Board of Education begins budget process

Disagreements reflect broader splits over school finance

At a special study session tonight, AAPS Superintendent Todd Roberts and Deputy Superintendent Robert Allen gave a preliminary briefing on the school system’s 2009-10 budget. Good news was in short supply, though progress has been made on several fronts and Federal stimulus money may yet come through to help schools. But, absent Federal action, the district’s leadership is projecting a budget deficit of just under $6 million for next year. Without any other changes, the projected trend continues with a $8.74 million deficit in 2010-11 and an even $12 million deficit in 2011-12. They need to close the gap and will be looking for community involvement in making the hard choices.

Built-in assumptions

The $6 million hole is for a “current services” budget – that is, operating what we have this year, but including the expected cost increases for health care, retirement, and any other increases that are part of existing contracts. Besides the uncertain nature of the Federal stimulus, one of the largest unknowns in the budget process is the outcome of negotiations with several employee unions, including the largest, the Ann Arbor Education Association. But for prediction purposes, the current budget figures assume teacher contracts remain the same.

The same cannot be said of some other major cost factors, primarily health care and retirement costs. Mr. Allen’s figures assume that health benefits for current employees will cost 8% more per year over the next three years – an assumption that is unfortunately quite reasonable, and well ahead of inflation. Officials also assume significant increases in the required contributions to the state pension system, which are set by a state agency (and depend on health care costs for retirees as well as how the system’s investments have performed).

Finally, while the district leadership hopes to attract 56 new students next year, they also assume that state education funding will be flat, with no increase. In fact, schools have gotten small increases over the last two years, but AAPS received the minimum increase both times. These increases have been well below the amount necessary to keep up with inflation – in fact, the amount AAPS can spend per student has fallen nearly 9% since 1995 once you account for inflation.

What is to be done?

Dr. Roberts and Mr. Allen also presented a few options for closing the gap, at least for this year. They include:

  • Reductions and economies in all departments ($1.5 to $2 million), primarily by eliminating at least 15 full time positions through attrition and not filling current vacancies;
  • Reducing the annual set-aside for capital needs ($1.5 million);
  • A one-time transfer from a special fund ($775,000);
  • A transfer from fund equity – their reserve fund ($1.7 to $2.2 million).

School board members agreed that the budget was responsible, and that the proposals were workable, but they disagreed about whether enough was being done. Trustee Randy Friedman wondered why there were not more “visionary” proposals in the budget, and argued that such major changes are rarely implemented unless officials make a budgetary commitment to them. He offered three examples: merit pay for teachers (pay for performance); service consolidation with other districts, and enlisting volunteers on a large scale to help with basic tasks throughout the district.

In response, Trustee Deb Mexicotte argued that, whatever the benefits of such proposals, major changes had to be the result of a process. Including them in the budget, she said, was premature without knowing more about their potential impact. Superintendent Roberts also countered by saying that the district had already engaged in a number of innovative programs – including the partnership with UM to provide foreign language instruction in all elementary schools at a low cost – though perhaps they had not done enough to publicize them.

In fact, the three topics Mr. Friedman mentioned, though frequently discussed, are at best complex and often controversial. Proposals for merit pay for teachers are especially touchy, given that it is very hard to measure student performance in a reliable way. Moreover, it is not clear that financial incentives will drive “improved” teaching and not efforts to game the system. In any case, efforts to increase pay for “good” teachers will not save money unless pay for other teachers is cut.

School districts in the Washtenaw Intermediate School District, meanwhile, are actively exploring service consolidation opportunities, and have recently implemented a county-wide system for allocating substitute teachers. Most districts have found these consolidation efforts to be complex, though sometimes valuable. Volunteers, though crucial to the school district, are a difficult resource to rely upon for basic services.

The elephant in the room

The debate over “vision” missed, however, the most critical factors at work. Even trustees who worried about the “one-time” nature of some of the administrators’ proposals did not quite take the next step. At base, AAPS, like most school districts in Michigan, is in a funding vise. Funding available for education has been limited by the caps on taxable value of property, and reliance on the sales tax (which is very sensitive to economic conditions). Overall spending on education in Michigan since 1994 has just barely exceeded the rate of inflation, and spending here in AAPS has fallen significantly behind.

Meanwhile, schools face the same problem that is wreaking havoc in the private sector: health care costs for current employees and retirees that has been accelerating much faster than inflation. Pushing more of the health costs onto employees does not resolve the issue, because that is simply reducing compensation by indirect means. Making teaching less attractive, now that our economy so badly needs a well-educated public and workforce, is simply self-defeating.

Dr. Roberts and Mr. Allen presented their budget as a temporary fix, allowing AAPS to hold out until help comes along without gutting important programs. But from where will that help come? Without major change in Lansing, where the basic decisions on school funding are made, schools are left with few options.


It's all in the timing

It’s worth noting here that some of the critical factors going into making the AAPS budget, especially the per-pupil foundation allowance set by the state Legislature, will not be known until this summer and possibly not until after the budget is passed. Here is a timeline:

April – May: State Legislature works on budget bills, including the school aid budget.

June: School districts must pass their budgets by June 30, the end of their fiscal year.

Summer: Legislature moves on budget bills. In 2008, the Legislature did not pass the school aid budget until July, after districts had to have their budgets in place. The year before, school aid was held up with the larger debate over increasing the income tax, and the budget was not finalized until the end of October!

September: “Count day” at schools determines how many students are attending a district. State school aid is distributed on a per-pupil basis, so schools cannot be sure how much they will receive until they get the September count – again, several months after passing their budgets, and at least a month into the new school year.