2009-2010 Budget First Impressions

The Audit/Finance Committee continued its meetings about the 09-10 budget this past Monday. The process is a bit different than you may have seen in the past and I do like it better than how we approached the budget last year. Just in case you don't get enough of us on the Board, the Committee meetings are now being televised. This will continue to be the case until we pass the budget.

Most of the budget documents from Monday's meeting can be found at the District website at http://www.mtlsd.org/district/budget/budgetmeetingdocuments.asp. If you are going to read through this post then I would suggest having a window open with the 5-Year forecast of budgeted expenditures. To me, this is the place we need to start. As I have said in the past, I am not a fan of budgeting only for THIS year. We need to budget for this year while seeing what kind of impact the budget will have on taxpayers in future years. In some instances, having a zero mill increase today will result in a much higher mill increase in a future budget. In fact, in this budget I can already see some discussion happening with how to approach the looming teacher pension problem and I believe that there will be some disagreement on how to plan for that huge spike in expense.

In February, I had put together my own five year projection and it was good to see some of the numbers confirmed by finance director Jan Klein's forecast. For example, in my budget for 2012-2013 I had a $46,437,088 expense line for teacher salaries. Ms. Klein shows $46,647,820. I hadn't talked to Ms. Klein about salary growth rates but understanding what our teacher contract looks like and what our other obligations are, there are some numbers that just make sense. Teacher salaries expense is one such number and since it makes up more than 50% of our total expenditures, its an important number to get a handle on.

I want to take a broad view of the forecast for now. You can see on the five year forecast what assumptions are being made. They include the following:

1) Salary expense increases of 3.4% per year with no changes in staffing levels. This makes sense in that our teacher contract dictates what future obligations we have with regard to salaries. I am certain this Board will take up the issue of staffing levels before this budget passes.
2) 8% increases in medical expenses- Given historical patterns this makes sense. However, it is a good idea to keep on your radar the idea of a statewide teacher health insurance program. Governor Rendell has talked about that for awhile. At best it will reduce healthcare costs and not eliminate them.
3) No money set aside for retiree health care. You may remember last year that we took some surplus money and decided to allocate it towards funding an OPEB trust. This trust was to put aside some money to address a large retiree health care liability that the District has. Deciding not to set more money aside now means that it will simply be pushed to the future.
4) No change in real estate assessments. Honestly, if you have any idea whatsoever what our assessed valuations will be over the next 3-5 years, please let me know. What I do know is that when we changed the way we taxed people in 2002 to be for the full home value as opposed to a percentage value, the District was forced to change millage in kind so as not to receive a windfall of property tax revenues. My best guess says that this will again be the case. No matter what the assessed valuation changes to, the District will again be asked not to make a mint off that change. In both Ms. Klein's forecast and the one I put together, we kept the assessed valuation the same for the length of the forecast.
5) $117 Million for High School Construction.
6) 30% loss in PSERS investments for 2008-2009. This expense right here is the one that has me scared the most. I posted about the 250% increase in PSERS contribution rates in December. Since then, the contribution rate has jumped even further due to stock market losses. PSERS right now is projecting a 30% loss on investments for 2008-2009 (their year end is June 30, 2009). They are then projecting 8% returns (down from 8.5%) in future years. Listen, if you could guarantee me 8% returns for the rest of my life, sign me up. Having been a financial planner, I know good numbers when I see them. How many of you would ditch your 401k investments today for an 8% return going forward? How does PSERS expect to do this with a 10-year average return of 4.5%, a 5 year return of 3.88%, and a 1 year return of -1.88%? Understanding that past performance is no indication of future results, banking on an 8% return in an environment like this is probably not the right thing to do.

Given all the above information and seeing that our revenues (which the Committee went over last month) are largely driven by our millage rate, state reimbursement rates, and earned income taxes, the five-year forecast show some interesting things.

First, the high school project in this forecast is phased in over a few years. This results in millage increases in 2010-2011 (2.68 mills), 2011-2012 (1.59), and 2012-2013 (about 4.17). These millage increases are not due entirely to the project but are largely a result of the debt needed to finance the project. You can see on the Transfer-Debt Svs/Capital Fund line how the debt service number keeps creeping up until 2012-2013.

Second, the pension obligations rear their head in 2012-2013. This is illustrated by the almost $10,000,000 increase in the Fringe Benefits section of the budget. Given that 1 mill equals about $2 million in revenue, this spike alone will result in a significant millage increase for the District. Under current law, the State reimuburses us for half of our pension contribution payments. This is why you see the revenue from the state increase the same year by $4.5 million. Between the pension spike and the high school debt, the 2012-2013 budget is projected to result in a 4.17 mill increase.

In the end, you can see that the millage is forecast to be 37.13 in 2014-2015. Today your millage rate is 24.81. This forecast shows what might shape up to be a near 50% increase in property taxes.

Before you step to the edge of that cliff or put your home on the market, please understand that there are Districts across this state that will be in a very similar boat to Mt Lebanon. The pension liability problem is about as big a financial problem as we can have. Other districts are dealing with it in their own ways. Upper St Clair has made their financial forecast available to its residents. Since it is a public document and was forwarded to me by a resident of USC, I have posted a link to it here. Their forecast is not quite as dire as ours but I do not believe at the time it was published that it included the new renovations they are now talking about. At least those renovations are not included in the expense assumptions outlined in the presentation.

This forecast, and the one I had in mind last year, are what convinced me that moving ahead with a high school project in this environment would not be the most fiscally sound decision. Until we can put a five year forecast in place that does not result in such a large financial burden being pushed onto our taxpayers, I am reluctant to spend anywhere near $100 million. Our budget is not just about the high school project. It is about how we educate our kids, how we prioritize the use of taxpayers funds, and how we plan for our future. We don't have the ability to run a deficit budget to "invest" in things by borrowing money like our federal government does (nor do I want that ability). Every taxpayer dollar matters. A potential 50% increase in property taxes over five years should give everyone pause.

I'll post more next week.

Thanks for reading.

James

Taking Issue with the PSBA

Let me reiterate here that the opinions below are my own and may not reflect the opinions of other members of the Board.

From the PSBA website:

Tim Allwein, PSBA Governmental & Member Relations

The Pennsylvania School Boards Association today announced agreement with the Pennsylvania Department of Education and the State Board of Education over the issue of graduation requirements. The agreement on new language proposed by the parties is an attempt to reach consensus on what has been a divisive issue within the basic education community for almost two years. The plan replaces a controversial proposal for graduation competency assessments and preserves broad local testing authority.

Under the new proposal, the state tests, known now as Keystone Exams, would be strictly optional for all school districts. Districts would be required to use only one of the following as graduation requirements: the results of the 11th-grade Pennsylvania System of State Assessment test, the Keystone Exams, aligned local assessments or International Baccalaureate or Advanced Placement tests. Consequently, the only mandated assessments would be the PSSA, because it is the designated state assessment for No Child Left Behind Act purposes, and the graduation requirement the school district chooses.

After all the research and data questioning the use of high stakes exams to determine the graduation readiness of students, the PSBA seems to have switched course here and now believes it is OK to use the PSSA, IB, or AP exams to do just that- as long as the option for local assessments is maintained. The PSBA says the new agreement is optional to local school districts. However, read on from the same press release (emphasis below is mine):

The new language also ensures that a local assessment option is still available for school district use and makes major changes regarding the development and implementation of those tests.

For the first time, the Department of Education would have to provide technical guidance in the development of local assessments to any school district that requests it. Also, local assessments would have to be validated but, unlike the GCA proposal that places the entire cost on school boards, this agreement provides that validation costs will be shared equally by PDE and districts. Also, local assessments would be allowed to include various strategies, such as portfolios, student work, teacher-developed tests and other alternatives, as well as pencil-and-paper standardized tests.

The new proposal also creates a Local Assessment Validation Committee, with representation from the state and from PSBA for the purposes of determining the process and criteria for validation of local assessments and for determining the qualifications for approved validation entities.

Those paragraphs don't make keeping your local assessments as they are "optional". Instead it sounds like more intrusion into the rights of local governments. Even if you are proven to have satisfactory graduation assessments, your school district will still need to get validated at a cost that will be split between local taxpayers and the State. Your graduation requirements will be subject to approval by this Local Assessment Validation Committee- or more likely, they will have to conform to the standards set by this committee.

I have been keeping up to date on the PSBA on what they have been saying for the past year on the GCA's. Here are some quotes from them over the past year:

PSBA Comments on Regulations to 22 PA Chapter 4:

PSBA believes that proponents of the proposal assert that change is needed because the current graduation assessments being used by school districts lack rigor and do not adequately measure a student’s proficiency in the state’s academic standards. PSBA strongly refutes this assertion, because there is nothing to prove its validity and because results from a PSBA survey on such assessments show that school districts are indeed following the intent of the current regulations in a variety of ways.

Additionally, PSBA believes that the GCA proposal infringes on areas that traditionally have been areas of local control, will be harmful to students and will result in significant costs to school districts and the commonwealth.

Here is a second nugget:

Tim Allwein- Are graduation competency assessments necessary?

Both the proponents and opponents of the current GCA proposal are united in their desire for a system that ensures that students graduate from high school proficient in Pennsylvania’s academic standards. Proponents believe that the only way to ensure this is through state tests – either the PSSA or the GCAs. Opponents, including PSBA, believe that a system that allows local tests aligned to the state academic standards and the PSSA can meet this requirement. PSBA is not convinced that the discrepancies shown by the proponents that more students are graduating without scoring proficient on the PSSA point to a deficiency in local assessments.

In unity with he PSBA, school districts across this state passed resolutions opposing high school exit exams. Mt Lebanon passed its resolution in February 2008. You can see that document here.

Personally, I am opposed to the agreement based on the following:

1) Costs, while shared between the PDE and the District, are unknown. Additionally, if you are in a school district that by all accounts is graduating college ready students, then why incur the cost at all?

2) Pencil and paper tests should never be the determining factor in a student's readiness. While Mt Lebanon may "opt out" of the optional Keystone Exams, the fact remains that many school districts will take this route. The PSBA and others have cited numerous research articles that suggest high-stakes exams are not the way to go to determine college readiness.

3) The new agreement still infringes on local control of education even if a school district wants to opt of the Keystone Exams. This agreement makes it more likely that in the future the PDE will infringe further into graduation requirements and force local school districts to cede more control to the State.

Finally, I did send an email to the PSBA outlining my concerns. For some balance to my viewpoint, I present their response below:

Thank you for your comments. Your specific concern has been echoed by others. As you know, this whole debate began with GCA supporters saying that new tests were needed because too many students graduated based on reaching proficiency on local assessments rather than on the PSSA. This argument made the underlying assumption that local assessments were somehow substandard, an argument that PSBA refuted because there had been no studies or research proving this. It is also important to remember that PDE had never been required to give school districts any technical advice or guidance on the issue of developing local assessments.

The recent Penn State study found that while many school districts have local assessments that are aligned to the state's academic standards, which is what the regulations require, many do not use those assessments or the results of those assessments in a manner that is acceptable to PDE.

Under the language of the new proposal, districts can either use the new Keystone Exams or a validated local assessment as a graduation test. Since validation of local assessments would be required, subject to criteria developed in part by PDE and by representatives of PSBA, it would be difficult for the state to then go back in a few years and say that the local assessments can no longer be used and that only a state test (PSSA or keystone exams) can be used. I'm not sure what their argument would be.

The cost of validation is also a subject of much discussion, as it should be. There are several reasons that I believe will ensure that these costs are not burdensome on school districts. First, the new language requires the state to pay half the costs. Second, the criteria would be developed by a committee on which PSBA has four representatives and the state four. Third, the recent Penn State study recognized that there are 18 school districts that have valid local assessments. I believe that PDE will share best practices and any other useful information with school districts around the state in order to help them develop valid local assessments. Finally, PDE would be required to provide technical guidance to any school district that requests it in developing local assessments. If school districts can submit a test that they believe is valid based on using information shared by PDE, it likely will shorten the time needed for validation and thus, make it less expensive.

I appreciate your concerns about the nature of the agreement, but I believe the new language makes it more difficult for the state to turn around in the future and mandate the use of a state test for graduation purposes.

I welcome further comments.

Tim Allwein
Assistant Executive Director for Governmental and Member Relations Pennsylvania School Boards Association P.O. Box 2042 Mechanicsburg, PA 17055
(717) 506-2450, Ext. 3325
Cell: (717) 574-3005
Fax: (717) 506-2476
e-mail: tim.allwein@psba.org

Thanks for reading.

James

Budget Discussions Begin Tonight- Input Wanted

That title is not entirely correct. The Audit/Finance Committee has been meeting for a few months discussing the assumptions in the upcoming budget. Tonight is the first time in a while that the Board as a whole will go over a more realistic budget than the one presented last month. As you may know, that budget was engineered to force the Board to get an exception from the PDE to raise taxes higher than the allotted Act 1 limits. The Board does not believe it will need the exception, but it will most likely be there if we need it.

The budget season is the time of year that allows the District and the community to set its priorities. If you have a moment, email me how you would prioritize the following categories (in no particular order):

-program breadth
-athletics
-arts
-taxes
-class size
-school construction
-salaries

Add other items to your own list and let me know what you think. This is nothing more than an exercise in trying to validate how I would prioritize the same items in the District budget. I hear from my family, friends, and others what their thoughts are. I'd appreciate input from a broader segment of our community.

I'll let you know where I stand on these priorities in a few weeks.

Send emails to james.fraasch@gmail.com.

Thanks for reading.

James

Consolidation Update

I posted a few weeks back about Governor Rendell's message about school consolidation. Today there is an article in the Pittsburgh Post-Gazette tackling both the consolidation plan and the graduate competency assessments.

From the Post-Gazette:

Pa. official grilled on graduation exam, school mergers

Tuesday, March 03, 2009

By Tom Barnes, Pittsburgh Post-Gazette

HARRISBURG -- State Education Secretary Gerald Zahorchak ran into a bipartisan buzzsaw today before the Senate Appropriations Committee, as he was assailed for trying to reduce the state's 501 school districts to just 100 and for pushing to develop a new high school graduation test.

Democratic Sens. Sean Logan of Monroeville and Andrew Dinniman of Chester questioned Gov. Ed Rendell's controversial idea of consolidating school districts.

Mr. Logan said it had been tough enough just to close Duquesne High School and transfer those 135 students to nearby high schools.

"How are we going to deal with transferring millions of students if the districts are reduced to 100?'' he said.

Mr. Dinniman asked where the number of 100 came from.

Mr. Zahorchak, who is Mr. Rendell's point man on several emotional education issues, said some people had talked about having just one school district per county, and there are 67 counties. Larger counties, such as Allegheny, would probably need several school districts, so the figure of 100 came up, he said.

Mr. Zahorchak said the upcoming merger of Monaca and Center districts in Beaver County could provide a blueprint for other combinations.

The school district consolidation idea did get some support from Sen. John Wozniak, D-Cambria, who said a study by a legislative committee a couple years ago supported the idea and said that about 2,500 students was a good number for each district

Mr. Rendell wants the Legislature to set up a committee to study the consolidation idea and settle on a different, lower number of districts if it chooses.

Mr. Zahorchak also took flak from Sen. Jane Orie, R-McCandless, over his plan to create new "Graduation Competency Assessment'' exams that all high school students would have to pass in order to graduate. He said that too many students are now getting diplomas while still being unprepared academically for college or the work force.

He said that if a local school district wanted to develop its own assessment exam that was just as rigorous as the one the state is developing, it could use the local exam.

But Ms. Orie didn't like either idea, saying it could ultimately cost the state up to $45 million to develop the tests. She said it's an unnecessary expense when the state is facing a $2.3 billion budget deficit.

Perhaps the most poignant protest at the budget hearing -- even if it was silent -- was the appearance by 25 students from the Scranton School for the Deaf, who don't like the Rendell/Zahorchak plan to save $7 million by closing their school. It serves 100 deaf students and has 100 staff members.

Mr. Zahorchak said it's the only school in the state that is directly run by state government, and he thinks it's time for the state to stop such direct education. The students might be served by an intermediate unit in the Scranton area or even with programs from the Western Pennsylvania School for the Deaf, he said.

An interpreter, using sign language, told the students what was being said at the hearing. Sen. Lisa Baker, R-Luzerne, strongly protested the Rendell administration's plans to close the school.

It looks like there is bi-partisan opposition to the consolidation plan at this time. Even if the Governor gets a study going it will be a few years before we might know something more.

Kudos to State Senator Jane Orie for using the opportunity to talk about some budget ramifications of the GCAs.

Thanks for reading.

James

Superintendent Moving Back to Kansas

From the District website:

John Allison Named Superintendent of Wichita Public Schools

Mt. Lebanon Superintendent, John Allison, was named Superintendent of Schools for Wichita Public Schools USD 259. The announcement was made by the Wichita Board of Education at a public meeting held on March 2, 2009.

Mt. Lebanon School Board President, Alan Silhol, stated, "We are very sorry to see John leave us, but we wish him the best in his new position. We will work quickly to ensure a smooth transition. The Board will meet in executive session this week to discuss this further and we will share next steps with the community at next Monday's School Board Discussion meeting on March 9, 2009 to be held at 7:30 p.m. in the High School Library".

Mr. Allison came to Mt. Lebanon in June, 2007 from the Grapevine-Colleyville School District in Dallas, Texas. "An opportunity arose in Wichita that would allow us to move back to our home and family in Kansas", stated Allison. "This was a very difficult decision for me to make. Mt. Lebanon is a wonderful community and a very special school district."

It is anticipated that Mr. Allison will remain in the District through the end of the school the year.

Mr Allison is a very good Superintendent but an even better person. He will be missed.

As Board President Alan Silhol states in the above press release, the Board will start discussions this week on replacing Mr. Allison.

James