.9 mill levy is put on the ballot in 2011:

click to enlarge

With no change in our spending trajectory, our cash balance will continue to erode, and would force the ~~next~~ following levy to be put on the ballot in just two years (read "Budget Knobs" to see how levy size and levy frequency interact). And that levy would again have to be on the order of 7 mills, resulting in this:

click to enlarge

In other words, this spending trajectory requires levies on the order of 7 mills every 2 years, if there is no further erosion of state funding.

And even this is well short of the funding needed to restore the 10% cash reserve balance which is the policy of this School Board. The "stretching of the levy" was not so much due to aggressive expense management as it was getting the benefit of one-time Federal Stimulus money, as well as emptying the piggy bank, a point I first made in December 2009.

So if raising our property taxes by 7 mills every two years isn't sustainable, what is?

Between 2003 and 2011, our rate of spending growth was essentially linear, at a pace of $6.4 million per year. This Five Year Forecast suggests that, after a one-year spending freeze between FY11 and FY12 (as a result of the cuts now being enacted), we increase the rate of year to year spending growth to $6.9 million.

Of that $6.9 million/yr increase in spending, $6.7 million/yr (97%) would be applied to compensation and benefits.

click to enlarge

I am not now, nor have I ever advocated absolute spending cuts. I believe that we want to retain as much of our current programming as we can afford, and also be able to grant reasonable pay increases to our outstanding team of teachers, administrators and staff. However, we have to reduce the pace of spending growth - at least until we have a significant rebound in our economy.

I propose that we reduce our rate of spending growth from $6.9 million per year to $4 million per year. If we do that, we can postpone the next levy for 3 years, until May 2014, and the chart would look like this:

click to enlarge

This still doesn't leave us with a lot of cash reserves. Once we've spent the money in the piggy bank, putting it back requires setting aside some of our income for that purpose, and not spending it on programming and compensation.

So how do we take $2.9 million/year out of our rate of spending growth? It certainly won't be easy, and I'll suggest that there can be no 'sacred cows' that are untouchable. As a community, we'll need to prioritize what is important to us, and then make the hard decisions as to what programming will make the cut.

We'll also have to have a respectful and empathetic conversation with the teachers and staff to see if they are willing to explore ways to adjust their compensation and benefits structure in a way that helps preserve as much programming as possible.

I've made a proposal to the Board as to how we, as a community, might go about making these decisions. This proposal is meant to be a discussion starter, as I'm sure there are other processes that could be used to tackle this issue - I'd argue one of the most important issues facing our community.

But we need to pick one - and soon. As of this writing, we have 80 days remaining to make a decision whether or not a levy will be on the November ballot, and how large it will be.

Pay to Play

2011-05-10T13:53:00.001-04:00

I've corrected the calculations in the illustration below. My apologies for the bad assumption on the number of middle school basketball teams. Thanks for pointing out my error.

As was stated would be the case when the Board passed, by a 4-1 margin, a resolution stating what would happen if the levy didn't pass, the administrative team is now in the process of implementing a set of cuts designed to allow the District to operate one more year. Here is a chart which depicts what I believe our current financial situation looks like (ie- these are not official numbers from the Treasurer), with the revenue estimated as what it will be after applying the state funding cuts as I understand them, as well as the impact of the spending reductions implemented as a result of the levy failure cut list:

Click to enlarge

As on prior charts I've presented, the yellow region depicts the difference between revenue and spending, and it remains pretty substantial. It means that the things that were on this cut list are just a tiny start unless we figure out another way to align spending with revenue. And we don't have a lot of time: the green line depicts the projected cash balance, and you'll note that it goes negative in FY13. That can't be allowed to happen.

But even this tiny start creates pain. In my short time on the Board, no issue has drawn more public input than these cuts to Gifted Programming and Middle School extracurriculars. While it's disappointing that there is little engagement in the community until a decision is made that someone doesn't like, I nonetheless appreciate that many people have come forward on this issue. It's also helpful that many of the complaints have been accompanied by alternative solutions.

In particular, of the many emails sent to the School Board about middle school athletics, a number have included the suggestion that sports - and I suppose other middle school extracurriculars - be funded with a Pay-to-Play approach. I have concerns about Pay-to-Play, and I thought it would be appropriate to explain them to you.

It's not that I don't value extracurricular activities. My wife and I both participated in extracurricular activities in high school, and in fact we met in one (marching band). Our children took advantage of our school district's fantastic programs as well, and we were proud to watch them perform in exemplary organizations.

My concern is that a Pay-to-Play approach could exclude some kids from participating in these activities because their families cannot afford the fees.

We're running a PUBLIC school district here. America didn't always have public schools. Our Founders came from affluent families who could afford to send their male children to private schools and private tutors. But along the way, we as a society decided that we should have public schools available to all children regardless of gender, ethnicity, religious beliefs, and financial wherewithal, to be funded by taxes levied on all members of a community according to one's wealth. I think most of us would argue that this has been a good thing for our country.

Pay-to-Play in a public school seems to be a step backwards. It's as though we construct two story school buildings, and house all the required programs and services on the first floor, available to all kids. The second floor has all the special and fun stuff, but is only available to those kids who come from families with the financial resources to be able to afford an expensive 'second floor pass.'

Those offerings on the second floor are held up by the resources spent on the foundation of the building, and the structure of the first floor. Without this supporting structure, the offerings on the second floor would be much more expensive. In fact, they would have to stand alone.

That's what a club sport is to me. It's fully supported by its members and sponsors, without the benefit of taxpayer money. The club can pick and choose who are its members, what they spend to run the program, and what kinds of facilities they will use.

But it's not appropriate, I feel, to operate what amounts to a private club within a public school, taking advantage of some taxpayer-funded resources, but causing some kids to be excluded because they lack the ability to pay the fees.

That doesn't mean there is no solution acceptable to me. Some have said that they would be willing to pay extra to create a financial assistance program for kids who want to participate in an activity, but can't afford it. I'm not sure how you would go about determining if a kid qualifies for such assistance. But this seems like a reasonable idea, meriting some consideration.

We could say that a kid qualifies for Pay-to-Play assistance if he/she has been placed in the category of "Economically Disadvantaged" as is used by the state and federal government. Using data from the last State Report Cards, we had 2,375 kids enrolled in our three middle schools, and 22% - not an insignificant number - of them were designated as Economically Disadvantaged. Let's go on to presume that the number of kids interested in participating in middle school extracurricular activities are in the same proportion.

Pick a sport - say middle school boys and girls basketball. According to numbers I have from last year regarding supplemental salaries, we have a total of 12 coaches assigned to 6 12 teams being paid in total $32,000 in supplemental salaries (in addition to their compensation as teachers). I know there are other costs associated with running the middle school basketball program, but for this thought exercise, let's consider only the supplemental salaries for the coaches.

Assuming that ~~ten~~ 13 players make each team, that's a total of 60 156 players. So if you divide $32,000 by 60 156, you get ~~$535~~ $205 per player. But if you assume that 22% of those players, about 13 34, are also economically disadvantaged and should be allowed to play for free, with the cost distributed over the other 78% of the players, then the cost per player jumps to ~~$686~~ $263.

That's not the only possible solution of course. Some have mentioned seeking outside sponsorship. So the per-player fee could be kept at ~~$535~~ $205 if about $7,000 in sponsorship money could be raised - enough to fund the 13 kids who are economically disadvantaged. That seems plausible to me.

The cost of a sport is also offset by the revenue generated by ticket sales. This can be a big number for some sports (football, basketball, gymnastics), and not so much for others (golf, cross country). So there might have to be some discussion about revenue sharing amongst sports.

Again, I stand by my conviction that a public school system is obligated to offer programming to all regardless of the ability to pay. I have spoken out against the extra academic fees charged, as well as the fact that we exclude kids from things like the annual 8th grade trip to Washington DC.

But I'm open to solutions that achieve the same result - opportunity according to ability and passion, not economic status.

Now What?

2011-05-04T17:56:00.001-04:00

I don't know yet what kind of conclusions any of us can draw from this levy vote. But I thought this comment, reportedly made on Facebook somewhere, was the most poignant:

"Regardless of how you voted for the Hilliard School Levy, here is something to think about. We have 15,634 students in the district and there were 14,488 votes cast. That's less than 1 parent per student that bothered to vote. Sad"

The greatest danger to our school district, and therefore our community (and arguably our county) is the ignorance of and lack of critical thinking by the majority of citizens in regard to the core issues, as well as the general lack of interest in getting engaged in developing solutions. Sure, plenty of people get involved in booster organizations and PTOs, and that's wonderful. But when it come to governance of the school district, the number of people who have shown interest over the years is relatively tiny compared to the population.

To those who wanted this levy defeated - there is no victory here. The hard work is yet to come. You can't just say NO - you have to help answer the "Now What?" questions. Not in generalities - in specifics. What needs to be our spending priorities? What should get less funding so that other things can get more? If you advocate pay cuts as a way to balance the budget (rather than layoffs and programming cuts), how do you propose making that happen and not ignite a labor conflict?

And for those who campaigned for this levy, first I appreciate your service to the community. But let me suggest that the "it's for the kids" rhetoric needs to end. It's not. It's a dialog between one set of adults who want more and another set of adults willing to give less, and the kids get caught in the crossfire. Shame on all of us.

The central issues are the ones I've been preaching for years:

Our costs are driven by compensation and benefits. The current spending trajectory is unsustainable given reasonable expectations of revenue, and that means we need to have a respectful but tough conversation about compensation and benefits. It's not about busing, middle school extracurriculars, gifted programming or anything else that gets put on these 'cut lists.' It's time we addressed the real cost driver.
Unless and until there is an economic renaissance in Ohio, the state government is going to keep taking money away from school districts they perceive to be affluent - like ours - and redirect it to other districts they perceive to need the money more. It doesn't matter which political party controls the Governor's office and the General Assembly, there's only so much money, and our share of it is going to continue to shrink unless the suburbs find a way to counter this political reality (e.g. Superintendent Dale McVey currently serves in a top leadership position for an association of school districts similar to ours across the state - an association which lobbies on our behalf to state lawmakers).
One of the best ways to ease the tax burden on the residents and businesses in our school district is to recruit more businesses to set up shop here. I'm encouraged that Nathan Painter was the top vote getter in the Hilliard City Council primary, which all but guarantees him a seat on Council in the General Election this November. As a charter member of the school district's Audit & Accountability Committee, he understands these dynamics, and I'll trust that he will make win-win decisions for both the City and the School District.

Let's treat the people of our community like grownups, and give them the information they need to help find solutions, not engage in emotional warfare. Let's build an effective community education program, as I've been harping about for years. Education is the business we're in, isn't it? So let's teach the people how this stuff works. Olentangy schools built an impressive community education program (I attended a few of their sessions), structured so as to provide continuing education credit to their teachers as well, which encouraged their participation. Maybe we can borrow their template.

And people of the community, if you want things to change, then engage in the process rather than armchair quarterback those who do. Find out how things really work, and quit believing all the urban legends.

And by all means -- VOTE!

Coffee with the Board

2011-05-03T19:31:00.002-04:00

HILLIARD CITY SCHOOL DISTRICT

BOARD OF EDUCATION

NOTICE OF SPECIAL MEETING

(RC 3313.16)

Notice is hereby given; there will be a SPECIAL meeting of the Board of Education of the Hilliard City School District on SATURDAY, MAY 7, 2011 from 9:00 A.M. until 10:30 A.M. located at Hilliard City Schools Administration Annex, 5323 Scioto Darby Road, Hilliard, Ohio.

The meeting will be informal conversation in which community members are invited to sit down with board members in a casual setting to share ideas, express concerns or ask questions concerning the school district and no further business will be transacted.

The meeting is called by Brian W. Wilson, Treasurer/CFO of the Hilliard City School District Board of Education, at the direction of the President of said Board.

May 3, 2011

Signed:

Brian W. Wilson, Treasurer/CFO

Hilliard City School District

Board of Education

My Decision on the Levy

2011-05-01T15:57:00.000-04:00

One of the lessons learned when studying engineering is that 90% of the work is in framing the problem. The math and physics are pretty straightforward once the question is appropriately defined. This has been my challenge with deciding how I would vote on the levy - framing the question.

The question is not about my personal ability to afford a tax increase, although I'll tell you that this economy has had a significant impact on our retirement income. The tax increase associated with this levy would not go unfelt in our household.

I am certainly concerned about the impact of additional taxes on the most vulnerable in our community - those on fixed incomes and those who have lost employment - and expressed this concern during a recent School Board meeting. From the perspective of the public entity - the school district in this case - property taxes are an excellent funding mechanism because they tend to remain constant regardless of the state of the economy. But from the perspective of a taxpayers, property taxes can be a nightmare because they remain constant even when one's income falls. Even the Federal government gives you a break on taxes when you lose you job. But property tax bills keep on coming regardless.

I am not swayed by the claims that the district cut spending by $6.5 million. Spending has gone up year after year at an annual growth rate of 4.7%, almostly entirely due to increasing spending on compensation and benefits. I'm not saying that this is good or bad. It's just the truth.

Nor is this levy being driven by an increase in the number of of students, or even the number of employees, as you can see from this chart.

click to enlarge

When the last levy was passed in 2008, the student enrollment was 15,150. This grew to 15,487 by the end of 2010, an increase of 337 students or 2.2%. In the same period, spending rose from $146.4 million to $157.2 million, an increase of $10.85 million, or 7.4% - more than three times the rate of student growth.

It troubles me that there is no mention in the levy campaign literature as to the opinions expressed by the Audit & Accountability Committee, a team of highly educated and experienced business professionals who were recruited to serve as the independent voice of our community in regard to the fiscal management of our school district. The formation of this committee was one of the commitments made during the last levy campaign. Now it is as though the Audit & Accountability Committee doesn't exist - at the very time when one would think the levy campaign team and the district leadership would want to tout the Committee's findings. But their findings weren't that rosy - calling our current rate of spending growth "unsustainable."

I am also deeply troubled by what I feel is inadequate strategic planning by the School Board and the executive management of the District. Without question, the 2020 Plan is an impressive compilation of many elements of a strategic plan. But it lacks the fiscal component. The programming it describes is wonderful, but how much will it cost, and how will we pay for it? Those answers should be well known by the leadership and the people of our community when this enterprise consumes over $160 million per year of our tax dollars.

I have been saying for a long time that the state is going to expect affluent districts to carry more and more of their own funding burden. The Dispatch has just analyzed the latest rendition of the State budget, and reports that this easy-to-make prediction is now a painful reality.

The consequence of the Governor's proposed State budget, if it remains unchanged (it is now in the hands of the General Assembly), is a further reduction of state funding beyond what Treasurer Brian Wilson had already forecast in Oct 2010 - on the order of $10 million spread over the next four years. This means that if we froze spending at FY11's level for the next four years, we still have a funding deficit that accumulates to $35 million by the end of FY15:

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With the passage of this 6.9 mill levy - and spending frozen at the current level - the picture looks much better...

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Notice that the adjusted revenue and spending lines are nearly coincident in the chart above. In fact, the revenue line is about $3 million per year higher than the spending line, which is why the cash balance slowly builds in this scenario. If expenses were frozen at FY11 levels, it would take a levy of about 5.5 mills to exactly match the revenue with current spending.

That's not all due to the state funding cutbacks - we will end FY11 with a spending deficit of approximately $5 million - driven mostly by rising compensation costs (see "Budget Costs"). That's equal to about 2 mills. So 2 mills are on us, 3.5 mills are on the State. Therefore, 6.9 mills covers our current deficit, covers the cuts in State funding, and starts to generate a little surplus at current spending levels.

With this collection of data, I now have enough information to pose the question that allows me to make my voting decision. That question is:

If this levy is passed, do I trust the Board, Administration, Teachers and Staff to work together and with the Community to build an operating plan which has spending growing at a rate of no more than 1.8% per year, which is the maximum rate at which spending can be allowed to grow and not have another 7 mill levy on the ballot before 2014 - three years from now (as depicted in the graph below)?

Click to Enlarge

My answer has to be YES.

I have to believe that we, as a community, can and must find a way to both preserve the excellence of Hilliard City Schools and reduce our rate of spending growth to 1.8% per year, down from the 4.7% annual growth rate in which we have indulged ourselves over the past several years. That goal is why I ran for the School Board, and I believe that's why you elected me.

For me to vote NO on this levy means to admit defeat: that I don't believe we can find a way to work together over the next few months to reach such a goal, and that the only way to restore sustainable economics is to compel the leadership of the District - by withholding additional funding through a string of levy defeats - to cut programs and lay off a great number of teachers, administrators and staff (approximately 100 by my calculations). Or to try to negotiate significant pay cuts - on the order of 6% - and to freeze compensation at that level for several more years.

So it's really a matter of trust.

Do you trust that this School Board and Administration will work hard this year, in partnership with the employee unions and the community, to begin restoring sustainable economics to our District? If so, then a YES vote is warranted.

However, if that trust is not there, then I understand a NO vote on this levy. But that's not the end of your responsibility. You need to explain your wishes and ideas to the School Board, and participate in the process of putting things on a new course, whatever that may be. That certainly includes playing your part in deciding who should represent you on the School Board when two seats come up for election this November.

Budget Knobs - Which Ones Do We Turn?

2011-04-09T15:19:00.008-04:00

Early voting has already begun for Issue 7, the question asking the voters in the Hilliard City School District to approve a Permanent Operating Levy of 6.9 mills.

There has already been a list generated by the Administration and approved by the School Board which shows what will be automatically cut from programs and services if the levy should fail.

It seems like we should also be talking about what will happen if the levy issue should pass.

First, it might be worth reviewing what drives the size and frequencies of levies. I hope this diagram helps:

click to enlarge

As you can see, there are four primary 'control knobs' in this system:

Size of the Next Levy: This has come to be viewed as the first knob that gets adjusted. Current thinking among those who advise on levy campaign strategy is that 6.9 mills is the largest amount that can put on the ballot and passed by a majority of the voters. This is pretty much the reason our current levy is 6.9 mills.
Time Interval until the Next Levy: In other words, do we plan for the next levy to be in 1 year, 2 years, 5 years? The Time Interval and the Levy Size are directly related, meaning that - all other things being equal - the larger the levy, the longer it can be before the next levy has to be put on the ballot.
Rate of Spending Growth (or Funding Cuts): As I have related many times in this blog, our rate of spending growth is virtually the same thing as the rate in which the costs of compensation and benefits increase, with compensation and benefits comprising nearly 90% of our budget.

click to enlarge

This year, we finally have to face the fact that the State of Ohio is going to take significant funding away from the perceived affluent suburban districts, and it's going to happen pretty quickly, as I described in The Other Shoe Has Dropped. From the perspective of the bottom line (ie "Excess of Revenue over Expenditures" in school budget language), a one dollar reduction in funding is the same thing as a one dollar increase in spending - they both reduce the cash reserves by one dollar. It means you have to find that dollar somewhere else in the budget.
Amount of Cash Reserves: It doesn't matter whether you are driving a Ferrari or a Yugo, when your car runs out of gas, it goes at one speed: ZERO. Cash is like the gas for any organization. When it runs out, the organization comes to a grinding halt, and it doesn't matter whether you're talking about the doughnut shop on the corner or General Motors (although the Federal Govt seems immune to this!).

So we need to make sure our outstanding school system with a $170 million annual budget doesn't run out of cash. When the payroll is more than $12 million per month, it can happen in a hurry.

That's one of the reasons why our School Board enacted Policy DBDA, which states "The Board believes that maintaining a cash reserve balance of 10% of operating expenses is necessary in the interest of sound fiscal management." This policy was adopted in August 2006, and was obeyed in FY07-FY10.

However, if it were not for the one-time Federal Stimulus grant of $4.3 million, we would have run out of cash this fiscal year (an observation I made in 2009). We are certainly below the 10% cash reserve target. It was this one-time money and the decision to draw down the cash reservese that allowed the current levy interval to be stretched to three years, not because our spending went down (acknowledging that the teacher's union, support staff union, and non-union employees all agreed to work in calendar 2011 without base pay increases or step increases).

It's not so much the size of the cash reserves that determines the levy size, it's whether we are drawing down or building up the cash reserves. By drawing down the cash reserves, as we have been doing this year (and would have last year without the Federal stimulus money), then the next levy can be delayed. However, to rebuild the cash reserves takes revenue above and beyond the normal operating expenses, and someday we're going to need to deal with that.

Okay, now that we understand the controls available to us, what would the situation look like after passage of a 6.9 mill levy in May 2011?

click to enlarge

The chart above, derived from the Oct 2010 Five Year Forecast, depicts where I believe we would be if the levy is passed and no changes are made to spending other than backing out the $1 million/yr budgeted for All Day Kindergarten starting FY13, which looks to be no longer a State requirement.

However I have made some significant changes to the Revenue projections used in the Oct 2010 Five Year Forecast:

The Franklin County Auditor will reduce property valuations by 8%, meaning that a 6.9 mill levy will raise $15.4 million/yr rather than the $16.7 million/yr that has been reported in the newspapers (by law, the Five Year Forecast cannot show revenue from levies which have not yet passed).
The impact of the change in Personal Property Tax Reimbursement will be a total of $17.6 million between FY12 and FY15, distributed as follows: $3 million in FY12, $6 million in FY13, $3.5 million in FY14 and $5 million in FY15. Note that this is above and beyond the reduction in PPT reimbursement already built into the Forecast.

The yellow blob in the chart shows the gap between funding and spending, and it's still pretty big. That means we still have some knob-twisting to do. So let's look at some scenarios (all assume passage of the May 2011 levy):

Next levy no earlier than 2015 (four years): In order to end FY15 with a zero cash balance, we would need to cut the growth in spending to no more than $2.2 million/yr. To put that in perspective, the Oct 2010 Five Year Forecast shows spending growing $4.7 million from FY11 to FY12, $9.3m in FY13, $7.3 million in FY14, and $8 million in FY15.

No Earlier than 2015 - click to enlarge
Next levy no earlier than 2014 (three years): This doesn't help much, as calendar years and school fiscal years are offset by 6 months, meaning that a new levy contributes only half its annual value in the first year, which is the following Fiscal Year. In other words, the May 2011 levy, if passed, will not contribute any revenue until January 2012, which is in last half of FY12.
Next levy no earlier than 2013 (2 years), and let's keep spending as planned in the Five Year Forecast: This is simply not possible. If we want to commit to waiting until 2013 before the next levy is put on the ballot, there must be ~~spending cuts~~ a reduction in the rate which spending is forecasted to increase.

Why? Because if we don't cut spending, we'll run out of cash in FY13.
So if we want to wait until 2013 to next put a levy on the ballot, and we don't want that levy to be any larger than 7 mills, how much do we have to cut spending? This is the key point I'm trying to bring to light - that we'll have to reduce the rate of spending growth to about $4.5 million per year - about half the rate dialed into the Five Year Forecast - in order to survive for two years until an additional 7 mill levy would have to be put on the ballot. It would look something like this:

click to enlarge

There are many more ways we could twist these knobs to generate other scenarios. All of them will tell the same story - regardless of whether or not the May 2011 passes, we have a lot more hard work to do. We simply cannot sustain the rate of spending growth at which we have indulged ourselves over the past decade or so.

COFFEE WITH THE BOARD --- CANCELLED

2011-04-08T09:13:00.001-04:00

Pencil in Saturday May 7, 2011 - 9:00am to 10:30am for a Coffee with the Board at the Central Office Annex. The official announcement should come soon.

Coffee with the Board – Canceled for April 20

The Hilliard City Schools Board of Education is cancelling the April 20 Coffee with the Board event due to the Hilliard City Council Meet the Candidates Night. The board would like for residents to be able to attend both important events. The coffee will be rescheduled and the details will be shared with the community once they are determined.

Note: although this was originally posted on April 18, I'm moving it down in the order so that the 'Budget Knobs' story is at the top of the blog until after the election - as many folks only read what's at the top of the blog (according to the traffic statistics).

SB5 Signed Into Law - Referendum Vote Likely

2011-04-03T19:07:00.002-04:00

In the several years I have been involved in matters of local government, and in particular of our School District, no issue has before arisen which polarizes people more than the legislation known as "Senate Bill 5." It is so divisive that I wonder if it will be possible for me to express my thoughts without inviting the kind of emotionally-charged, mean-spirited vitriol one sees is so many public forums - notably the online forums such as Topix, which allows anonymous and unmoderated comments.

Just yesterday I made a comment on a friend's Facebook note about SB5, and almost immediately received a reply from someone who said they wanted to know where I work so that they could organize a boycott in order to hurt my income. I told him I was retired and a full-time volunteer at my church and our local school district, and asked which he wanted to boycott first...

So while I invite debate and discussion in this blog, I do moderate the comments, and do not tolerate those which contain personal attacks or language I wouldn't want a student to read. If you want that kind of blog to comment in, start your own.

I think the first step is for everyone to climb down from their high-horses and agree that what we're talking about is how we go about negotiating the compensation and other terms of employment for people who work for our government. In return for the services provided to all of us by these government employees, the people of a community agree to pay taxes of various forms which are used to grant compensation and benefits to the public employees.

The trick is finding balance - in particular balancing an economic equation that looks something like this:

Cost of Services = Value of Services as Perceived by Taxpayers

The idea is that if the taxpayers perceive a service to have value, such as plowing the streets when it snows, they will be willing to pay some amount of taxes to have that service performed. But that's not the end of the conversation. The government has to find a way to have the snow plowed for a cost the taxpayers are willing to fund. The government can hire independent contractors, or decide to buy snowplows and hire people to drive them. If the government decides to hire workers, the workers have to be willing to agree to do the job for what the government offers to pay them.

If the workers want to be paid more than the taxpayers are willing to fund, the process of negotiation will continue - and the workers will perhaps offer to work for less and the taxpayers will perhaps agree to pay more - or the decision can be made to not offer the service after all.

What happens after some time goes by and the workers decide they want a pay increase? A new negotiation takes place. The workers want to drive up the Cost of Services in the equation above, and the taxpayers have to decide if the Value of the Services as Perceived are such that they are willing to pay more to keep it going. There is no one correct answer for this situation. Either the workers and the taxpayers will agree to a mutually acceptable cost, or the service will be terminated.

But over time, this negotiation process has been handed off to third-parties, and the direct relationship between the government worker and the taxpayer has faded into the background, to the point that it has become an abstraction - or even invisible.

So let's be clear on these two truths:

Every dollar of compensation and benefits that flows to a government worker comes out of a taxpayers's pocket.
Government services are not free, especially those which are delivered by humans - and most of them are. If citizens want a rich and expansive set of government services to be provided to them, they have to be willing to pay the taxes necessary to hire and sustain the workers who perform them. If the taxpayers aren't willing to pay what the workers demand, then the taxpayers have to be willing to live without the service.

We Americans have become all mixed up about rights, responsibilities, privileges and obligations. We struggle as to which (and whose!) moral and religious beliefs should be encoded into governmental law, and enforced by our justice system.

The idea of our democratic system is that these struggles can be resolved by means of debate and compromise. But for this to work, we need to share an underlying desire to remain a community that accepts and abides by the compromise.

I grew up in a little community in a river valley in West Virginia. When you live in that part of the world, bridges are pretty important. To get to the grocery store across the river, which I could see from my front porch, one had to drive a mile upstream to the bridge, and then a mile back downstream to the store. Everyone who wanted to cross the river had to use that bridge, else drive five miles upstream or nine miles downstream to the next closest bridges.

Our bridge was one car wide. That meant that you had to wait until the bridge cleared of traffic coming in the opposite direction before you could cross. Lots of people used that bridge, especially in the morning and evening when people were traveling to and from their jobs in the city. It could be quite easy for a long line of cars going in one direction to completely tie up the bridge for a good while, denying the folks going in the opposite direction a chance to cross.

But I never saw that happen. Two or three cars might go in one direction together, but the next car in line would stop, and give the folks going in the other direction a chance. There's a good reason why it worked that way - the folks coming the other direction were probably friends or family, and the consideration they showed each other when crossing the bridge was the kind one shows to a friend. So when someone charged the bridge with their horn blazing, it might be a neighbor in trouble, but was more likely some jerk outsider who had no ties to our community.

I wish the negotiations with government employees would work more like the way the folks of my hometown figured out how to share the one-lane bridge. In fact, let's quit talking about government workers in general and talk specifically about the teachers in Hilliard City Schools.

Many of these folks aren't just teachers, they're also friends and neighbors, members of our places of worship, and parents of swarming little soccer players and marching band members, just like the rest of us. As parents, we entrust them with our kids for 180 days per year. We trust them to be our partners in preparing our kids to be happy, productive and independent adults.

So how did we come to let this important relationship be defined by outsiders --- Outsiders more interested in blowing their horns as they barge their way across the bridge, as though the most important thing in the world is to be first across the bridge every time, even if that means making a person going the other way back up in fear of getting hurt? The kind of Outsiders who don't give two licks whether their behavior has a lasting negative impact on the fabric of our community??

We all know that we have a School Board made up of five folks elected from our community to represent all of us in the governance of our school district. The teachers are represented by a local union called the Hilliard Education Association, and its officers are all teachers in our school district, elected by the teachers from their own ranks. One would like to think that the equation I proposed above...

Cost of Services = Value of Services as Perceived by Taxpayers

... is worked out by those School Board members and the officers of the Hilliard Education Association, both interested in striking a deal that makes our schools a great place of learning for the kids and a great place to work if you're a teacher, all within the bounds of mutually acceptable economics.

But it's not.

Each side brings in professional negotiators - OUTSIDERS - to do the hard work. As outsiders, those negotiators are less interested in working out a deal that preserves the emotional fabric and economic sustainability of our community than they are proving that they are effective intimidators on behalf of their clients.

SB5 is this disease taken to the state government level. These matters which we should be able to work out in our community have been escalated to the next level of government, with each side hoping they have the votes to cram an unsustainable solution down the throats of the other.

Sometimes one side does gain that kind of power, and uses it like a dictator who doesn't have to worry about the next election. But there is a next election, and the more one-sided the legislation enacted during one party's time in the sun, the more likely it is that at the next election, the other party will regain power, and will in turn use it to seek not only revenge, but to preemptively weaken the other side for the next battle. SB5 isn't the first example of this - this strategy has been utilized by both sides for a long time.

We all get that that the State of Ohio has a budget problem. The economy of our state has permanently changed, with tens of thousands of industrial jobs disappearing as the factories have shut down. When there is no business income, there is no personal income, and when there is no business or personal income, no taxes are paid to the state. That's the problem, and it won't be fixed overnight.

So the State of Ohio has less money to give the schools. Understood. That means that each school district must figure out how to make do with less state funding. Maybe the people of the community are willing to make up a little of the gap with increased property taxes. Maybe the teachers are willing to make up the some of the gap with compensation concessions. It seems like calm heads motivated to find a solution could figure this out.

The premise of SB5 is that we can't. SB5 says that the people of a community - parents, homeowners, teachers and business owners - need to bring bigger weapons into the room and solicit their own gangs of hired gunslingers to take on the fight for them. And we'll all sit in the stands like fans at an OSU-Michigan game hurling insults at each other.

Except it won't be for fun. It will be vile and hurtful, with the intention being to inflict harm on the other team, like the guy I mentioned above who wanted to boycott my place of employment.

What do you say we forget that SB5 exists, and commit to working this out on our own? We still have a chance to do so before it becomes law.

Clarification and Apology

2011-04-03T18:00:00.004-04:00

I published a piece Friday about a story published in the student newspaper of Bradley High School - The Reporter.

I am guilty of violating one of my own principles: keeping the governance debates between the adults of our school district, and leaving the students out of it. In this emotional dialog about SB5, a piece of legislation which I have been publicly critical of, I put a student - a student writer for The Reporter - in the line of fire.

To Ms. Haworth, the reporter: I apologize to you for doing this. My comments were never meant to criticize you or question your integrity. I'll endeavor to not repeat this mistake.

Sincerely,
Paul Lambert

Journalism or Propaganda?

2011-04-01T15:32:00.001-04:00

I invite you to read the story about Senate Bill 5 published on the front page of the student newspaper of Bradley High School, the Reporter.

I have no concern or objection in regard to the statements made by the teachers, and completely respect their right to these opinions.

But there are other viewpoints, and journalistic integrity - one of the things I assume we would be teaching to students publishing a newspaper - would seem to require that these be reported as well.

I've shared this view with the Superintendent and Board.

Please read my additional note of apology to the student who wrote this story.

State Funding Cuts - The Other Shoe Has Dropped

2011-03-31T11:25:00.000-04:00

I said at the last Board meeting that the State funding cuts could be covered with 1.3 mills of property taxes, and that the rest of the funding needs driving the levy were a matter of local choice.

The latest information from Governor Kasich's Biennium Budget Proposal has rendered this statement incorrect - very much so.

The Ohio Office of Budget and Management has released more detail about the adjustments to the Personal Property Tax (PPT) Reimbursement, which I explained in the earlier article, "A Bullet Dodged."

The cut is significantly larger than expected.

This document explains how the new PPT Reimbursement numbers were derived, which are detailed here. The strategy is that Ohio's school districts would be divided into two categories:

Districts which don't rely much on the PPT Reimbursement, meaning that less than 2% of their total funding comes from the PPT reimbursement. For these districts, the PPT Reimbursement program is over - they'll get no more money from this program. In Franklin County, Bexley and New Albany fall into this category.
All other districts. This is obviously where we fall, as for us the FY11 PPT Reimbursement of $12 million represents 8% of our $152 million in total funding. For such districts, the PPT is phased out at a rate of no more than 2% of total funding each year. How long the phase out will take varies for each district, with the period being longer if the PPT Reimbursement is a large fraction of total fund.

For example, Marysville Local Schools receives 16.5% of its total funding from the PPT Reimbursement (because of the Honda plant), so at a reduction rate of 2% more each year, it will take eight years for their reimbursement to end.

Since 2% of our total funding is a bit more than $3 million, the phase out schedule would work such that the $12 million for FY11 would be reduced to $9 million for FY12, then to $6 million for FY13, and finally $3 million for FY14 - and that would be it. Graphically, it looks like this:

Click to enlarge

Within the scope of our most recent Five Year Forecast (Oct 2010) - which extends to FY15 - our funding for PPT Reimbursement will be a total of $17.6 million LESS than projected.

It was already all but certain that even with the passage of the 6.9 mill Permanent Operating Levy this year, there would have to be another levy on the ballot again in 2013. We're already deficit spending, with our cash reserves diving toward zero. A 6.9 mill levy this year will slow the cash burn, but not end it - and that was true before this PPT Reimbursement cut was announced.

Our Five Year Forecast already had a much less aggressive phase-out of the PPT Reimbursement built in, plus assumptions that the next contract with the unions would be for three years, with base pay increases of 1% in FY12 (actually 0.5% because the unions have agreed to a base and step freeze for calendar 2011, meaning step increases automatically resume Jan 2012), 1% in FY13, and 1.25% in FY14. Although it would be beyond the scope of a three year contract, the Five Year Forecast assumes 1.5% base pay increases for FY15.

Note that the passage of SB5 changes all these assumptions about compensation agreements with the unions. I'll not attempt to address them in this article as there is still much to absorb about the final form of this law.

My unofficial, personal analysis of the numbers - ignoring the effect of this PPT Reimbursement phase-out acceleration for the first pass - is that: a) if we stick to the spending plan in the current Five Year Forecast, then the 2013 levy would need to be on the order of 8.8 mills to keep us from running out of cash before FY15 (when yet another levy would be needed).

If we pile on this acceleration of the PPT Reimbursement phase out, the 2013 levy would need to be on the order of 14 mills. That's how big a deal this is.

So if we assume that the 2011 levy passes, and another one is put on the ballot on 2013, and it passes, how much do we have to cut back on spending to keep the 2013 levy from being larger than say 7 mills?

My estimate is that we would have to cut the FY12-FY15 annual spending growth from the 4.25% compound annual growth rate now in the Five Year Forecast to something on the order of 2.5%. In dollar terms, that would mean reducing spending as follows:

FY12 from $166.7m to $166.2m (-$500,000)
FY13 from $175.9m to $169.6m (-$5.3m)
FY14 from $183.3m to $174.1m (-$8.2m)
FY15 from $191.3m to $178.7m (-$11.6m)

Graphically, it looks like this:

Click to Enlarge

In other words, after passing 7 mill levies in 2011 and 2013, we would still need to take a total of $25.6m out of our FY12-FY15 spending plan to stay solvent.

But note that this still isn't a spending cut. It's a significant reduction in the rate of spending growth.

Our total spending as a district would still increase at a rate of 2.5% per year. The question is whether even that is affordable to the people of our community.

Comments in Regard to the "Cut List"

2011-03-29T10:26:00.002-04:00

Below are the comments I made at the School Board meeting last night in regard to item D1 on the agenda, the list of things that would be cut in the event the 6.9 mill Permanent Operating Levy is not approved by voters on May 3.

I have some reservations about this resolution:

The premise of the opening sentence of this resolution seems to be that we are in the position of impending cash shortfalls solely because of what we have been so far told about the proposed biennial State budget.

This seems more a political viewpoint than a statement of fact.

Our pace of spending growth has been, and is projected to continue to be such that levies are going to be required ever more frequently (please refer to this chart). This was true before this state budget was proposed, and it was true before the gubernatorial election took place. It’s not just me who has been saying this – the Audit & Accountability Committee appointed by this Board warned us in their June 2010 report that “the rate of growth in costs is simply not sustainable nor supported by current economic factors.”

The $3m in state funding reductions being proposed by the Governor associated with the Tangible Personal Property Tax reimbursement could be covered with a levy of no more than 1.3 mills. We are asking the voters of our community to consider a levy five times that size. In other words, we can hang 1.3 mills of blame on the state government, but the other 5.6 mills is the consequence of decisions made within our District, as well as the municipal governments we overlay. The one-time Federal Stimulus money we received – along with the one year compensation freezes contributed by the teachers, staff and administrators – allowed this levy vote to be delayed for a year, but did not change the fundamental economics of our district.

Secondly, a parent made a comment to me that I thought was particularly poignant: If we are in the business of educating kids, why in the process of selecting what to cut from our substantial list of optional programming, would we choose to eliminate the gifted services to our brightest students while maintaining an extraordinarily rich and expensive set of high school extracurricular programs? Is there some sort of formula for weighing the relative worth of extracurricular activities versus educational services to kids who would benefit from those services, be they gifted or have learning disabilities (which are not mutually exclusive conditions).

It would undoubtedly be a difficult and uncomfortable process to pick and choose which extracurricular activities to drop or scale back in order to free resources for the gifted programs. That doesn’t mean it shouldn’t be done – with appropriate community input.

Lastly, I have a concern about the use of the word “automatic” in the second paragraph of the resolution. We don’t yet know what the final State budget will look like, and whether the changes in our state funding will be more or less than portrayed to this point. It could be that some of these cuts are not necessary if the levy doesn't pass, and it could be true that some of these cuts will be necessary even after passage of the levy.

I understand not wanting to leave our most junior teachers and staff – who are the first to get laid off in most cases - “on the bubble,” not knowing whether they have a job next year or not. But passing this resolution now does not help that much – their fate will not be known until after the May 3 election regardless.

I THEREFORE MAKE THE SUBSIDIARY MOTION TO POSTPONE INDEFINITELY THE ACTION ON THIS RESOLUTION UNTIL WE HAVE MORE DEFINITE INFORMATION AS TO THE FUNDING WE WILL RECEIVE IN THE UPCOMING BIENNIAL BUDGET.

My motion died for the lack of a second.

A long discussion followed, which by itself is a victory for the governance process. I respect the opinions of my fellow Board members, as I hope they respect mine. The vote was 4-1 to adopt the resolution, with me casting the sole NO vote.

My concern is that if the new State Budget whacks us even harder than has been revealed so far, we could end up in a situation where the people pass this levy, and then some or all of these cuts have to be made anyway. That may be understandable to the growing number of folks in our community who are paying more attention to public school economics and politics, but I expect that most of the voters would feel betrayed. The recovery from that could take years.

And this is still only nibbling at the edge of the real strategic issue - the unsustainable rate of growth of our spending on compensation and benefits.

click to enlarge

The Audit & Accountability Committee picked up on this very early in their discovery process, as one should expect would happen when a smart and experienced set of financial professionals examined the numbers. When Dave Lundregan said that it's time that the people of our community engage in the "hard decisions," this is what I believe he was talking about. He's exactly right.

Thanks to Justin Gardner (his comments here, as well as video) and Mike Harrold for coming forward to address the Board. Community input is crucial during the process, and the School Board meetings are an important place to make your feelings known. Even if you don't get an immediate response, your comments can influence future considerations and decisions.

The informal meetings are another important venue for dialog. A Coffee with the Board is being scheduled, and it's looking like the evening of April 20 will be it. If you haven't already cast your levy vote by then, this is a great time to ask questions that might help you make your decision.

A Bullet Dodged?

2011-03-25T12:29:00.000-04:00

Today's Columbus Dispatch reported the long-awaited details of the the district-by-district funding proposed by the Kasich Administration. So how did we do?

It seems as expected. It could have been much worse.

As described in my earlier article, our major funding streams from the State of Ohio are State Foundation Aid, Reimbursement of Tangible Personal Property Tax Revenue, and - for FY11 and FY12 only - a total of $4.3 million of one-time Federal Stimulus money. Here's how it looks so far:

State Foundation Aid

For FY11 (the fiscal year we'll finish on June 30, 2011), our Foundation Aid - shown as "Unrestricted Grants-in-Aid" on the Five Year Forecast - will be $33.996 million. A table just published by the Ohio Department of Education shows the FY11 number to be $33.115 million. I'm not exactly sure of the reason for this $881,000 difference (and will ask our Treasurer for clarification), but for now will assume that the $33.115 is the number we should be working with for this analysis to keep things apples-to-apples.

So according to this newly published table, we should expect to receive $33.127 million in FY12, or essentially the same amount as for FY11. The method for calculating this interim funding mechanism - the Governor says he has bigger plans for the next budget - is explained here. If this interim plan holds up through the legislative process, it puts us right on projections. And for FY12 the State Foundation Aid is projected to increase by about $1.5 million to $34.626 million.

When our last Five Year Forecast was prepared in Oct 2010, Treasurer Brian Wilson estimated that we would see a 10% reduction in State Foundation Aid for FY12 - on the order of $3.4 million. I've been concerned all along that the cut would be deeper. However this funding proposal appears to keep us pretty much whole.

So far, the news is good.

Reimbursement of Tangible Personal Property Tax

As I reported earlier, it looks like the $12 million we had forecasted to receive in FY12 and FY13 is going to be reduced by $3 million each year. I think this one blind-sided all of us, although Mr. Wilson's radar had recently picked up that this might be a place were cuts would be applied.

He was right. So in aggregate, his forecast was pretty much right on in regard to the net impact across these two categories.

Federal Stimulus Money

I don't know how many times this needs to be said: This was one-time money that gave our District the little extra cushion needed to show a tiny positive year-end cash balance for FY12, which in turn allowed the delaying of the next additional operating levy until this year. Of course, the calendar 2011 base pay freeze and step increase postponement accepted by the teachers, staff and administrators contributed as well.

This was a nice gift from the Federal Government (which of course was just piled onto the massive national debt), but it's over. The Five Year Forecast was built with that knowledge, and does not assume any additional Federal Stimulus dollars will be coming out way.

Bottom Line

The Revenue side of our Five Year Forecast looks like it lines up pretty well with the current funding information we're getting from the State. That's a relief.

But we can't rest easy. All we've seen so far is the Governor's proposal - we still have the legislative process ahead of us, so it could be several weeks before we know the final numbers.

The last time around, Governor Strickland's first cut with his so-called Evidence Based Model didn't stand up very well. It led to the creation of the Education Challenge Factor as a mechanism that allowed funding to be tweaked district by district. The addition of the ECF significantly changed the number for many districts.

Will there be such a 'tweak' this time? If so, will it be a big one or a little one?

Can't tell yet.

There are winners and losers in this scheme, as there is with any change in the school funding system. Cleveland Municipal Schools is a big winner, and will get $15.7 million more in FY12 than the $398 million they received in FY11, which is a 3.9% increase. But also in Cuyahoga County: Beachwood, Cuyahoga Heights, Independence, and Orange schools will see their State Aid reduced to zero.

Here in Franklin County, the big winner is Columbus City Schools, who will see $6.3 million (2.9%) added to their FY11 State Aid of $218 million. No districts in Franklin County get zeroed out, but Upper Arlington will lose more than half (54%) of the $3.3 million they were granted in FY11, and New Albany will lose 39% of their $2.4 million.

The explanatory document that accompanied this proposed funding table says that 421 districts will see an increase in funding for FY12 under this plan. That means 192 districts will stay the same or see cuts. Whether it gets tweaked will depend on the relative legislative power of the 421 districts (who tend to be urban and rural) versus the 192 (who tend to be suburbs).

I wouldn't be taking much of a risk by assuming that this table was constructed in such a way to ensure that a majority of the members of each House are in the 421...

Remember the Special Board of Education Meeting Monday March 28

Notice of Special Meeting

2011-03-24T10:33:00.000-04:00

HILLIARD CITY SCHOOL DISTRICT

BOARD OF EDUCATION

NOTICE OF SPECIAL MEETING

(RC 3313.16)

Notice is hereby given; there will be a SPECIAL meeting of the Board of Education of the Hilliard City School District on MONDAY, MARCH 28, 2011 at 7:00 P.M. located at the Hilliard City School District Administration Annex Building, 5323 Cemetery Road, Hilliard, Ohio. The meeting will be held in regular session to discuss budget reductions, personnel actions and any other business that may be lawfully considered.

The meeting is called by Brian W. Wilson, Treasurer/CFO of the Hilliard City School District Board of Education, at the direction of the President of said Board.

March 24, 2011

Signed:

Brian W. Wilson, Treasurer/CFO

Hilliard City School District

Board of Education

The Governor's Budget Proposal

2011-03-20T11:52:00.000-04:00

Note: If you haven't already done so, please read my earlier article on Governor Kasich's first Biennial Budget.

I've been asked by several folks what I think of the Governor's proposed budget for the next biennium.

The only answer I can give right now is "stay tuned" - we haven't seen the final deal yet. From here, the budget goes to the General Assembly to be translated into law, and it is possible that they will make some adjustments. However, one must presume that the Governor would not submit a budget without talking over key numbers with the leadership of the General Assembly, so I don't expect a lot of changes. But politics can be strange and unpredictable, so we'll have to see.

Our school district receives funding from the State of Ohio via several budgetary programs. Here are the major ones:

Reimbursement of property taxes:

In years past, the General Assembly has enacted various reductions of property taxes. If you examine your property tax bill, you'll see lines labeled "10% Rollback" and "2 1/2% Rollback." These are exactly what they say - reductions in your property taxes. But property taxes are revenue sources for local governments such as counties and school districts, not the State. So to keep the local governments "whole," the State of Ohio sends grants to those local jurisdictions to make up for the lost property tax revenue.

There was some fear that these two reimbursements would be phased out. Luckily, that seems not to be the case. The impact would have been to increase our property taxes by 14%, yet not have generated one more dime of revenue for our school district (because we have already been getting reimbursed). So far, it seems as through these reimbursements have been retained, and that's a good thing.

But our luck is not so good with another kind of property tax - the Tangible Personal Property Tax (TPPT). This is a tax on things like business equipment, machinery used in manufacturing, and inventory, and is also paid to local governments, including school districts. Governor Taft signed legislation in 2005 that eliminated the TPPT, but simultaneously implemented a "phase-out" program that would replace the TPPT revenue with grants from the State of Ohio, much like the real property tax rollbacks I mentioned above.

However, there is one big difference with the TPPT tax repeal - the law specified that the reimbursements would be 100% of the lost TPPT revenue until some point in time, then be reduced a certain percentage each year until eliminated. Under the current law, the 100% reimbursement period lasts through FY13, then is gradually reduced until eliminated after FY18.

This is no small thing. Our annual funding from this reimbursement program was expected to be $12 million each year through FY13 (as documented in the Five Year Forecast), before entering the phase-out period.

The Governor's Budget intends to accelerate this phase-out. Specifically, in FY12, it looks like our TPPT reimbursement funding will be about $9 million, and in FY13 it will be about $6 million.

So in just those two years, we'll get approximately $9 million less in state funding. The picture in later years is less clear, as they are beyond the scope of this biennial budget. But the expectation is that the pain will continue for several years to come.
School Foundation Aid:
Our largest chunk of funding from the State of Ohio is "School Foundation Aid." This amounts to around $33 million/yr, or about 21% of our total funding.

The budget documents as submitted by the Governor have the following to say about this item: "GRF (General Revenue Fund) appropriations in the school funding line items ... 200550 (Foundation Funding) increase by 1.4% from FY11 to FY12, and by 1.5% from FY12 to FY13" (see page D-186).

That sounds like good news, but remember that the State Foundation funding is not passed out evenly across all school districts. Since Hilliard is viewed as an affluent district by the State Board of Education, we get a smaller per-student funding amount than the many low income districts in Ohio.

In my opinion, we'll be very fortunate if our Foundation Aid funding stays in the ballpark of where we are right now.
Federal Stimulus Dollars
As part of the massive Federal Stimulus Program enacted over the past couple of years, our school district received $2.5 million in FY11 and will get another $1.8 million in FY12. This money was first granted by the Federal Government to the State of Ohio, who then decided how to distribute it to Ohio's school districts. The method they choose was to apportion this money is same percentages as each district's share of the School Foundation Aid funding.

This money was very handy, in that it played a big part in being able to postpone asking the people of our community to pass another property tax levy.

Some folks take what I think is a bizarre point of view about this one-time money, which is that because the State of Ohio didn't continue this level of extra funding on its own, there has been a funding cut. It seems to me that a much more rational way to look at this money is as a one-time gift that helped in the short term, but doesn't do anything to address our fundamental fiscal situation.

Regardless of how you characterize this, it's $4.3 million that we used to fund normal operations that is not going to be in the revenue stream going forward. We knew this, and it was built into the current version of the Five Year Forecast.

So, at this stage of the process, it looks like we might be about where our Treasurer projected we would be, with State funding down about $3.3 million/yr compared to FY11.

That doesn't mean things are hunky-dory. We are still spending $5 million more than our revenue in FY11, and are projected to spend $12 million more than revenue in FY12 - ignoring revenue from a new levy.

And we still have to see what happens to our Foundation Aid funding.

Stay tuned.

Senate Passes Collective Bargaining Reform

2011-03-04T16:34:00.001-05:00

This is a continuation of a conversation started here.

As anyone remotely involved in public education in Ohio knows, the Ohio Senate rapidly moved Senate Bill 5 - the legislation meant to radically reform the laws under which public employee unions operate - from Committee to the floor, where it was passed with little debate.

The text of SB5 as amended and passed is available here, along with a summary generated by the Senate. The next step is for the Ohio House of Representatives to consider the Bill. If they choose to pass it without modification, the Bill could be on the Governor's desk in a matter of days. I'd be surprised if this happens - there will almost surely be amendments made by the House, forcing a conference between the Senate and House to resolve differences. So there's still a lot of politics to happen before any law is created.

But I may be wrong. A good friend and much better observer of politics than I feels SB5 will be passed by the House without modification and signed by the Governor, leaving the real battle for the budget process, which starts soon.

So here is where I stand at this point:

Right to Strike: SB5 takes away the ability for public sector workers to strike (Sec 4117.15 line 8393), and imposes significant penalties on those who do so illegally.

The threat of a teacher strike is the nuclear specter that hangs over every negotiation between a School Board and the employee unions. Some claim that the proof that the current collective bargaining laws have been working is that there have been few teacher strikes since it was implemented.

I think another explanation is that for most of the 30 years since those laws were passed, our economy was in one of the longest periods of growth and prosperity in American history. Therefore, school boards during that period felt confident that they could win sufficient support for additional tax levies to underwrite the deals the unions negotiated. No sense daring the teachers to strike if that's the case.

Those days are gone, and we're now in much tougher times. Does that mean it's impossible to negotiate a new collective bargaining agreement that fits the times?

That's the fear. Clearly our employees have shown a willingness to work a year without a base pay increase, and to postpone the application of step increases by half a year, and that is appreciated. But that's not a new contract, and we don't have a clear sense yet of what the teachers and staff are looking for in their next contract, which has to be negotiated this year.

We all know that the State of Ohio has a huge revenue-vs-spending gap to fill, reportedly on the order of $8 billion, and we've already been told to expect a multi-million dollar cut to our annual funding from the State. I'm concerned that our current estimate of a 10% funding reduction is overly optimistic, and that as a district viewed to be affluent by the lawmakers, we might be hit with cuts that are double that.

So some painful choices are going to have to be made. How will the impact of our down economy be apportioned between employees and taxpayers? Certainly the rate in which our expenses are growing - which really means the rate in which our cost of compensation and benefits is growing - has to be reduced significantly simply because our revenue is being significantly reduced. There are only two knobs to turn: 1) the number of people on the payroll; and, 2) the per-capita compensation and benefits costs. Neither is adjusted without anguish.

SB5 takes the nuclear option off the table while we try to work this out. I think that's a good thing, because a strike is first and foremost harmful to the children of our community.

So how does a negotiating impasse get resolved in this Bill? The process is described in Section 4117.14, beginning at line 7998:

4117.14(C) If the parties are unable to reach an agreement, any party may request the State Employment Relations Board (SERB) to intervene. (line 8083)

SERB will then appoint a mediator to try to bring the parties to agreement.

Interestingly, at this point, both SERB and the school board would be required to post "conspicuously" the last offers from both the union and school board on the school district web site. This gives the public a chance to review the offers and let their feelings be known while negotiations are still underway. I think this is a good thing.
4117.14(C)(1) Any time after the appointment of a mediator, either party may request the appointment of a fact finder.

This person is appointed by SERB from its list of qualified persons. The fact finder will gather information and make recommendations for resolution of the remaining disputes. The fact finder is not permitted to disclose these recommendation to the public.

If either 60% of the union membership or 60% of the "legislative body" - the school board - reject the fact finder's recommendations, the recommendations are publicized and the process moves to the next step. Again, this creates an opportunity to hear feedback from the community.
The school board, or a committee of the school board, conducts a public hearing at which both the school board and the union are required to explain their positions with respect to the report of the fact finder. At the conclusion of the hearing, the school board votes to accept either the board's last offer, or the union's last offer.

There is some understandable concern on the part of the unions about this last step. After all, why would the school board ever choose to reject its own last best offer in favor of the last best offer made by the union?

All I can say is that strange things happen in politics. It's no small thing that this section of the Bill requires that this last step take place in the full bright light of public scrutiny. There is little question that such a hearing would be attended by hundreds of union members, and probably hundreds of community members. It would be the same kind of scene as that we've been witnessing at the Statehouse this week. I'm not sure exactly where we would hold such a hearing in Hilliard - one of the high school gyms?

The point is, would a school board stick to its last best offer in such a situation, or yield to the union position? We won't know until we get there --- and I hope we don't.

So with or without the right to strike, both parties need to bring empathy and reasonableness to the bargaining table this time around. I don't think the public has a lot of tolerance for strong arm tactics by either side right now, especially when it hurts the kids.

When it comes to the kids, they expect us all to be on the same side.

Merit Pay

The new language for ORC 3317.13 (see SB5 as passed, beginning at line 4672) describes a process which must be used to evaluate teachers according to merit. In that process, the School Board must consider all of the following:

the level of licensure the teacher has achieved;
if the teacher is "highly qualified" as defined in ORC 3319.074;
a "value-added measure" the School Board establishes to determine the performance of students in that teacher's classroom; and
the results of an evaluation of the teacher, which might be in the form of a peer-review process negotiated with the union.

I'm a big fan of merit pay. More accurately, I'm a big fan of compensation systems that give each employee a chance to be rewarded with something meaningful to that employee. The trick is to find out what specific reward would motivate each individual, and find a way to provide that reward when an individual achieves certain agreed-upon results.

Unfortunately, we tend to think money is the only reward appropriate in an employment situation - it's certainly the easiest to administer - and I think that leads to the creation of ineffective and expensive compensation programs.

I think it's safe to say that most folks don't go into teaching for the money. But they don't go into it to fill out forms or teach to the test either. Nor do they want to be expending more energy managing classroom behavior than they do imparting knowledge. If we want to effectively reward the teachers, maybe we need to start by figuring out ways to diminish the bureaucracy and behavioral issues they have to deal with, and let them spend more time teaching. Then yes, let's measure their performance objectively, and reward appropriately. Let's look beyond money as being the only form of reward.

But this SB5 fails to change any of this. Both the unions and the management will continue to attempt to resolve performance/reward discussions with a contentious dialog about pay and benefits.

The reality is that if SB5 passes, we're going to enter an extremely painful period of trying to figure out how to turn this ambiguous law into a working collective bargaining agreement (CBA) with the unions. You can bet that the lawyers and consultants are licking their chops about this one. With the stroke of a pen, this law will create a whole new industry to advise school boards and unions how to architect and negotiate radically new CBAs.

I'm not so sure SB5 isn't really a jobs bill for the lawyers and consultants.

Sharing of Health Insurance Costs

The current CBAs with the teachers and staff specify that the employee pays 10% of the contribution necessary to fund our self-insured plan. Right now, the total contribution is $473.74/mo for single coverage, and $1,279.08/mo for family coverage, meaning that the employee pays $47.37/mo and $127.91/mo respectively.

The original version of SB5 required employees to pay 20% of the cost of health insurance coverage. This has been reduced to 15% in the amended bill that was passed by the full Senate (Section 3313.202(B)(1), see line 3872). Current CBAs will remain in force until their expiration (12/31/11 in the case of ours), but this says that no matter what is negotiated into the next agreement, the employee contribution to health coverage is going to increase by at least 5%. In dollars, that would be around $25/mo more for single coverage, and $65/mo more for family coverage.

I don't know what the Senate was thinking on this - that insurance costs are somehow isolated from the rest of the negotiation process? Does anyone doubt that sometime during the process of negotiating the compensation components of the next CBA, that someone on the union side will say "we want X to help cover the cost of increased insurance contributions"?

Seniority no longer the sole basis for order of layoffs

In principle, I think this is a good thing as well. If a school board finds itself in the regrettable position where folks have to be laid off, doesn't it make sense to cut the people who are least effective?

The catch is figuring out a layoff process which all accept as fair, and not capricious. More opportunity for the lawyers...

In summary...

This conversation is far from over. Regardless of what the House decides, or what gets presented to the Governor, we're going to have another go at it during the budget process. After all, it was through the last budget bill that Governor Strickland implemented most of his changes to school operations, notably the so-called Evidence Based Model.

Nor is this some haphazard political process. The Republicans control both houses of the General Assembly as well as the Governor's seat, and they are executing a well-planned strategy to stage these bills in preparation for the budget battle. But as we saw with the Senate vote on SB5, things are not going to necessarily go according to party lines, and our lawmakers are going to individually weigh the political benefits vs the political cost of their votes.

So who knows how it's going to turn out. I have no problem with the teachers, police officers, firefighters and other unionized public employees going down to the Statehouse and making their views known. And I respect those who support the Bill doing the same. Free Speech one of our most cherished Constitutional rights, and many have died to create and to defend that right.

I just wish those folks could do so without resorting to insults and childish behavior.

Another Look at the Ballantrae Question

2011-02-25T11:10:00.002-05:00

As I've continued to ponder this question about whether Ballantrae is truly in jeopardy of being "taken over" by Columbus City Schools, I thought it would be a good idea to reread the language of the Win-Win Agreement. My thinking has changed somewhat as a result.

The Win-Win Agreement defines some terms which need to be put in the context of this discussion:

Annexed Territory means all areas of land which have been annexed to a city or village for municipal purposes, but on the effective date of this Agreement, have not been transferred to the school district of which the city or village is a part.

I believe this definition was created to deal with neighborhoods like The Glen or Golfview Woods, which at the time of the Agreement had already been annexed into Columbus, but remained in the Hilliard School District.

This doesn't seem to apply to Ballantrae, because those parcels of land had not yet been annexed to Dublin when the Win-Win Agreement became effective.

Future Annexed Territory means any area of land that is annexed to a city or village for municipal purposes after the effective date of this Joint Agreement

This would seem to be the definition that applies to Ballantrae. In other words, for the scope of the Win-Win Agreement, Ballantrae is a "Future Annexed Territory."

Municipal School District means the school district of the city in which the Annexed Territory or Future Annexed Territory is located.

If Ballantrae is a Future Annexed Territory, then "the school district of the city in which the... Future Annexed Territory is located" would seem to mean Dublin City Schools if you evaluate the Agreement as though it were written today. But at the time the Win-Win Agreement was signed, the parcels which now make up Ballantrae were in the Hilliard City School District, making Hilliard Schools the Municipal School District for the purposes of the Win-Win Agreement.

I think the challenge of interpreting this definition has to do with the fact that at the time the Win-Win Agreement was written, the focus was the relationship between Columbus Public Schools and the suburbs. It wasn't written with much thought given to cases where the two parties are both suburbs.

Section 4 of the agreement implements the first of my assertions, which is that any parcels in the City of Columbus but a suburban school district at the time the Win-Win Agreement was signed - e.g. The Glen and Golfview Woods - would remain in the suburban school district. It says:

Unless otherwise provided herein, Annexed Territory shall not hereafter be transferred to the Municipal School District for school purposes.

Section 5 of the agreement deals with all future annexations. I'll take the liberty of reordering the phrases to help make it more understandable:

Future Annexed Territory [e.g. the parcels which now make up Ballantrae] shall be automatically transferred for school purposes to the Municipal School District [e.g. Hilliard City Schools], except Future Annexed Territory from such other school districts as are identified and set forth in Exhibit A1 through A7..." unless:
otherwise provided within, OR;
otherwise provided in a valid agreement entered into between two or more Boards of Education [ie - an annexation/transfer agreement already in force between two or more school districts], OR;
provided in an agreement between two or more Boards of Education, reached not later than ninety (90) days after the effective date of an Annexation [ie - an annexation/transfer agreement can still be worked out for 90 days following an annexation].

So what of all that language applies to the Ballantrae situation?

The exhibits referred to in the first paragraph of this section are descriptions, in words, of various areas of undeveloped land which Columbus City Schools agreed could be left in the suburban school district without fear that Columbus City Schools would later lay claims, even after it is developed, houses built, and there are kids attending the suburban school district. The areas described in the exhibits closely mirror the areas described in the water/sewer service agreements each suburb has with the City of Columbus.

While this implements the second of my assertions - that undeveloped land annexed into a suburb under the water/sewer service agreements would remain in whatever school district it was in prior to the annexation - it still doesn't seem to address Ballantrae, because those parcels are not included in Exhibit A4, the one which applies to Hilliard City Schools. Nor are they addressed in Exhibit A6 regarding Dublin City Schools, which seems much more concerned about the parts of the Dublin school district on the east side of the Scioto River. So how then does Ballantrae fit into this Agreement?

The Win-Win Agreement contains a clause which isn't often seen in a civil contract:

Section 8: This Agreement shall become effective only upon the effective date of legislation enacted by the Ohio General Assembly fully authorizing and enabling the provisions of this Agreement... In the absence of such legislation, this Agreement shall be deemed as never having been entered into by any of the Boards of Education.

In other words, this agreement is governed not only by what is "within the four corners of the contract," as the lawyers like to say, but also by that which is written into the Ohio Revised Code, in particular Section 3311.06, which I referred to in the previous article. This law contains its own set of definitions, one of which uses the same name as the Win-Win Agreement, but with a slightly different meaning (text from the ORC is shown in blue to help distinguish it from the language of the Win-Win Agreement):

Annexed territory means territory that has been annexed for municipal purposes to a city served by an urban school district, but on September 24, 1986, has not been transferred to the urban school district.

Compare that to the definition of "Annexed Territory in the Win-Win Agreement:

Annexed Territory means all areas of land which have been annexed to a city or village for municipal purposes, but on the effective date of this Agreement, have not been transferred to the school district of which the city or village is a part.

Notice the introduction of the term "urban school district" in ORC 3311.06, which defines this term this way:

Urban school district means a city school district with an average daily membership for the 1985-1986 school year in excess of twenty thousand that is the school district of a city that contains annexed territory.

In the context of central Ohio, the only school district which meets this criterion is Columbus City Schools.

It is also ORC 3311.06 which addresses contiguous territory:

The territory included within the boundaries of a city, local, exempted village, or joint vocational school district shall be contiguous except where a natural island forms an integral part of the district, [or] where the state board of education authorizes a noncontiguous school district, as provided in division (E)(1) of this section

... and (E)(1) says:

If territory annexed after September 24, 1986, is part of a school district that is a party to an annexation agreement with the urban school district serving the annexing city [This is true, the Ballantrae parcels are part of the Hilliard School District, which is a party to such an Agreement], the transfer of such territory shall be governed by the agreement [But the Agreement is silent in regard to this situation!].

If the agreement does not specify how the territory is to be dealt with [Which seems to be the case here], the boards of education of the district in which the territory is located and the urban school district shall negotiate with regard to the transfer of the territory which shall be transferred to the urban school district unless, not later than ninety days after the effective date of municipal annexation, the boards of education of both districts, by resolution adopted by a majority of the members of each board, agree that the territory will not be transferred and so inform the state board of education.

Uh-oh. This seems to say that Columbus Public Schools and Hilliard City Schools should have negotiated a side agreement when the Ballantrae parcels were annexed into Dublin. Or should the negotiation have been between Columbus Public Schools and Dublin City Schools, implying that Ballantrae should have been transferred to Dublin City Schools before the first homes were ever built and occupied?

This is where I need to again remind you that I am not an attorney. I can read the law and agreements as a lay person, and try to interpret what I read based on what I see in black and white before me, using the skills I learned studying logic, computer science and one course in Business Law. But the law is much more complicated than that, as it is augmented and clarified over time through the case law developed from trials and the decisions of judges.

So it seems that the situation with Ballantrae is not clear. Perhaps there is some case law which solves the ambiguity, or perhaps there are some side agreements between the Columbus, Hilliard, and Dublin which clear things up, although I doubt this is the case as it seems like such an agreement would have become public knowledge at some point.

I also suspect that this is an issue which didn't have to be raised right now, just to solve what seems to be a legal and contractual ambiguity. It is not at all clear that the City of Columbus will continue to enforce its long-standing policy of requiring annexation before water/sewer services are extended. One of the principals of the Big Darby Accord is that Columbus will extend water/sewer service into the Accord area while allowing it to remain in the townships. While the land immediately adjacent to Ballantrae is not included in the Big Darby Accord territory, the same motivation for Columbus applies - that the City simply isn't all that interested in taking on the fiscal and operational burden of continuing to extend the frontiers of the City - unless it results in more tax revenue for the City than it will have to expend to serve the newly annexed territory. Residential developments don't meet that criterion - only commercial developments do.

Note that the development along Hayden Run Rd which was annexed into Columbus also includes a new substantial commercial development at its westernmost reaches, where the Giant Eagle and other businesses now sit. I don't know this to be the case, but I can surmise developers working deals with the City of Columbus where they promise to build a commercial component along with the residential component, as an incentive for the City to accept the annexation and extend the water/sewer service.

The developer just needs to be willing to make the bet that new housing in the Columbus School District will sell, albeit at a reduced price compared to housing in a suburban school district. So far, that seems to be paying off for the Hayden Run Rd developers, perhaps because that area is served by Centennial High School and its feeders, which have demographics not that different from the suburban districts. If Columbus City Schools reassigned that area to Linden-McKinley High School, I suspect the demand for more houses would evaporate.

Whatever all these dynamics might be, I still feel there is some other motivation for initiating this conversation right now. The people of Ballantrae should ask the instigators exactly what that is.

Secession from the District: The Ballantrae Question

2011-02-22T13:41:00.002-05:00

I've been asked twice this week about the conversation going on in Ballantrae in regard to leaving the Hilliard School District, supposedly to become part of Dublin City Schools.

Much of what I've heard seems to based on information I believe to be incorrect. Nor am I clear what the motivations are for pursuing this action, although my experience is that they are rarely matters of abstract philosophy. In other words, I suspect that there are a few folks who feel they have much to gain for personal reasons they have not fully disclosed, and are attempting to invoke other arguments to futher their private goals - even when those arguments have no merit.

For example, the main assertion seems to be that because of the annexation of a large tract of land roughly bounded by Cosgray, Hayden Run and Avery Rds into the City of Columbus, and the simultaneous transfer of that same land into Columbus City Schools, a situation has been created that somehow puts Ballantrae into jeopardy of being 'taken over' by Columbus City School as well.

This is hogwash.

The reason given for this supposed exposure is, as I understand it, that it is against Ohio law for school districts to have 'islands' (non-contiguous) parcels of land included their territories. Indeed ORC 3311.06 states precisely that, but with some exceptions. Those exceptions were written into the law specifically to deal with a unique situation that exists in Franklin County - the so-called "Win-Win Agreement."

A review of history is required.

Many decades ago, the City of Columbus was given exclusive control of the regional water/sewer system. In that role, the City of Columbus has negotiated water/sewer service agreements with the surrounding incorporated municipalities. Those agreements include clear descriptions of the extent to which a suburb can annex land and be allowed to extend water/sewer service. It also prohibits the extension of the water/sewer service into unincorporated parcels. In other words, a developer is required to have his land annexed into whichever city has the rights to extend the water/sewer system to that particular parcel. This will come back into play later in the story.

Columbus was very shrewd in the way it drew up this contract, for it preserves "growth corridors" between each suburb that allow the City of Columbus to expand to areas beyond the suburbs. For example, the western limit of the expansion area defined for the City of Hilliard is along a line which runs roughly due north from Bradley High School. Therefore, any land west of this line can be annexed only into the City of Columbus.

Now let's talk about the "Win-Win Agreement." Its history goes like this:

In 1977, in the case of Penick v. Columbus Board of Education, the Federal Court ruled that busing be implemented in Columbus City Schools in order to racially integrate the schools. That led to a wave of "White Flight" to the suburbs.
This "White Flight" created a demand for suburban housing that could be satisfied only by the construction of thousands upon thousands of new homes. It launched a boom for developers and home builders unlike any ever before seen in our region.
Because all these new developments would have to be served by the regional water/sewer system, which is controlled by the City of Columbus, the fastest and most economical way to extend the water/sewer service system was to find pockets of land at the frontier of the existing water/sewer line network, but within suburban school district boundaries. In our community, among the first of these developments were The Glen and Golfview Woods. Both were outside the expansion zone assigned to the City of Hilliard, but were adjacent to the City of Columbus, and so were annexed by the developers into the City of Columbus, while remaining in the Hilliard School District.
The Columbus School Board decided that the "White Flight" was a bad thing for Columbus City Schools, and it sought to have the State Board of Education - the state agency which sets school district boundaries - declare that municipal and school district boundaries should be made the same. The Columbus School Board had compelling arguments: a) the whole reason for the Penick ruling - desegregation - was being circumvented; and, b) Columbus school buildings were emptying out (e.g. Central High School, which is now COSI), while the suburbs were building schools like crazy, costing the taxpayers a ton of money.
A time of great angst followed. Residents of neighborhoods like Golfview Woods (where my wife and I lived at the time) feared that they would be reassigned to Columbus Schools and their kids bused to schools far away because of the desegregation ruling. The demand for suburban housing dropped dramatically as potential homebuyers stood on the sidelines waiting to see how this situation would work out. This greatly concerned the developers, who have always carried a great deal of political weight in our region.

After a period of fighting spanning several years in both the courts and the Statehouse, the Win-Win Agreement was developed. Its key points are these:

Any developed land in the City of Columbus but a suburban school district would be allowed to remain in the suburban school district as long as the suburban school district continues to make annual 'revenue sharing' payments to Columbus City Schools. I prefer to call these ransom payments, and ours is now $1 million/yr.
Any undeveloped land annexed into a suburb under the terms of the water/services agreement would remain in the school district in which it was part prior to the annexation. This is the one that applies to Ballantrae.
Any undeveloped land which is thereafter annexed into the City of Columbus is automatically shifted to Columbus City Schools. This is the clause which causes all those islands in the Columbus School District to develop, such as the big Dominion development along Hayden Run Rd between Cosgray and Avery.

Because of the existence of the Win-Win Agreement, certain exceptions were written into ORC 3311.06, the law governing the transfer of school district territory:

(C)(2) When the territory so annexed to a city or village comprises part but not all of the territory of a school district, the said territory becomes part of the city school district or the school district of which the village is a part only upon approval by the state board of education, unless the district in which the territory is located is a party to an annexation agreement with the city school district.

The Win-Win Agreement is an example (perhaps the only example) of such an annexation agreement. ORC 3311.06 goes on to say:

(F) An urban school district may enter into a comprehensive agreement with one or more school districts under which transfers of territory annexed by the city served by the urban school district after September 24, 1986, shall be governed by the agreement.

So, as long as the Win-Win Agreement stays in force, it supersedes the Ohio law in regard to school district boundaries and annexations. What is the risk of the Win-Win Agreement not remaining in force?

The risk isn't zero. But the situation is much more complicated than it was in the 1980s, when most of the land outside I-270 was undeveloped and unincorporated. Since then, the City of Columbus has indicated that it's not all that eager to expand its frontiers for residential development, which requires it to take on the attendant responsibilities of providing police, fire, garbage collection, street repair, and all the other expected city services.

But that's not exactly the question regarding Ballantrae, which was annexed into the City of Dublin before the first house was built. I think the question is whether, in the absence of an "annexation agreement" such as the Win-Win Agreement, Columbus City Schools - a wholly separate political entity than the City of Columbus - would be likely to make a push to have Ballantrae transferred to Columbus City Schools?

I don't think that's at all likely. The law seems to be written to favor having school districts aligned with municipalities, and so if the Win-Win Agreement terminates and Ballantrae has been made an island of the Hilliard school district because of annexations by the City of Columbus, the outcome would surely be to cure the problem by transferring Ballantrae to Dublin City Schools.

So what's the rush? Again, as a layman, I think the arguments asserting that the residents of Ballantrae must immediately take matters into their own hands before something bad happens - like an involuntary transfer to Columbus City Schools - are extremely weak.

I suspect there is some other underlying motivation which is driving the instigators of this conversation. I would encourage the residents of Ballantrae to ferret that out before heading down the complex (ie expensive) process of initiating a transfer to another school district.

NOTE: please continue your reading to the followup article on this subject, found here.

The Pendulum Swings: Proposed New Labor Laws

2011-02-11T16:01:00.005-05:00

This is the first of a series of articles about the changes to collective bargaining being debated in the General Assembly. The next article can be found here.

In its Friday February 11, 2011 issue, The Columbus Dispatch published a story about a bill introduced to the Insurance, Commerce and Labor Committee of the Ohio Senate by Shannon Jones (R-Springboro) which would radically alter the rules governing unionized public sector workers. As you may know, the online version of the Dispatch allows readers to post comments. As I write this article, over 300 comments have been posted, and the number is going up quickly as I type.

Because these comments are not moderated and can be posted anonymously, it is common for the threads to devolve into idiotic and vile language, and it took only about dozen comments to get there with this one. While I often make comments on Dispatch stories dealing with public school economics - using my own name - I have no intention to do so on this one. There is simply no chance for reasoned discourse on the Dispatch forum at this point, and any attempt will be quickly buried in more lunacy.

That's the problem. We seem utterly incapable as a society of having a respectful and well-informed debate about such important things. We quickly go to our corners, get jazzed up by some partial truths and outright lies, and come out fighting.

The consequence is that our political landscape has become increasingly polarized, resulting in legislative agendas which seem to be intent as much on revenge as resolution. When we say that we want to "get even," that doesn't mean that we want an equitable outcome, but rather than we want to inflict as much harm on "the other side" as we perceive they inflicted on us when they had the power.

I fear that's the road we're going down on this discussion about unions in the public sector.

The perception, deserved or not, is that the public sector unions have lorded it over their communities for too long, with the aid and tacit approval of the politicians the unions work so hard to get elected, and as a result have driven those communities perilously close to fiscal ruin because of their excessive compensation demands, coupled with employment rules that handcuff the management.

I think the truth is that we have a problem with inertia. Inertia, as you know, is described in Newton's First Law of Motion this way: "Every object in a state rest or uniform motion tends to remain in that state unless an external force is applied to it."

We all have a painful understanding that our economy cycles between boom and bust. My parents were born in the Roaring Twenties, and therefore also witnessed the devastation of the Great Depression. They paid the price necessary to win World War II, and went on to build the great industrial success of the last half of the 20th century. That's not to say there weren't good days and bad after WWII, but our country had been lifted to a new level of economic performance, and we were protected by the laws and regulation developed as a result of the hard-learned lessons of the Depression - laws such as the Glass-Steagall Act.

Unfortunately many of those protections were undone during the past couple of decades, by both Democrats and Republicans, leading - in my opinion - directly to the financial shenanigans that have us teetering on the edge of another depression. We're driving on the cliff side of a mountain road with no guardrails, and we've dropped one wheel off onto the berm. I've been on such roads in the Rockies many times, and believe me, there's a high pucker factor associated with driving on them. That's a bit how I feel about the state of our economy.

Wages and benefits in the private sector tend to react pretty quickly to the general state of the economy. Some sector of business leads us into a new growth spurt, and while the companies in that industry scramble to hire the workers they need, compensation is driven up by the competition for those workers. As those workers spend their new-found money, the communities they live in thrive. We can all conjure up examples: aerospace engineers as NASA scaled up for the mission to land a person on the Moon; computer scientists as the Internet took off; investment bankers and lawyers when greed took the place of substance at the end of the 20th century.

Public sector workers are often left behind at the beginning of these booms, especially the unionized workers. Because they work under collective bargaining agreements, compensation matters are usually negotiated once every few years. If the economy takes off, union workers often see their friends and neighbors enjoy raises and bonuses while the union workers are stuck with a deal they negotiated in tougher times. In other words, the property of inertia which says that an object at rest will stay at rest comes into play.

Gradually, the benefits of an improving economy are negotiated into the union agreements, sometimes even with some components to help the union workers "catch up" to the private sector.

It is also often the case that about the time the public sector union agreements catch up with the private sector, the private sector goes sour, and private sector compensation takes a hit. Meanwhile, the union agreements are still firing on all cylinders, and will likely zoom past the private sector. This is the other side of inertia - that once an object is put into motion, it will keep going in the same direction, at the same velocity, until some outside force is applied.

This is where we are right now, in my opinion.

When private sector and public sector compensation numbers are close to each other, we don't hear many complaints from either group (by the way, I include wages, salaries and all other benefits such as pensions in this notion of "compensation"). I think it's also true that when private sector compensation starts getting well ahead of the public sector, the process of bringing the public sector workers back into alignment happens without a lot of angst. It's easy to be generous when your wallet is full.

But when the folks in the private sector perceive that the folks in the public sector are getting the better deal, it's a different story.

Much of the public sector is funded by income taxes, sales taxes and other taxes which are extremely sensitive to the state of the economy. When the economy booms, tax revenues boom with it, and our government agencies find themselves flush with cash. Much of that growth in revenue is invested in hiring more people, and paying the people they already have better.

However, when the economy takes a hit, income-related tax revenues fall off quickly, while the expenses of government entities tend to chug along as though nothing had changed (inertia again). Any cash reserves which might have been built up are quickly depleted, and the entity is faced with asking the taxpayers for more money and/or cutting expenses, which usually means laying off employees.

We've already seen this in municipalities, which derive nearly all of their funding from income-sensitive taxes. Even though much of their income comes from property taxes, which are not so sensitive to income, Ohio's school districts will join the party this year because a good chunk of school funding also comes from the State of Ohio, which has an $8-10 billion budget shortfall to cover, again largely because the state tax revenue stream is income sensitive.

Frankly, the public sector unions haven't always been very sympathetic to this situation. Perhaps it comes from remembering what it was like being left behind at the beginning of an economic boom, and having to fight to catch up. Perhaps it's a lack of empathy for the pain being felt by private sector workers at times like these, when folks are not only losing their jobs, but also chewing through their retirement savings trying to make mortgage payments, pay property taxes bills, and keep food on the table.

Of all the kinds of government entities out there, one that plays a special role in our society is the public school system. Yes, we respect and honor the folks in uniform, from the troops in battle overseas, to the cops and firefighters in our community. We appreciate the services provided by the folks who plow the snow and pick up our garbage. But our relationship with all of them is still not like the one we have with the teachers, to whom we entrust our children for half the days of the year.

We pick a community to live in because that's where we want to raise our kids, and where we want them to go to school. We choose (by the slimmest of margins) to tax ourselves to the extent necessary to fund our schools, which is substantially the same as saying to pay our teachers and staff, as nearly 90% of our budget is spent on compensation and benefits. In other words, we have a built-in bias to support our schools and our teachers.

But that relationship sometimes gets strained when it comes time to negotiate a new collective bargaining agreement. Such was the case last time, in 2008. The previous contract with the teachers expired on December 31, 2007, but negotiations stretched into following year, primarily because agreement could not be reached on how to apportion the cost of health insurance premiums (the employees contributed nothing to health insurance costs beforehand). Agreement was reached in May, but a 9.5 mill operating levy on the March ballot was soundly trounced.

Part of that may have been due to the tactics employed by the teachers' union when they felt the negotiations weren't going their way. One was a "work to the rule" action that left a bad taste for many parents. As I recall, the teachers also authorized their union leaders to call a strike, although it never got that far.

The notion that "we're all in it for the kids" breaks down pretty quickly when our kids are used as pawns in what should ethically be a conversation between the teachers and the taxpayers, and not impact the kids at all.

So I see this Senate Bill 5 as being the retribution for the failure of the public employee unions to figure out how to advance their agendas in a way that keeps them in economic sync with the private sector, and - in the particular case of the teachers' unions - for bringing our kids into the argument. They misused the power granted to them under the current law, and this new law means to take most of that power away.

I fear that this Bill is so vindictive that it will bring the system to a stop and initiate a time of chaos in our schools.

For example, the entirely of Section 3317.13 of the Ohio Revised Code, which describes much of the way teachers are paid, including the minimum pay schedule (which some believe also defines "steps" as law), is reduced to a two sentences reading: "(A) As used in this section, 'teacher' means all teachers employed by the board of education of any school district, including any cooperative education or joint vocational school district and all teachers employed by any educational service center governing board; (B) Each teacher shall be paid a salary based upon merit." (see lines 7276-7378).

Even if you are supportive of the notion of merit pay - and I am - there are some substantial operational obstacles to implementing such a program. Perhaps the greatest of these is determining the criteria for defining "merit." This proposed Bill is silent on this, which I think means that we'll replace the arguments over base pay increases, step increase and contributions to insurance premiums with ones having to do with crafting a definition of "merit." It's not as easy as one might think. Do you simply use the standardized test scores? If you do, how can you apportion the responsibility for the ability of a student to a current teacher versus prior teachers? If you try to use some kind of value-added measure, how do you compare the performance of a teacher who has many struggling students versus one who has a room full of gifted kids?

Having been a manager in the private sector for thirty years, I'm deeply worried about whether our administrators are prepared for this. After all, each and every teacher will have to be individually evaluated every year, and that evaluation will have to be used as the sole basis for determining how much the teacher is paid the following year. And we're not just talking teachers, but also the secretaries, bus drivers, custodians, IT specialists, groundskeepers and everyone else who is an employee of the District.

This is a brand new burden on our administrators, and they aren't trained for it. They do indeed perform evaluations, but not every year for every employee, and frankly the stakes aren't that high. As long as an employee is rated high enough to not warrant termination, that employee will be granted a raise according to whatever employment contract he/she works under.

Under this new system, should it become law, an administrator will be required to look an employee in the eye and explain why a certain raise amount was chosen for that employee. Weak leaders will be tempted to just give the same raise to every employee and avoid the controversy. But the whole idea of a merit system is to reward according to performance.

If you've made it this far ... thanks for hanging in there. There is much more than can and will be written about the effort of the current Governor and General Assembly to rewrite public labor law. Even if the law is enacted as written, you can be sure that it will be followed by months if not years of litigation and acrimony.

I ask only two things:

Let's find a way to debate and compromise so that when it's all over, we don't have a 'scorched Earth' outcome, and;
Let's leave the kids out of it this time.

Insurance Pools for Public Schools

2011-02-07T17:27:00.001-05:00

After the cost of salaries paid to the teachers, administrators and staff, the next largest cost for any school district is that of providing health insurance. Today's Columbus Dispatch ran a story about a concept which is again getting some attention in the Statehouse - insurance pooling. This is because there is a belief by some that Ohio's public school districts can - in aggregate - save money with this approach.

So what is "insurance pooling" anyway?

I'm far from being an expert into the nuances of health insurance, but I think we all understand the general concept: we pay someone else to assume some of the risk associated with an aspect of our lives.

Take car insurance for example. We spend a fair amount of money on our cars, and we would be pretty annoyed to wake up one morning and find our car gone. In other words, once you buy a car and park it in your driveway, you run the risk of it being stolen and you being out all the money you've paid for it. However, you can reduce that risk by paying an insurer to assume some of it. So let's say you buy a $20,000 car, and the insurance company offers to give you $20,000 in cash if someone steals your car and it isn't recovered. You'd make your decision on that offer based on how much the insurance company wanted to charge you to take the risk. Let's say they charged $100/yr.

Would you buy that insurance? Probably. That $100 premium seems like a reasonable amount to pay for the peace of mind you would get knowing that if your car were stolen, you'd get sufficient money to replace your car.

Why is it a good deal for the insurance company? Because they know that not every car gets stolen. In fact, a very small percentage of cars get stolen. So if they can sell an auto theft policy to thousands of customers, but have to pay out loss claims to only a small fraction, they win the bet. The cost of auto theft insurance premiums are kept in check by competition between auto theft insurance companies (everyone knows the Gecko, and that Nationwide is on your side).

Health insurance starts with the same concept: we pay the premiums for health insurance in order to have someone else assume part of the cost of our health care, should we need it. It's quite a bit more complicated than auto theft insurance, but the general idea is the same: insurance companies need to have the bets in general come out in their favor in order to stay in business. They need to be able to charge enough in premiums so that they can pay out claims and still make a profit. And unlike the case with auto theft - everyone is going to make claims against their health insurance.

Another way in which health insurance differs from auto theft insurance is that it has become a custom in this country that health insurance is, in nearly all cases, paid for by the employer, not the individual. From the perspective of the employer, the cost of an employee includes the full gamut of salary, benefits and taxes. Benefits can be defined as money an employer spends on behalf of an employee but not reported on his/her W-2.

For example, the contract with the teachers' union says each member receives life insurance coverage in the amount of $40,000 at no cost to the employee. The school district isn't assuming that risk - it buys a master life insurance policy that covers all the employees. But if an employee dies, the death benefits is paid to whomever the employee names as his/her beneficiary, not the school district. Therefore the cost of this life insurance policy is a component of the compensation package for the employee, not protection for the school district.

Until the signing of the 2008 contract with the teachers' union, health insurance coverage was handled the same way. The school district bought a master insurance policy from an insurer, and paid 100% of the premium. However, to reduce the premium, the employees share in some of the costs, by way of co-pays and deductibles. Starting with the 2008 contract, the district's employee began paying a share of the basic premium as well, stepping up to 10% (capped at $136/mo for family coverage) effective Jan 1, 2010.

In 2010, the School Board, on the advice of the Treasurer, decided that it would no longer buy health insurance covering 100% of the risk, but would instead build its own fund from which to pay claims. This is called self-insurance. The idea goes to the basic principle of insurance: in exchange for having the school district - that is the taxpayers - assume the risk for paying claims, we would not have to pay an insurance company to put its own profits at risk. In other words, it should save us money. So far, it seems to have done just that, but only time will tell - after we have a few more years of claims history to examine.

That doesn't mean we can just tell the insurance company to take a hike. It is enormously complex and expensive to handle health insurance claims. Every time an employee goes to a doctor, is rushed to the emergency room, or is issued a prescription, someone has to go through the process of deciding whether the claim is valid and appropriate to pay. It would be stupid for the school district to scale up and staff an operation internally to do that. So we contract with a "Third Party Administrator" (TPA) to take on that function.

In essence, it means we continue to pay the insurance company for all the administrative services they performed as our insurer, but we don't have to compensate them for assuming any risk.

We can do this because we're one of the largest school districts in Ohio, and have the resources necessary to build a fund large enough from which to pay claims (the fund gets it money from the part of our budget which formerly went to pay the insurance premiums, including the employee contribution). But Ohio has tons of small school districts which could not afford the risk - a single large claim could wipe out their cash reserves. So they are forced to buy insurance and bear the cost of transferring the risk to the insurance company.

The General Assembly is therefore once again looking into health insurance pooling - the idea that all school districts in Ohio should band together in regional groups to buy health insurance.

I try to keep partisan politics out of this blog, but I don't think this conversation about insurance costs is really a cost conversation at all. It's about winners and losers. If we made a huge insurance pool out of all the school districts in the state, there would be no net change in insurance claims or the cost of insurance. The only difference is that some districts would pay more in premiums, and some would pay less.

Obviously, the winners of a pooling program will be the districts with high per-employee claims costs. The demographics of a district's employee will have a lot to do with that. If the staff is young, there will be lots of claims associated with pregnancy and child rearing. If the staff is older, there will be all the claims that come with aging, such as diabetes and heart disease. For example, Hilliard Schools and Olentangy Schools are nearly identical in size, but our employee population is older. That's because we had our big growth spurt in the 90s, and hired tons of young teachers then - teachers who are 20 years older now. Olentangy has been growing for the past decade, and is still growing. So they have a preponderance of young teachers now.

The losers will be the districts which have a healthier employee teams, whether through effective wellness programs, demographics, or just the luck of the draw. Such districts should be enjoying lower per-employee health insurance costs, and will see their costs go up if forced into pools with districts with higher claims histories.

The losers might also be districts like ours, who have the wherewithal to be self-insured. If we are forced to join an insurance pool, we would again be paying premiums, and those premiums will likely be more than our claims cost plus the cost of the TPA contract. The only way for that to not be true would be for us to join a significant pool of districts with claims costs lower than ours. In other words, becoming a winner by making others become losers.

The Republicans have again won control of our state government, and are going to use that power to execute their agenda. I have no problem with that, any more than I have problems with the way the Democrats have pushed their agenda at the national level the past two years. Parties are put in power by the will of the voters. As long as we have political parties - and it's too bad that we do - that's the way it will be.

But while the common image is that Democrats stand for big tax-and-spend government and do so with the support of labor, and that Republicans stand for minimalist government with the support of big business, neither stereotype is any longer true. Both major parties are now of the tax-and-spend variety, and while they may each have a reliable base of supporters, the big money in this country places bets on both Red and Blue. Big business backs Democrats when the Democrats promise to send tax dollars their way, and big labor backs Republicans when Republicans have influence over labor issues (e.g. when John McCain sat on Senate committees that influenced education spending).

In the case of health insurance pooling, the Kasich administration seems to want to replace the free market with a government-mandated solution. That seems like something we'd expect from a Democrat. As always, there's the claim that by getting the government involved, money will be saved.

Do any of us really believe that?

State Funding Cuts: We Still Don't Know

2011-01-31T20:56:00.009-05:00

The Columbus Dispatch ran a story this past weekend about the school funding cuts that will be implemented in the first biennial State budget submitted by Gov. Kasich. While our Federal Government might not be so good at keeping secrets (e.g. WikiLeaks), the Kasich Administration has been completely opaque about what they intend to do about this $8-10 billion budget gap hanging over our State. However, this story gave a little hint of what I've believed for a long time - Hilliard City Schools and similar suburban districts are likely to take the brunt of the State funding cuts.

As you can see from the following chart, Hilliard Schools receives 33% of its funding, or $46 million, from the State of Ohio.

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It has been growing at a pretty good pace...

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... although not as fast as the local component of our funding - paid via our property taxes. The State funding on a per-student basis has risen as well...

...although this is partially an artifact of the phase-out of Personal Property Tax revenue as a Local source and being replaced by a temporary reimbursement by the State. The one-time money granted as part of the Federal stimulus programs also was fed to school districts via the State.

Regardless of these aberrations, the story here is Rep. John Carey, vice chairman of the House Finance Committee, saying that "there is growing support of a tiered cut." So what does that mean?

Ohio's school funding system is, and has been for decades, based on one key principle: that the pool of State dollars budgeted for school funding should be passed out in hunks inversely proportional to the affluence of a particular school district. In other words, the people and businesses in affluent districts pay boatloads of State income (and other) taxes, but most of that money will be used to fund the poorer districts of the State.

I don't have a huge philosophical problem with that. Some might argue that there should be no State income taxes (there wasn't until the 1970s), and that communities should have to provide the entire funding necessary to operate a public system, without any help from others.

That position ignores two key points: a) the Ohio Constitution requires the state government to take what action is necessary so that every child in Ohio has the opportunity for a "thorough and efficient education;" and, b) the school district boundaries drawn 100 years ago have created opportunities for regions to fracture into communities of "haves" and "haves-not" that were not anticipated when the public school system was conceived.

Because of that, we tend to have urban districts with high commercial property values and high poverty levels, and suburban districts lacking significant commercial revenue sources, but the ability to fund their districts completely with local resources.

Why do I say "fund their districts completely?" Because if you take Hilliard for example, we - according to a report generated by Larry Wolpert when he was our State Representative - pay out two dollars of income taxes for every dollar of school funding we receive back. If that ratio is still true today, then we pay out around $70 million in State income taxes in order to get back $35 million in State funding. It would be worse - Dublin gets back about 12 cents on the dollar.

We can't put too much weight on this analysis. After all, there are others important ways in which our State income tax dollars are spent - notably for Medicaid and to run our prison systems. But you get the point. If you combine what we pay in State income tax and local property tax, it is more than sufficient to run our schools. As a friend once said, we pay enough taxes to run our school district plus a couple of the little ones.

That's not going to end with the Kasich administration. Instead, we need to prepare ourselves for the likelihood that we'll bear a disproportionate share of the cuts, simply because we are seen to have the capacity to do so. And it's simple for the state lawmakers to implement, all they have to do is tweak the Educational Challenge Factors, which are encoded into the law as ORC 3306.051 (an easier to read list of the ECFs is available here). These factors range from about 0.7 to 1.7, and they are used as a scaling factor in the PASS calculation used to determine how much State funding a district receives. The smaller the ECF, the smaller the fraction of the calculated funding a district will be granted. Our ECF is 0.985085.

The state lawmakers will also likely have to tinker with what is often called "the Guarantee." In the PASS calculation, it is called "Support Provided During Transition to Revised Funding Model." What that really means is that anytime the lawmakers change the school funding system, there are winners and losers. This "Guarantee" softens the blow for the losers, which makes such changes easier to get passed in the General Assembly.

The Guarantee is more of an ax compared to the ECF's scalpel, but both will be used.

And we'll take the hit. The current Five Year Forecast is built on the assumption that our hit will be 10%. The size of the levy we just voted to put on the ballot was passed in part because of that assumption.

If we take a bigger hit - and I fear we will - our Forecast goes out the window, and we'll have to scramble to figure out how to bring spending into alignment with even less revenue. I would have preferred to have used a larger temporary levy to give us some wiggle room, but we've ended up with a Permanent Levy of 6.9 mills on the ballot.

Between now the May election, we'll find out what the Governor and General Assembly have in store for us. Let's hope the 10% assumption is in the ballpark.

Time Bomb: Facing Reality

2011-01-29T09:44:00.001-05:00

I have written a number of articles over the years about the perilous fiscal condition of the State Teachers Retirement System, the organization which provides retirement benefits to the teachers and other certified employees (including Administrators who are former teachers) of Ohio's school districts.

This week, as reported in The Columbus Dispatch, the governing Board of STRS voted 7-3 to implement adjustments to both the contributions required and benefits provided, in hope of preserving the financial integrity of the system. This is not the final step in the process - the decision of the STRS Board now goes to the General Assembly, who will use the Board's resolution as the basis for drafting updates to the laws which control STRS. From there, the proposed law goes to the Governor for his action.

Governor Kasich had made it clear that he would veto any legislation which forced greater contribution from the employers - which are the local School Boards. The current contribution scheme requires the employee to contribute 10% of salary to STRS, and the employer - the taxpayers - to contribute another 14%. Under the proposed plan, the employee share would gradually increase to 13% by 2014, but there would be no increase in the taxpayer percentage.

Some argue that the employer contribution to STRS has not increased for years. This is a partial truth.

While the percentage of the employees salaries contributed by the taxpayers might not have increased from 14% for many years, the majority of our teachers and other certified staff have been receiving annual increases of more than 7% for the past decade, and the taxpayer share, in dollars, of the STRS contribution has increased at the same rate.

The STRS Board made some other tough choices as well. Currently, the STRS rules allows a teacher to retire with unreduced benefits at 30 years of service. Under the new rules, which phase in between 2017 and 2023, a teacher will need to be at least 60 years old and have 35 years of experience to receive unreduced benefits.

They are also ending the practice of enhancing the benefits of a teacher who works 35 or more years. Under the current system, a teacher who retires at 30 or fewer years of service receives, as an annual lifetime pension, 2.2% of their Final Average Salary (average of the last three years) for each year worked, or 66%. With the Final Average Salary of $90,363 (the top of our pay scale for the past three years), a teacher retiring with 30 years of service receives a lifetime annual pension of $59,640.*

But currently a teacher who retires with 35 years of service receives a kicker that makes this percentage 88%. With Hilliard's current pay schedule, a teacher retiring with 35 years of service with a Final Average Salary of $90,363 would receive an annual pension of $80,423* for the remainder of life.

In what perhaps is a preview of the issues facing Social Security (which by the way the teachers neither pay into nor receive benefits from), decisions had to made about how to apportion the costs of fixing STRS between those who are already retired, and those who are still working. Each group feels they are being asked to sacrifice for the benefit of the other. The following cartoon is from the blog of Kathie Bracy, an STRS retiree and activist.

The final decision will have less to do with what is fair or logical than it does which group carries more political clout in the Statehouse. As with every other area of American politics, those with money and votes always win in the end. So who won in this case - the retired teachers who are more likely to show up to vote, or the active teachers who can funnel tons of money into campaign coffers via the Ohio Education Association? We may not know for a few years, after all of the unintended consequences shake out (e.g. as many highly paid teachers retire, converting from major contributors to the system to its largest beneficiaries).

But I do know that the taxpayers were not made party to the conflict, thanks to the stand taken by Gov. Kasich. It was their own investment decisions and benefits choices (e.g. the so-called '13th Paycheck') that got STRS into this mess, and the taxpayers should not be expected to bail them out.

* Note: these numbers are accurate to the best of my knowledge. However, the only authoritative source of retirement information is the State Teachers Retirement System. Consult with STRS before making any retirement decisions.

Now in the Hands of the Voters

2011-01-24T22:43:00.004-05:00

Here is the comment I read into the record at tonight's School Board meeting. As I said would be the case, I voted in favor of presenting this levy to the voters in the May election.

First, I wanted to say thanks to President Maggied for calling the special Board meeting last Friday, and thanks as well to the other Board members and Administrators for participating. I think we got some important information on the table that I hope will be helpful as we move forward. And as always, thanks to the community members who came to observe.

In the fourteen years from 1976 to 1990, the Hilliard School district asked the community for additional funding only twice, raising our school taxes during that period at an annual rate of 2%, a pace that would cause our school tax to double once every 30 years.

Since then, school levies have been coming at ever-shortening intervals – five years, then four, and this time only three.

With this levy, we will be entering the next phase – putting a levy on the ballot that will almost certainly have to be followed by another in only two years if there is not a significant reduction in the rate of our spending growth. Since 1990, our school taxes have been growing at an annual rate of 7% - a pace which will cause them to double every ten years.

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There will be no significant reduction in the rate of our spending growth without a significant reduction in the rate in which our compensation and benefits costs are rising, as compensation and benefits are now nearly 90% of our total spending. I’ve been saying this for several years, and last year we heard the Audit & Accountability Committee come to the same conclusion, calling our current rate of spending growth “unsustainable.”

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I ask for bold leadership on the part of the administrators and union officers, and ask the entire team of teachers, staff and administrators to have empathy for the people of our community, many of whom are struggling to stay afloat.

There are 700 property owners behind in their taxes in our district. Approximately 150 properties have been brought up for Sheriff’s sale so far this school year.

It is my belief that for this levy to pass, the Administration and the unions will need to be forthcoming with ideas for how we should collectively address this issue of spending growth at a time when we are seeing declining revenue from all funding sources.

The answer cannot be to keep asking the homeowners and business owners of our community to pass levies with ever increasing frequency.

It is not business as usual this time around.

After the School Board meeting, I had a chance to meet with the Darby Athletic Boosters, and present to them much the same information I outlined in the previous article. My only objective is to teach folks how we came to be in this position, to ask for their help in finding a solution, and to request that they pass what they have learned on to their neighbors.

Regardless of one's philosophical leanings, we have a real money problem to solve - whether or not this levy passes - and we need people to help us find real solutions, not spout opinions without any basis in fact.

Additional note: Contrary to the story reported in the Hilliard Northwest News, the School Board did not spend months deciding on a millage amount. As I noted in my blog article of Dec 17, there was still much to discuss relative to this levy, and it was for this reason that I voted against the Resolution of Necessity during the January 10, 2011 meeting of the School Board. Until our special meeting on January 21, 2011, 6.9 mills was at best a strawman, in my opinion. I was certainly not involved in any discussions of this amount prior to January 10, 2011.

Levy Step 2.0 - Resolution to Put Levy on the Ballot

2011-01-22T10:26:00.004-05:00

The agenda for the Jan 24, 2011 regular meeting of the School Board includes a resolution to direct the Franklin County Board of Elections to place a levy issue before the voters for the May 2011 election.

As I wrote earlier, I voted against the Resolution of Necessity when it came up at the Jan 10 meeting, and explained that I did so because I felt there had been insufficient discussion of our financial picture - not enough due diligence - prior to that vote. I had hoped the Board would postpone the vote on the Resolution of Necessity for a few days until that discussion could be had. The Board instead chose to go ahead with the vote, but agreed to schedule a special meeting to have the discussion I requested.

That meeting took place yesterday.

Treasurer Brian Wilson reviewed the assumptions that he had used to build the current Five Year Forecast, and I presented the latest set of scenarios I had prepared. The Board then entered into a time of discussion, much as I hoped would happen. That discussion hopefully made it clear to all in the room that:

A 6.9 mill levy if passed this May will still not provide sufficient money to fully fund the assumptions given in the latest Five Year Forecast, accepted by the Board in Oct 2010. We are spending more than we take in now, and will continue to do so even if this levy passes. All that will be achieved with this levy is to slow the rate in which we are draining our cash reserves.

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Therefore, if the spending plan is not changed, another levy will be needed no later than two years from now. If we continue to increase our rate of spending at this rate, our property taxes will have to double every 10 years to keep up (see chart below).

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As I have been saying for years, and am now joined by the Audit & Accountability Committee, our rate of spending increases cannot be materially changed without dealing with the cost of compensation of benefits, which is projected to consume 90% of our budget by FY15.

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Our community needs to understand that it is unlikely that our Board, in its current composition, will ever fully agree on the actions needed to find a solution to our fiscal challenges. We simply see some things differently, and the folks who voted us into office supposedly know that.

I see our primary fiscal issue being the compensation and benefits structure for the teachers, staff and administrators. I seek to recalibrate our personnel spending practices in order to dramatically slow down the rate in which these costs are growing. My pitch today was designed to draw attention to this area, and hopefully convince the other Board members that this is where we need to concentrate our efforts.

Not everyone on the Board agrees with me on this. Nonetheless, they are the duly elected representatives of the people of our district. I may not agree with their viewpoint, but I respect them for being true to their philosophy and faithful to the people who elected them. I hope they respect me for the same reason.

There was agreement that we need to look more deeply into a couple of areas. One was a request by Dave Lundregan that the Treasurer prepare some additional scenarios built on a variety of changes to his current assumptions. Things like changes in the compensation structure, but also a variety of other factors.

Another is that we talk to experts on early retirement incentive programs to see if our current configuration of employees lends itself to a buyout program that makes economic sense for both the employees and the District.

Unless something quite unforeseen happens between now and Monday evening, I will be voting in favor of putting a 6.9 mill levy question to the voters in May. I am satisfied that the whole Board understands the challenges before us, even if we disagree on the solutions.

It is now time for the public to have its say.

Some will vote 'yes' without any regard to the financial situation. They may be employees of the district, or the friends and family of employees. They may be parents of school age kids who fear having the school district come apart before their kids graduate. They may be property owners who worry about a further erosion of their home values if the school district falls into fiscal crisis.

Others will similarly vote 'no' without reasoned analysis. Maybe they're just tired of their taxes going up. Without question, every time property taxes are raised, there is hardship created, especially for the retired senior citizens and now the large number of unemployed. Others who could easily absorb the tax increase will vote 'no' on philosophical grounds, unswayed by any arguments to the contrary.

My hope is that the remaining voters will use this levy question to engage in the dialog about where their school district is headed. If you think the school district is spending too much money on something, please come forward at a School Board meeting and say so. A 'no' on the ballot is nowhere near as effective as your direct feedback to the School Board. Just don't make it about lights left on at night or empty school buses that pass your house. That lemon has been squeezed pretty hard over the past several years, and there's not a lot left there.

I think the dialog has to be about the future of our compensation and benefits program. But I may be missing something...

Levy Step 1.75 - Special Board Meeting

2011-01-18T06:49:00.000-05:00

I appreciate very much that the other members of our School Board agreed to hold a working session to further discuss our levy options. A copy of the official meeting notice is provided at the bottom of this message.

I have prepared a set of financial scenarios (with notes to the scenarios) and sent them to the Board members in preparation for our discussion.

These scenarios are intended to help us look a couple of moves ahead - beyond just the immediate situation - and to help discover the bounds of reasonable decisions. I have long said that when a levy is being planned, several other parameters beyond just the levy size need to be considered - because they are all interrelated. For example, assuming any particular spending plan, the smaller the size of the first levy, the larger must be the second levy. The reverse is also true - the larger the first levy, the smaller the second can be.

Likewise, the larger the first levy, the longer the interval can be until the next levy; and the smaller the first levy, the shorter the interval must be.

The Board also needs to pay attention to the cash balance. It's a "hard deck" as Navy pilots like to say - we can't let the cash balance go below zero. Most would say it's prudent to leave a little margin for error. Board policy says our cash reserve should be 10% of the annual operating budget, which would make it about $18 million at our current spending rate. However, having spent a big chunk of this reserve in order to wait an extra year before putting a levy on the ballot - it would take a pretty good sized levy to get us back to 10%. Several of the scenarios I've prepared examine what it would take to keep the reserve at $5 million, or about the size of one payroll. That's not a lot of wiggle room.

And finally, a look at these scenarios makes it clear that the spending plan has to change. There is simply no combination of rational levy sizes and intervals which can support the spending plan currently dialed into the Five Year Forecast. The Board needs to dig into this soon, and examine another set of scenarios for lower rates of spending growth - lower than the 4.25% compound annual growth rate built into the current Forecast.

I realize that this special meeting has been scheduled during working hours for most of us, and there is no public participation scheduled, but I still hope folks will come to observe how their School Board makes these important decisions.

HILLIARD CITY SCHOOL DISTRICT

BOARD OF EDUCATION

NOTICE OF SPECIAL MEETING

(RC 3313.16)

Notice is hereby given; there will be a SPECIAL meeting of the Board of Education of the Hilliard City School District on FRIDAY, JANUARY 21, 2011 at 3:00 P.M. located at the Hilliard City School District Administration Building, 5323 Cemetery Road, Hilliard, Ohio. The meeting will be held in regular session to discuss the potential operating levy and any other business that may be lawfully considered.

The meeting is called by Brian W. Wilson, Treasurer/CFO of the Hilliard City School District Board of Education, at the direction of the President of said Board.

January 17, 2011

Signed:

Brian W. Wilson, Treasurer/CFO

Hilliard City School District

Board of Education

Answers regarding Resolutions of Necessity

2011-01-18T06:00:00.002-05:00

In the previous article, I noted that there was a question whether a School Board could submit more than one Resolution of Necessity to the County Auditor.

The answer is Yes - a School Board can submit as many resolutions as it wishes. In fact, some School Boards choose to submit several resolutions at the same time, each with different levy amount, so that they have a opportunity to use that information to make their final determination of the levy amount to put on the ballot.

The County Auditor turns these Resolutions around pretty quickly - it's not a hard calculation for them after all. Treasurer Brian Wilson told me that we had our response back from the County Auditor by Thursday of the same week we submitted it.

It would have been good to know these things when I made my motion at last week's Board Meeting to postpone a decision until we could have more detailed discussions, as it might have least received a second - since the reason expressed for withdrawing the second was a concern that action had to be taken that night in order to leave enough time for the County Auditor to perform their required actions.

Levy Step 1.5: Further Discussion

2011-01-11T08:41:00.000-05:00

At its meeting last night, the School Board voted 4-1, with me as the sole NO vote, to submit a Resolution of Necessity to the County Auditor, citing the need for a 6.9 mill levy to be placed on the May ballot. I made a subordinate motion that the Board postpone action on this Resolution until further due diligence could be completed. My motion died for the lack of a second.

However, there was agreement to hold a special meeting as soon as possible to further discuss this levy. The presumption is that there is still an opportunity to change the levy structure and/or amount prior to submitting the next required resolution to the Board of Election requesting that the levy issue be placed on the May ballot.

I've asked Treasurer Brian Wilson to check with the County Auditor and/or our Board's legal counsel to confirm that this is true, and to withhold submission of the Resolution of Necessity to the County Auditor until we get that answer. It could be that this is a one-shot process, and that a School Board gets to submit only one Resolution of Necessity each election cycle. We don't want to learn that after the Resolution has already been submitted.

Thank you to the many members of the community who came out to the School Board meeting last night. Your engagement in this process is crucial and appreciated. Please continue to communicate your feelings to the members of the School Board as we continue through this process.

Levy Step 1: Resolution of Necessity

2011-01-08T10:49:00.000-05:00

On the agenda for the School Board meeting, to be held at 7pm, Monday January 10, 2011, at Hoffman Trails Elementary, is the Resolution of Necessity representing the first formal step toward putting an operating levy on the May ballot.

The Resolution of Necessity is required by Ohio law (5705.03). Its purpose is to formally ask the County Auditor to certify the total tax valuation of property in the school district as well as the amount of money that would be generated by a specified number of mills (the School Board can also ask the reverse: how many mills are required to generate a certain amount of revenue).

The language of this resolution - presented as item F1 in the agenda - specifies that the County Auditor will be asked to certify the amount of revenue that will be raised by a 6.9 mill levy.

My estimate is that the County Auditor will come back with a number on the order of $15.4 million per year. However this estimate is based on the assumptions used by Treasurer Brian Wilson in developing the current (Oct 2010) Five Year Forecast, where he said that during the 2011 county wide property revaluation, which County Auditors are directed by law to perform every six years, properties will be reduced in taxable value by about 8%. I have not yet heard what our County Auditor, Clarence Mingo, has decided in this regard.

Section 4 of the Resolution language states: "This Board finds and determines that all formal actions of this Board and of any of its committees concerning and relating to the adoption of this resolution were taken, and that all deliberations of this Board and of any of its committees that resulted in such formal actions were held, in meetings open to the public, in compliance with the law."

This is a certification that the School Board has complied with the provisions of Ohio's Sunshine Laws, which require the governing bodies of public entities to conduct their business (with few exceptions) in open meetings which may be observed by any member of the public.

My concern at this point is that there has simply been no meaningful discussion about this levy. I was certainly not part of any discussion that caused 6.9 mills to be written into this resolution. Therefore, I take this number to be a placeholder, and expect that we as a School Board will have substantive discussion about this levy before a final amount is chosen, and written into the final Resolution of Necessity.

I am fully prepared to vote in favor of a resolution that specifies a levy amount that is arrived at as the result of analysis of the financial data (more than just three bar charts showing estimates regarding how long it will be until we're out of cash again), meaningful debate, and reasonable compromise.

I am not, however, prepared to vote in favor of any resolution for any levy amount unless much more due diligence is carried out. At 6.9 mills, we would be asking our community to permanently increase the collective tax burden by approximately $15.4 million per year (again, to be determined by the County Auditor), which will be a 8% increase in our property tax bills, and a 13% increase on just the school tax portion.

For those familiar with Present Value calculations, a perpetual cash stream of $15.4 million/yr is equivalent to asking the people and businesses of our community to collectively write a check tomorrow for $350 million, using the latest yield on the 30-year US Treasury bond of 4.4% as the discount factor.

It seems to me that before the School Board asks the community for that kind of money, we should have some pretty serious discussions about how the money is going to be used, what has to change in terms of programs and services, how much money we want to keep in our cash reserves to deal with unexpected events (i.e. if the State of Ohio really cuts back on our funding), how long it is projected to be until we need another levy, and how large that levy might need to be.

My modeling suggests that if a 6.9 mill levy is passed now, and spending is kept at the levels portrayed in the current version of the Five Year Forecast, then a 12.5 mill levy will be needed in 2013 in order not to run out of cash is FY14.

And we need to talk strategically about compensation and benefits, which is rapidly approaching 90% of our annual budget. Quoting from the June 2010 report of the District's Audit & Accountability Committee: "The District... cannot make a significant impact on the budget without addressing the salary and benefits portion of the expenses... While it is important that the Administration continually watch all costs, compensation expense for Administrators, teachers and support staff is the only expenditure that "moves the needle."

By law (ORC 5705.21, as cited in the resolution), this resolution must be passed "by a vote of two-thirds of all its members." Since our Board has five members, and two-thirds of five is 3.33..., this resolution must receive four votes in order to pass and be submitted to the County Auditor.

Unless and until the substantive discussions I describe above take place, my vote will be NO on this resolution.

Note: Although there is little change in the numbers, I found something else that needed to be corrected in the chart I developed to illustrate the impact of various levy amounts and intervals between levies. I failed to take into account that after the property revaluations in 2011, the dollar amount collected by any particular millage will diminish. Note that the so-called "HB920" protections will prevent the dollar amount of property tax we all pay now from being adjusted downward with the reduced value of our properties - it is only the incremental rate which will decrease.