Category Archives: GPPS Budget Decisions

2010-11 GPPSS School Year Budget Approved

The 2010-11 Grosse Pointe Public School System budget approved last night consumed hour upon hour of work and analysis to enable us to continue to deliver the high quality programs we have come to expect.  While intensely difficult and painful at times, this budget and other financial achievements in 2009-10 will pay dividends for years to come.

Last night the Board of Education approved by a 5-2 margin the 2010-11 budget.  Having participated in or observed GPPSS budget developments for the last six years, I can say with certainty that this budget cycle was by far the most difficult – arguably in the history of the district.  Never before has the district had to cope with such mid-year cuts as we experienced in 2009-10 (an issue that needed to be permanently addressed in the 2010-11 budget) and never has the district needed to bridge a projected shortfall of over $7,000,000.

Such a difficult exercise required that we approach the budget like we have never done before.  We started in earnest nearly a year ago, in August, when we had a sense of the enormity of the challenge.  The data gathering and analysis started earlier and in greater detail than had ever been done before.  We utilized the zero-based budgeting model, which forced us to evaluate every investment we made. 

We published the initial draft of a complete budget in February, allowing residents and other stakeholders the earliest view it had ever had for an ensuing year’s budget.  The feedback we received, amidst a flurry of ever-changing variables, drove five complete revisions of the budget, published and discussed every month from February through June.

The 2010-11 Approved Budget Overview provides a healthy summary of what was approved last night.  The format of these overviews was also a new development for this year in an effort to translate the budget numbers into information meaningful to our residents – such as class size projections and program offerings.  It also cataloged the changes in the five iterations of the budget, reflecting the feedback we received throughout.

In order to put the 2010-11 budget into context, last night I also presented the next installment in the series I developed last summer the GPPSS Financial Transparency Series_2009-10 Year in Review.  It summarizes our financial accomplishments for the 2009-10 budget year and places into historical context the key financial metrics of the 2010-11 budget, such as enrollment, staffing levels, and tax revenues.  Here are some of the highlights from 2009-10:

  • Published the multi-part Financial Transparency Series (PowerPoint narrated videos).
  • Successfully integrated Budget Modeling Utility, Staff Utilization Utility, Financial Benchmark and Health Care reports for financial analysis, budget planning, transparency, and contract resolution.
  • Voters renewed Hold Harmless and Sinking Fund millages by wide margins.
  • Closed a $3MM mid-year structural revenue gap from Foundation Allowance and 20J reduction. Project only a $1.2MM reliance on Fund Equity against budgeted $2.6MM.
  • Completed the most transparent budget development process in history of the district.
  • Approved a district-wide no fee All Day Kindergarten program, an offering that is already proving to boost enrollment.
  • 2010-11 budget reduces taxes/fees by $785,000 for local taxpayers via all day kindergarten fee elimination and lower foundation allowance revenues.
  • 2010-11 final budget and contract settlement avoided projected layoffs that would have incurred a wasteful $700,000 in unemployment costs.
  • GPPSS has avoided school closings and other highly undesirable responses to budget challenges –unlike many well-respected districts across the state.
  • Reached agreement with teachers and administrators on 4 year contracts that substantially mitigates risk of unpredictable enrollment, per pupil revenue, salary, retirement and health care costs.

Between the budget accomplishments of 2009-10, the budget of 2010-11 and the contract settlements, the 2011-12 school year budget is already practically completed.  While never particularly enjoyable over the course of this year, what we accomplished financially in 2009-10 will deliver educational and financial benefits for years to come.

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The Elementary Class Size Conundrum

The combination of schedule inflexibility, high enrollment variability, and stressful economic times renders  elementary class size decisions a frustrating exercise for all parties.  Reasonable and rationale standards, consistently enforced, present the best means of navigating these rough waters.

I’ve written about class size before and as a primer I’d recommend interested parties read this blog entry again.  My summary view is that the quantifiable benefits of (economically reasonable) class sizes is questionable.  Nevertheless, smaller class sizes are preferred by all stakeholders. 

The class size challenge will vary from district to district.  A universal truth about class size is that the more flexibility available, the lesser the challenge.  Flexibility is enhanced by scheduling options combined with a higher concentration of students per building. 

Flexibility scales with both and has a smoothing impact on class size – eliminating over-reliance on extreme highs and lows.  This is one of the factors that encourages districts to close schools.  It increases student concentration allowing for the reduction of teaching staff by enhancing flexibility. 

When reading the frequent articles on school closings you will see that the grade levels are often reconfigured as well.  This further increases student density by grade and geography.

Our high school schedule of 7 period days at only two high schools is more flexible than three middle schools in a 6 period day schedule, and far more flexible than 9 geographically bound elementary schools with block schedules.

The focus here is elementary school.  In Grosse Pointe Public Schools, one of our greatest assets is the neighborhood school with no busing required and essentially closed enrollment.  (Parents can’t just send students wherever they want.)  Elementary classes are characterized by grades and sections.  Class size is a function of the number of sections per grade at each school.

Even small variations of student gain or loss can trigger significant shifts in staff, and therefore section, allocations.

Grade level enrollment in relation to section counts reaches different tipping points that can trigger a need for a new sections or the prospective loss of a section based on the gain or loss of just a few students. 

The table below looks at prospective class size per grade level at an individual school based on having 2, 3, 4, or 5 sections.  Each section would require a full time teacher. (Two sections requires two teachers and so on.)

Table 1: Class Size Projections Based on Various Levels of Enrollment per School for Varying Different Sections

Students Per Grade at a Single School 2 3 4 5
50 25.0 16.7 12.5 10.0
55 27.5 18.3 13.8 11.0
60 30.0 20.0 15.0 12.0
65 32.5 21.7 16.3 13.0
70 35.0 23.3 17.5 14.0
75 37.5 25.0 18.8 15.0
80 40.0 26.7 20.0 16.0
85 42.5 28.3 21.3 17.0
90 45.0 30.0 22.5 18.0
95 47.5 31.7 23.8 19.0
100 50.0 33.3 25.0 20.0

 

The projections at the extremes of the scale are not very realistic.  For example, we would not run 5 sections of 10 students per class nor two sections of 50 students per class.  But as you wade toward the center, you can how the decisions can get more difficult. 

For example, in a grade with 75 students, is three sections of 25 too high?  Is 4 sections of 18-20 students affordable across the district?  Remember, what is afforded to one school would be desired/expected by 8 others. Also remember that the table above examines increments of 5 students.  This is abnormal and the gray areas in between make the “cut off line” decisions even more difficult. 

So let’s look at some real world examples from our current school year.

Table 2: Largest GPPSS Elementary Class Sizes Currently: 2009-10 School Years

School Grade Class Size
Trombly K 26.0
Monteith 2nd 26.0
Monteith 3rd 25.3
Monteith 4th 26.3
Kerby 5th 25.0
Maire 3rd 25.5

 

Note that Trombly had only 1 kindergarten section.  Running two of 13 students was not affordable last year (nor would it be for most districts in any year.)

In 2009-10 we had a total of 68 student sections in grades K through 5.  These 6 sections therefore represented less than 9% of all sections in the district.  The average class size in 2009-10 in grades 1 through 5 was 21.5 students.  The point being, these higher sections were the exceptions rather than the norm.  Some people wrongly assume that what is happening in one grade level at one school is what’s happening everywhere.  This is not the case.

Now let’s look at the preliminary class size projections of the highest class sizes in elementary for 2010-11.  Note that the table also projects what the class size would be if we were to add a section to the grade level.

Table 3: Analysis of Class Size Projections and Options for 2010-11 School Year

School Grade Current Projected 2010-11 Class Size Class Size with Another Teacher Teachers Required
Ferry 4th 29.5 19.7 1
Ferry 5th 29.0 19.3 1
Defer 3rd 27.0 18.0 1
Monteith 2nd 26.7 20.0 1
Ferry 2nd 26.5 17.7 1
Poupard 2nd 26.5 17.7 1
Monteith 5th 26.3 21.0 1
Defer 1st 26.0 17.3 1
Monteith 3rd 25.8 20.6 1
Defer 2nd 25.5 17.0 1
Maire 4th 25.5 17.0 1
Monteith 4th 25.5 20.4 1
      Total 12

 

This is a constructive manner of analyzing the challenge.  Viewed through the lens of what is both desirable AND affordable, most reasonable people would identify with the challenge this presents. 

No decision has a greater impact on district finances than class size.  Class size standards decisions need to balance quantifiable benefit, intangible benefit, and hard costs. 

Next year our average total teacher compensation would have been about  $119,000.  The recent retirement incentive and new teacher contract will reduce this amount substantially.  But to keep the math simple, let’s just call it $100,000 per teacher.

To add a section at all of these grade levels it would incur approximately $1,200,000 of new expense to the district.  Unless you’ve been living in a cave you know that, like all school districts in the state, we’ve had to overcome reductions in revenue and other traditional cost escalations to bridge a $7,300,000 projected shortfall for the 2010-11 school year.

But let’s say, for sake of argument, that we DID have the wherewithal to add all twelve of the sections/teachers.  How might this decision be evaluated against the prospect of such other options as returning the middle school schedule to its previous 7 period day?  With some moderation in class size averages there, the staffing requirements are not that different.

Or how about the option to staff the high school schedule to an extent that would allow us to give more credit opportunities to students who today average 1 semester per year taking only 6 classes?  As the state graduation requirements ramp up more double blocking and like programs may be necessary.  We’d need more staff to accommodate that.

Perhaps we want to create new course offerings and create new capacity, not draw down enrollment in other classes, to enable that.  Most of these scenarios would require fewer than 12 teachers. 

These are heavy issues – and the prospect of even considering which path to take is not a place where we were before the new contracts and before the early retirement incentive and frankly not a place where most other districts are today.  Many, if not most, won’t be there anytime soon either.

Consider that we are debating whether we may have a half dozen class sections averaging 26 or 20 students while other districts debated this year which schools to close.  We need to keep things in perspective.

For our budget development this year, the standard measure recommended by the administration on class sizes have been that they were not to exceed 30 students per class in grades 4 and 5 and not to exceed 27 in grades 1 through 3.  The current projections has 100% of projected sections within those standards. 

The vast majority of our sections are well below those levels with an average class size of 22.1.  In all it is not accurate to say that we have a class size problem across the district.  We have isolated instances of higher class sizes that require careful consideration of alternatives.  That is where we are right now. 

Enrollment can fluctuate substantially over the summer – per school, per grade, both up and down.  This is particularly true now as Michigan residents often leave the area with little warning.  In all we project the majority of our enrollment reductions to come from the elementary level.  (Some silver lining: Our new policy on no fee All Day Kindergarten is already showing signs of counteracting some of these losses.)

Class size standards need to be clearly defined, realistic, and consistently enforced.

The smartest path to take is to establish and adhere to an absolute standard for class size.  The basis for the adoption of the standard should be fair, realistic, and consistently enforced. 

The Board may choose now, based on new developments, that the maximum of 30 students in grades 4-5  and 27 in grades 1 through 3  is too high.  But when looking to ratchet that number down, we need to measure the implication.  For example:

  • An adjustment down in grades 4 and 5 to the same 27 as grades 1 through 3 would require, at current projections, just 2 more teachers.
  • An adjustment down in grades 1 through 3 by just 1 student per class (from a maximum of 27 to 26 students) would require at least 5 more teachers or roughly $500,000.
  • Enrollment fluctuations after budget adoption may require us to add staff in places we least anticipated.

We have a very dynamic set of variables that influence all of our budget and staffing decisions.  This past week has brought many new developments.  What I expect to happen is for the administration to comb through enrollment projections yet again and evaluate class size maximums based on recent development. 

A revised budget should be presented to the Board for our consideration and a decision should be reached using a fair, equitable, and realistic standard that we are prepared to adhere to given inevitable variability over the summer.

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Retirement Reform Reality: Lansing Steps Up

Late last night, while most sane people slept, Lansing lawmakers took the step that really had to be taken to right the direction of the Michigan K-12 funding system.

Some have estimated this action, passed by the Democratic House and Republican Senate, could reduce costs by several hundred million dollars immediately and by as much as $3.1 billion over the next decade.  The non-partisan House and Senate Fiscal Agencies generally supported such estimates.

As I have written before, while these bills comes under the guise of a “retirement incentive” it is more aptly about retirement reform.  This was really the issue.  And that reform was not, and likely will not be, well-received by current school employees.

In short, the bill increases the retirement multiplier for those eligible to take advantage of it meaning the pension received will be greater than what would have been expected normally.  That’s the carrot.  There are some sticks – and some missing carrots.

Current employees who choose not to retire (or are not eligible) will be required to increase their personal contribution to the retirement system by 3% of their salary.  Recall that the retirement system, MPSERS, is predicated on a combination of employee and employer contributions that are a straight percentage of salary.  This year K-12 districts have been paying about 17% of employee salaries into MPSERS.  Next year it had been expected to go to 19.41%.  These are huge numbers when you recall salaries are our greatest expense.

So this bill will come at a price for employees who do not retire and this is where the spinning will begin.  The MEA has argued that the lawmakers are trying to fix the economic problems “off the backs of employees”.  This was essentially MEA President Iris Salters’ quote.  Others will argue that the incremental cost borne by teachers and other employees is for their own personal benefit given that this is their retirement fund.  Very few if any non-government employees receive a pension remotely resembling that of government employees.

The missing carrots, or what is noticeably absent from the bills, are any guarantees for public school employees regarding reirement health benefits.  This was the hangup over the late stages of this bill’s evolution.  The Michigan constitution guarantees the state employees’ pension benefits, but not their health benefits.  A recent House version of this bill took that action, which thereby increased the cost of retirement. 

As I have written before, when you break down why the MPSERS costs have increased as significantly as they have, rising retiree health care costs represent the greatest source of cost escalation.  So by taking this action, Lansing seems to be acknowledging this issue.  It is in this context that these bills are more aptly termed retirement reforms as opposed to an incentive.

And that’s the other very big news here.  The bill requires that new hires will be placed into a hybrid retirement system that is not exclusively a defined benefit plan, but more dependent on employee contributions – similar to 401k’s.

The net effect of all this on near and long-term school funding will remain to be seen.  There are lots of possibilities:

  • Our per pupil Foundation Allowance may still be reduced, but it is very unlikely that it would be anywhere near the $268 cut that has been often discussed.
  • The MPSERS rate may not got to 19.41%, but if it goes short of that I would predict a moderate Foundation Allowance cut.  Again, though, the net effect would not be NEARLY as harsh as the $268 cut AND the 19.41% MPSERS rate would have been.
  • This will undoubtedly spur many retirements not only of teachers but many other employees, including secretaries, custodians and others.  In the GPPSS this could mean that some of the people whose jobs were eliminated may be able to be hired back.

In the even bigger picture, this reform may well prove to be a catalyst for other Michigan budget reforms.  I don’t think Lansing lawmakers could even look cross-eyed at alternative revenue options without first addressing the MPSERS problem.  This was arguably the biggest puzzle piece.  One has to wonder for the House Democrats to have supported this whether there was some back room quid pro quo negotiated.  This action will go a long way toward addressing the School Aid Fund’s $400 million projected shortfall.  The state’s General Fund deficit is still $1.3 billion.  It will be interesting to see what’s next.

This action shows that Lansing lawmakers are finally getting serious about spending reform, which is welcome news for those who realize change had to come.

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GPPSS Budget Challenge in 5 Minutes

Last night I was invited to speak at a meeting of the Mother’s Club of Grosse Pointe South.  I was asked to provide a budget update in 5 minutes.  With that compression of time, I thought through how I would frame the challenge.  In short this was my message.

  1. The state of Michigan is our largest source of funding, based primarily on tax revenues that have scaled down with the state’s loss of wealth – sales, income, and property taxes. 
  2. Our per pupil funding (the state determined Foundation Allowance) has not kept pace with the rising trend of human resources costs – namely salary, retirement, healthcare, and FICA.  These are the four largest expenses in the local schools’ General Fund.
  3. The friction between these two forces is the root cause of K-12 budget challenges.  Unless root cause is addressed, the problem will persist.  This can only be fixed in two ways:  Either state revenues need to start rising again at a rate at least equal to the rise in salary, retirement, health care and FICA or locally we find a way to curb the rate of growth of those same rising costs.  Any other reaction the the budget challenge only masks this root cause problem.

To demonstrate the friction of these forces, consider the following:

  • With the Foundation Allowance and 20J reductions of October 2009, GPPSS’ per pupil revenues are now below those of 2005-6.  (Coincidentally, GPEA leadership has taken to the spin that this is the first time aid has actually been reduced.  My comment is:  Watch that first step.  It’s a doozy!)
  • If the state reduces the Foundation Allowance another $268 as has been forecasted by the state legislative fiscal agencies, GPPSS per pupil revenues would be at their lowest levels since 2003.
  • On the expense side of the ledger, even if GPPSS ends up reducing our teaching staff as we are evaluating now, the total cost of teacher retirement, health care and FICA for 2010-11 for 533 teachers will exceed that same cost for 602 teachers from 2007-8.
  • According to state of Michigan statistics, the average teacher salary in GPPSS has risen from $66,799 in 2003 to $85,985 in 2007-8.  Our locally developed statistics differ from the state in this area, but not in terms of the rate of growth.

Any objective person would agree this is an unsustainable scenario.  If we recall the two potential root cause resolutions referenced above, I have no faith or expectation that state revenues will rise to meet this challenge.  How many of you think the lawmakers will vote for a tax increase of any kind in an election year?  We’re now essentially a poor state and we cannot expect our revenues to remain at previous levels – let alone rise.

So how do we solve the problem locally?  Last week Farmington schools, like Bloomfield Hills the year before, closed a handful of elementary schools.  I put this in the category of responses that mask the problem.  How does closing a school curb the rate of growth of salaries, retirement and health care costs?  It will reduce some of those expenses by reducing staff, but when you look at the expense trends it is clear that this is a temporary fix.  I’m not interested in that.

Viewing the challenge through the root cause lens is essential in evaluating alternatives.  The GPEA leadership should do this as well.  They call for taxpayers to reduce our fund equity to 7% from our current level of 17% (of total expenditures).  That’s an allocation of $10.5 million taxpayer dollars.

The GPEA leadership rightfully argues that this money is earmarked for allocation to educate the children of our community.  But the question must be asked: Is continuing to fuel the unchecked growth of salaries, retirement, health care and FICA for a smaller population of teachers the right path?  It’s masking the root cause problem in a different, but equally temporary manner. 

I’d much rather invest in more teachers than pay more for fewer – which is precisely what is happening today.  This is why class size is rising.  Who’s happy with this solution?  I have heard students, parents, and teachers alike all advocate for smaller class sizes. 

Bottom line: We have to establish a expense/compensation system that has a cognizance of our funding model.  As things stand now each has no regard for the other.  Clearly this is not working.  As a result we expend all too much time and energy on re-visiting the recurring budget challenge (as we annually mask the problem) and not as much time as we would like grinding over ways to improve our educational program offerings.

Enough is enough.  This has got to change.

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It’s Time GPPSS Moved Forward With No-Fee All Day Kindergarten

A loophole in how Michigan distributes per pupil revenue has long allowed public schools to get twice what they really deserved for half-day kindergarten students.  But charging for extended day kindergarten amounts to taxing residents twice.  For this and other reasons I am advocating a district-wide switch to a no-fee All Day Kindergarten program for 2010-11.

In my last post and at the Board of Education meeting on January 25th I spent a great deal of time emphasizing that Michigan public schools derive their revenue on a per pupil basis.  The per pupil funding is known as the Foundation Allowance.  The Foundation Allowance does not distinguish between between a half-day student and a regular, full-day student.  This has been a pretty good deal for school districts.

Why?  Simple.  If we receive full per pupil funding for half-day kindergarten students it means that we essentially educate them at half the cost of most of our other students.  This is good for the district and, arguably, the other district services subsidized by the business model.

But it’s not so good if you are among the ever growing group of families who prefer their son or daughter go for more than half a day of kindergarten.  In response to this demand school districts have created programs called Extended Day Kindergarten (EDK).  But many districts, including GPPSS, charge a fee for EDK.

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2010-11 GPPSS Budget Development: Background, Process and Timeline

The 2010-11 Grosse Pointe Public School System budget will present perhaps the most difficult challenge to the district in its history.  Approaching such a problem with stakes as high as they are will require careful planning, collaboration, and deliberation.  Above all else, it requires an understanding of the dynamics that contribute to the current economic distress.

Last night’s Board of Education meeting was the first official Regular Meeting of the Board of Education of 2010.  I am honered to have been voted by my peers to serve in the role of treasurer, but at the same time I know that the task and responsibility of the position could not be any greater than they are right now.

Having spent the last 4 and a half years on the school board, and over a year before that, educating myself on the economic factors at play for our district and all those across the state of Michigan, I approach this daunting task with a great deal of confidence and resolve.  The trite phrase is “Knowledge is Power,” but knowledge is impotent if not leveraged.  The more people who have knowledge and choose to leverage it, the better off we will all be.  My strategy will be to continue to accumulate knowledge and leverage it to the greatest extent to solve our problems.

In that context I continue to invest substantial amounts of my own time making financial information accessible – meaning not just available, but simple to understand – for as many people as possible.  That is why this blog exists.  That is why I created the Financial Transparency Series and many other tools and reports available both on this blog and on the district’s web site.

Last night I delivered the presentation below to introduce the 2010-11 Budget Development Process, but more importantly the economic backdrop to that process.  It represents an abstract of the entire Financial Transparency Series.  I welcome your questions and feedback – so much so that I announced last night I will make myself available to present to any group across the district that has an interest in the finances of the Grosse Pointe Public School System.  So if you are a part of a PTO, athletic or performing arts booster group, or any other community group please take me up on my offer. I will be there.

The actual Resolution codifying the 2010-11 Budget Development Parameters can be found here.

I am a great fan of the Citizens Research Council of Michigan, a non-partisan policy think-tank specializing in Michigan governmental affairs.  Their motto is “The right to criticize government is also an obligation to know what you are talking about.”  I take that to heart and hope everyone else does as well.  So please consume these materials so you can contribute constructively to the solutions we need.

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School Employee Retirement Costs and the House of the Rising Sun

Most people know by now that Lansing is by far the most significant source of school district funding.  Lansing is also the unilateral source of our second largest expense – employee retirement costs.  Lansing sets the rates and we pay the bill – a financially lethal combination that puts local school boards in an unenviable predicament.

Last Monday, January 11th, the Grosse Pointe Public Schools Board of Education had a marathon budget planning Work Session that could best be described as miserable.  My personal projection is that we will unfortunately have to terminate the employment of over 60 district employees – all of them good people who add value to our mission and who are valued in return.  But we cannot ignore our economic reality.  The cuts are coming – hard and fast.

graphWe collectively stare down the barrel of our most daunting projected budget shortfall in the history of the district, brought about equally by Lansing’s wretched policy making combined with a Depression-level state economy.

I cannot repeat enough that Lansing is the largest source of funding for every public school system in the state of Michigan.  Lansing controls our per pupil revenue.  Lansing has cut our per pupil revenue this year resulting in the loss of $3,000,000 and is making plans now for cuts next year that will result in the loss of another $2,200,000.  Meanwhile salaries and health care costs rise and student population is shrinking.  This is the financial stew that is our sustenance.

The focus in this post is another ever increasing cost which, after salary, is our second largest expense – employee retiree health and pension costs – referred to as the Michigan Public School Retirement Systems, MPSERS.  Lansing unilaterally controls the rate of this expense.  To put this in perspective, if we receive roughly $10,000 per pupil for school funding, nearly $1,300 of it goes to employee retirement.

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