"High Achievement always takes place in the framework of high expectation." - Charles Kettering

Friday, July 2, 2010

Here's How One Small Michigan School District is Coping

The overall (May) unemployment rate for Wisconsin was 7.7% and for Michigan it was 12.8%. All rates quoted here are unadjusted for seasonal rates. My dad used to say that 5% unemployment was typical even in good times, reflecting a certain baseline of the population that remains unemployed and not seeking work. Some counties in Michigan are suffering with 20-25% unemployed citizens. The best unemployment rate in Michigan was earned by Macinac County at 7.8%, higher than the Wisconsin AVERAGE. Out of 83 Michigan counties, only nine of them registered single digit unemployment rates and seven of those were above 9%. Wisconsin, on the other hand has 72 counties with only five counties running into double digit unemployment rates.

Rock County was stung a bit more than the average Wisconsin rate in May with 10.4% unemployment. And Lenawee County, home of Blissfield Community School District has a full 15% unemployment. Blissfield is a small community close to my home town of Adrian Michigan. The school district has an enrollment of about 1300 students (about 70% of our enrollment) with a budget of about half our ours at $9.96 million. That's the first lesson to take from this. When the economy is really sour, per-pupil expenditures take a nose dive. The original budget Blissfield proposed in December predicted expenditures to exceed expected revenue by $1.6 million. Faculty and staff trimmed that figure to $1.2 million and the school board had to bring that down to a level that could be managed with their fund balance. This meant they had to cut over $930,000 from the budget and transfer about $280,000 from their fund balance.

There were five overpowering reasons Blissfield found themselves in this predicament. Number one is declining enrollment. Check for Wisconsin. Number Two is declining per pupil reimbursement from the state. Check for Wisconsin. Number three was some snafu with Michigan DPI in which the state overpaid Blissfield over 200 grand in recent years and they have to pay the piper now. OK, I hope that's not happening in Wisconsin. Number four is an increase in the amount the district pays into the teachers' pension fund. Check for Wisconsin. Finally, those pesky stimulus funds, to the tune of almost 300 grand, won't be around next year. Check for Wisconsin.

Of these five reasons, Blissfield had little control over four of them. They could have done a better job policing the over payments and correcting the state, but experience tells me that the state probably changed the rules as they went along to best minimize payments due. Scrutinizing their online budget analysis does not reveal that they used poor judgement in spending the stimulus funds on things like recurring costs, but if they began their budgeting process with those funds included, it wasn't too swift.

An analysis of the cuts the board made showed the distribution of pain to be relatively egalitarian. Instruction absorbed 34.7% of the $931,911 cut from the budget, Administration 28.1%, Operation and maintenance 20.8%, Technology 4.4%, Transportation 7% and Food Service and Athletics 5.0%. Now before everybody gets their knickers in a knot that instruction took the biggest hit AGAIN, we need to put it in perspective of what percent of the budget they are responsible for in the first place. Instruction in Blissfield accounts for 56.99% of the budget and in Evansville it's 59.7%. Administration accounts for 8.1% of the budget in Blissfield and 8.2% of the budget in Evansville. So these cuts certainly are disproportional, but in favor of the teachers because most educators have the best interest of the students at heart, even if we may disagree about the method by which that end is achieved.

The most interesting part of the article I read regarding this (in the June 24th Daily Telegram) was how some of these cuts were achieved. Naturally, there were lay-offs, outsourcing was used, retired administrators were rehired through third party groups to save pension and benefits. The administration was restructured and there was doubling up of jobs, like getting rid of the assistant principal position at the high school and reassigning him to the middle school. And of course, the almighty athletics has even been effected. I do not exaggerate when I say that athletics is a religion in Southern Michigan. They have eliminated reduced price athletic participation fees for students who qualify for free and reduced lunch and increased student ticket prices to athletic events to $5.00. Personally, I think this is a bit draconian in an environment of 15% unemployment, but it shows that the board is serious about making everyone pay the piper to balance the budget.

I learned from the paper that Blissfield has a policy requiring a 10% fund balance. From what I could decipher from their online data, it looks like they have more like a 30% fund balance (!). Michigan School Board Assn. recommends 15-20% of total expenditures plus operating transfers. So even though they have all this extra money in their fund balance, they recognize the fact that carrying forward a negative balance is not sustainable. Cuts were made and they ended up transferring about 10% of their fund balance to finish the job. Wow. What a difference in approach. Refusing to spend more than you make. Extremely refreshing.

Now let's compare that with Evansville's budget woes. I'll cover closing out this year's budget to start. The fiscal year ends June 30 and they closed it the best they could at the June 28th board meeting. On the revenue side, Evansville realized $29,282 less revenue than expected. Had they not recouped $50,000 from the insurance company for employee theft, it would have been that much worse. The big hitters here were reductions in high cost aid (-$33,244) and SAGE (-$19,992) reimbursements. The reason was not that we didn't qualify for these funds, but that more schools submitted claims for these funds. The pie remained the same size, so the pieces were smaller.

We also realized $12,202 less revenue than expected in open enrollment into the district. That was offset by $14,697 less in expenditures for open enrollment out of the district. This seems like a wash, but remember open enrollment out still leads open enrollment in by about $107,000. If one considers Mr. Pierick's comments this winter about open enrollment into the district and the funding that follows those kids to our district being about $3,400 less than the cost to educate each kid, maybe this imbalance isn't as bad as administrators and some board members are convinced it is.

On the expenditures side, the district spent $147, 055 less than expected! Yeah! So instead of the expected $60,000 deficit spending situation, they had $57,300 to put back into the fund balance. This ended the year with a fund balance of 11.15%, about the same as last year's fund balance percentage. This is a half-percent ahead of policy, but standing pat when policy calls for (half-percent) increases until 2020 when it should reach and remain at 15% probably isn't a good thing. Things that reduced spending this year were numerous maternity and medical leaves, mild winter reducing heat costs. The substitute costs rose to compensate for the leaves, but not to the extent of the reduction in salaries.

The year end closing of Evansville's finances has always been better than expected for one primary reason. Ms. Olsen is a very conservative business manager and she is careful to use this conservative approach in her budget designs. Case in point is the Madison School District getting caught with a 30 million dollar hole to plug last budget cycle. Their business manager must not have appreciated that the state had no money with which to increase the aid contribution by the amount they said they would two years ago. Our diligent Ms. Olsen used figures in which no increase was expected and the Madison business manager took the state at its word. Evansville only had a hole of about $120,000 to fill, most of which was not the fault of the district. Madison, on the other hand, was forced to scramble to balance their budget, ticking off a lot of residents in the process.

Next year's plan was tweeked for the June board meeting as well. Again, revenue projections are down by about $60,000 from what they were in December, due to many of the same reasons our revenue was down this year. Expected expenditures have been cut by about $110,000. Big hitters are faculty:$138,687 (retirements and loss of the TRIS one year special ed teacher and hiring entry level teachers for retirements, etc.);Custodians:elimination of cleaner position ($52,949);reduction of half-day kindergarten bus route along with EEN transportation savings ($26,039). You can see that these items alone total more than the overall cuts, so yes, there were increases in certain areas as well.

There was a transfer in accounting category this year for the HR director. Previously, this position had been categorized in the Administrative Assistant category for budget purposes. It has been switched to Administration for next year's budget, so it is a bit hard to tease out the details. It also makes the administrators section of the budget seem inflated upon first glance. I mention this in case somebody asks the school for a copy of the budget and I want them to better understand how this category changed. The administrator section of the budget shows a big "increase" and the Admin. Assist. category shows a big decrease, which is effectively a transfer of the HR directors salary and benefits from one to the other.

Once all the transfer stuff is taken into consideration, one can see that there is a 2% salary increase ($18,316) budgeted for the administrators. This year the district is experimenting with a 5% contribution to health plans or cash in lieu for non-union employees. After accounting for this contribution, administrators should expect to realize about a 1.26% effective increase. The administrative assistants are also being asked to pay 5% into their health plans this year. They were offered a 3% salary increase, which after paying the 5% into their health plans is an effective 1.35% salary increase. This is a good start to getting the conversation going about contributing to the health plans, but giving them a raise to cover the cost is not necessarily saving anybody any money.

In the end, despite all their best efforts, we still end up with a budget for the 10-11 school year in which we plan right from the starting blocks to spend about $136,000 more than we get in revenue (down from $186,000 in December). Our fund balance will have to make up for it AGAIN, reducing it to about 10.5%, officially making it behind the target value of 11% for this year. I just have a philisophical opposition to actually planning to spend more than you expect to make. I know organizations do this all the time, but who wants to end up like Michigan, outsourcing everything but the kitchen sink because nobody was willing to make the hard choices?

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