District finance presentation

Thanks to parent Ed Vielmetti, we have a copy of the slide show that Robert Allen (Deputy Superintendent of Operations, AAPS) gave at the community meeting at Burns Park two weeks ago. Click here to see a web version of the slide show, albeit without Mr. Allen’s commentary. Let’s talk about this!

I think it’s fair to summarize his main points as follows:

  1. The district has been facing a continuing revenue squeeze as
    • the foundation allowance from the state has failed to keep up with inflation,
    • the number of pupils has leveled off (state funding is # of pupils times foundation allowance),
    • and retirement contributions (set by the state) and health care expenses have increased much faster than inflation.
  2. The district has been paring back the budget for several years, trying not to affect instructional programs.
  3. Salaries and benefits make up nearly 90% of the districts expenses, so substantial savings can only come from there.
  4. District officials can no longer protect instructional programs from cuts.
  5. Options to increase revenue are limited:
    • Current law prevents us from raising local taxes to fund school operations.
    • The only semi-local tax option would be for a county-wide “enhancement” property tax millage, which would have to be for a specific purpose (like technology) and would have to be agreed upon, and revenues shared by, all school districts in the county. Ann Arbor would likely be a net contributor to other districts.
    • We can try to attract students to AAPS schools from private and charter schools by offering desired programming.
    • Fundamental changes in how schools are funded requires action by the state Legislature.
  6. The district is looking at more ways to economize, but if we want to invest more in our schools, parents need to put pressure on the Legislature.

In the discussion that followed, there was a lot of concern that more economies could be found without cutting teachers and increasing class sizes. I think we agreed, however, that there was not a whole lot of “fat” to cut, and that acceptable economy measures were limited. In other forums, people have raised questions about larger issues, such as the new high school. Some proposals, such as moving Community High to the new building, might also allow AAPS to attract more students into the district (indications are that many students who are unable to attend Community end up going to school outside the district).

None of these things, in my own view, change the fact that our state needs to change direction and begin investing in public education. Local cuts, while important, will not solve the problem (unless we are willing to accept severe program cuts). But changes in state funding are not likely to make Ann Arbor’s budget problems go away.

Take a look at Robert Allen’s presentation materials , and let’s discuss:
Has the district done enough?
Are there other ideas we haven’t considered so far?
Where should the axe fall, if it must?
What are we willing to accept?
What can we do about it?

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One teacher's comments (and then some!)

I’m Brit Satchwell, a teacher at Forsythe, local resident and parent. I’m also the AAEA PAC Chair (political soapbox guy).

One advantage of MEA membership is that our lobbyists have their fingers on the pulse of the political debate and can advise us as to the timing of our email and letter writing campaigns. It’s no secret that Granholm and the senate are now locked in the Michigan tax version of the Cuban Missile Crisis. She has set a deadline of June 1 for the legislature to decide how Michigan is going to fund its schools and services. She says tax, the senate says cut. Neither side is blinking. The MEA just told us the time to act is now, so I sent out an action alert to our AAEA members the other day. The side with the most emails and eloquence will stand the best chance of victory. I’ve taken the liberty of copying and pasting the action link Steve Norton used in his 4/14 action alert on this website. Here it is:

http://www.congress.org/congressorg/dbq/officials/?lvl=L

I hope all parents and community members will use it to encourage our legislators to figure out how to run our state, secure reliable and sustainable funding for schools and services, and to implement a long-term economic recovery plan. I did. I asked them to tax me.

Has the district done enough? Yes and no. I think central admin and the BoE have been more than competent managers of the crisis, reluctantly cutting and squeezing beyond the point of efficiency. “Fat” is a relative term during a budget freefall. Over the past six years, we’ve cut more than all of what used to be considered “fat”. As the list of the services, programs and methods that are financially possible grows shorter, we’ll be forced to call those that slide to the bottom of the list our new “fat”. Some of the most recent “fat” to go: teaming and block scheduling at the middle schools next year. To those who are not staff, these are two huge issues in terms of effective pedagogy. I voted for middle school restructuring, by the way. And in that restructuring process, I, like my MS colleagues, will be contributing 15.23% more contact time without any additional compensation. And to accomplish this added workload, we took a 40% cut in planning time. To translate this into a common denominator, it is the equivalent of a 40 hr week being extended by 6 hours for no pay. I urge the community to throw 15.23% against their own annual gross to see what the monetary equivalent of their contribution to AAPS would be under this formula. Again, I and my colleagues voted overwhelmingly to do this (77% in favor). This is not sour grapes; it is a candid look behind the curtain from a teacher’s eyes. I am on the AAEA bargaining team; the common goal was to cut $2.2 million, and that’s what we did without either side trying to negotiate the money end of things. But this district will get what it can afford, not what is best. “Best” will also become a relative term as the structural deficit worsens. Have you seen the latest budget projections through 2009/10? The district’s fund equity sinks to just over $9 million (from the current $23 million), and 65 more teaching positions are gone (on top of the 27 we just lost).

We could save considerable money by making a drastic course change regarding Skyline. I’ve heard several ideas: rent it to WCC, sell it to UM (cheaper than the Pfizer campus!), close Community and Open and move those students to the new site. The BoE has taken so much flack over Skyline, I’m not sure they have the strength to take on the howling that would erupt. Remember, Skyline went from impossibly expensive 6-7 years ago (“If the Good High School Fairy dropped a new school on us for free, we still couldn’t afford to run it”), to amazingly inexpensive (sinking fund millage that was supported by the community), to almost-white elephant (cost overruns in the face of new state cuts). Personally, I see these shifting public perspectives as more the indirect result of economics and bankrupt state policies than of local mismanagement. Yet if we are providing a respectable educational product now without Skyline and enrollment is projected to be flat-to-down, we ought to be able to provide an even better one with the savings a Skyline shift would generate. Regardless, there is so much institutional momentum, time, money and political credibility at stake that it might just take a Final Confrontation (!) with 90% of the budget (teachers and instruction) to make a Skyline course change happen. As an experienced teacher who just donated $12,000 of labor to AAPS next year, I hope we never get down the list of cuts to that horrific Sophie’s Choice. The rift would take years to repair.

Any cut scenarios, big or small, are reactions, not actions. Both the fire and the fire hose are in Lansing. We’ll continue to cut and manage as best we can until Lansing tells us to stop. I know that admin and the BoE have been working individually behind the scenes in Lansing, writing letters and lobbying with the MASB (Michigan Association of School Boards) and MASA (Michigan Association of School Administrators). However, I hope they will take a more activist role and use their public platform to facilitate action within this community. The parents outnumber staff by a factor of 25 to 1. AAPS needs to go beyond educating parents to empowering them to act in concert. AAPS has communication and organizational resources that dwarf anything the teachers or parents can do here at the grassroots level. Informational budget forums and sobering budget projections have their place and value, but when consequences of these dire magnitudes approach, I think it is incumbent upon the village leaders to ring the town bell, point, and lead. I look forward to the day when a link to legislators appears on the AAPS website, front and center. The day when backpack mail goes home with every student asking parents to weigh in with their elected representatives, yea or nay. The day when Supt. Roberts and the BoE put a call to action into the A2 news as a feature op-ed. The day when the district organizes a caravan to Lansing to lobby legislators in their offices. Yes it’s political action (anathema, along with religion, to ed types), but if this is a political crisis (Webster’s says it is), what is the alternative? I trust their ability to approach reasonable activism in a professional and appropriate manner. They have taken the first step by offering objective financial information, but the other shoe must drop if the information is to be anything more than information. But this, like changing course on Skyline, would be a huge step, one never before taken because we’ve never been in this situation before, and a tradition of political avoidance within ed circles (all the way down to the PTSO level) stands in our way. I know the MASB legal opinion on what school districts can and can’t do in terms of political action, and we have not yet done all that we can as a district. The question is how much more flack are the trustees willing to take? And how much more flack should they risk now as opposed to later when only edu-cidal options remain? I have the utmost sympathy and respect for them as they struggle with all of this. Suggestions that we cut their compensation (mere peanuts) strike me as mean spirited. I understand the frustration as well or better than most, but let’s stay united. The infighting will get worse soon enough as the cuts continue.

A quick word about AAPS retirement costs… The state did some “creative accounting” in 1997 with the School Aid Fund. They switched from a five-year average for declaring assets to a one-year real time number, thus creating a “windfall” surplus (the stock market was booming and money was in the air!) With this “surplus” in hand, they justified an income tax cut in 1998. As they cut taxes they offered schools a modest but welcomed “raise”. The condition for the raise was that schools would assume responsibility for annual mandated contributions to the teacher retirement fund. The schools took the raise, taxes were cut, and the very next year the state “undid” the artificial windfall and went back to the five-year average. As a result, schools that thought they had a bird in hand were left holding the bag. The health care component of the retirement fund started to skyrocket. To make matters worse, 1997 saw the first of some 40 tax cuts (some sane, some insane, some just plain mysterious) to specific corporate interests that diverted money away from where it would have gone, the School Aid Fund. I offer this as a bit of the history of how we landed where we are today. When I now ask my legislators to tax me, I’m not asking for a new tax. I’m asking them to replace only some of the old taxes that allowed Michigan to function properly. If you cut a revenue source, then replace only some of it, that is not a “tax increase” any more than a life ring is a swimming lesson.

One more word on health care… AAPS pays the same amount for active employee health care regardless of what plan the employee chooses. If the employee chooses a plan that is more expensive than the district’s in-house self-funded plan (an OK plan), the employee pays the difference to get what he/she sees as a better plan. The employee chooses what to buy and pay for. The most expensive plan is offered by MESSA (a plan tailored for educators’ needs and affiliated with MEA). You may hear about pending legislation in Lansing to dismantle MESSA because it’s “too expensive”. Again, the employee pays the difference for MESSA, not the district. This legislation is being sponsored by the same folks who want to cut taxes further to “balance” the state’s budget. Of course, it’s impossible to balance a budget that is in a structural deficit freefall.

Wow, this was a long rant. Hope it provides grist for this site’s very important mill. Please use the action link above to email your legislators, folks. Thanks!

 
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On health care...

Thanks for the detailed info! Just seeking some clarification: I read that part of last year’s AAPS budget package was a shift to limit the increase in the district’s contribution to health insurance to 5% annually. I’m assuming, then, that the self-funded plan is designed to stay within that cap? And that for other options, like MESSA, the district will pass along to subscribers increases above 5%?

From what I read, part of the reason why MESSA gets a bad rap is that “many” districts continue to pay 100% of health insurance coverage for their employees. I do think that’s something which can’t really be sustained. As Liz Brater said, it’s not fair to penalize teachers for problems with health care costs that dog the whole economy. On the other hand, though, until a broader solution is found, some compromises on health insurance are needed. A combined approach, which is what Ann Arbor’s sounds like, with a variety of plans, is one path — as long as we don’t lose the advantages of broad “risk pools.” I am suspicious, though, of the history of proposals at the state level which were less about reducing the cost of quality health care and more about a political agenda (taking a slap at MESSA and the MEA).

Choice is a wonderful thing, but if it means segmenting employer groups so that those who use their insurance more are squeezed into increasingly expensive plan options, we’re actually losing ground. As a self-employed parent, I can tell you that it’s a jungle out there as far as individual coverage goes. Cherry-picking is the norm, and if you aren’t young and healthy, watch out! (Want maternity coverage? That’s extra – a lot extra. And prescription drug benefits are like the needle in the haystack.) Anyway, the point is that we need to be careful when finding ways to limit health care expenses.

 
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Healthy Discussion

I’m Brit Satchwell, teacher and parent. In regards to Steve’s 5/4 comments…

I hadn’t heard that capping active employee health insurance increases to 5% annually was a goal, but then again, I wasn’t part of that negotiation. My guess is that if it was mentioned at the table, it was done so as just one thread of a possible long-term budget scenario being considered by both sides at the time (one of MANY scenarios). If that is or was a background goal of administration, I would express sympathy over the rising cost of health care and counter that I hope ALL Americans get covered for less than we pay now. In recent data released by the UN or WHO or some other mega-policy think tank, the US ranks #37 in health care delivery and #1 in cost. Something is terribly wrong, particularly that we could be #1 in cost while 46 million of us (mostly children) have no coverage at all. The price of our big “We’re Number 1!” foam fingers comes at immoral cost. The next time GM and other major corporations go to DC to lobby for some sort of health care reform, I hope to see school parents, administrators, and teacher unions with them.

I distinctly remember being told prior to voting on our last contract that admin’s position was that they would pay 0% of future health care increases, and I assume that policy is current. We could choose any plan we wanted, but every cent of its cost over and above the district’s benchmark in-house plan had to be borne by the teacher. I chose MESSA PPO, and my gross raise for the first year of the contract was about $68… my choice. I chose to spend my “raise” to merely keep my existing health plan, and my net gain was about zero… my choice. The essence of choice lies as much in coverage and care as it does in cost. I chose the best coverage I thought I could afford.

Some districts do pay 100% of MESSA for their teachers. But you can be sure that those teachers have to make the same choice I did… wages vs health care. Those districts offered choice at the aggregate rather than individual level… “we’ll continue to pay 100% of your current coverage or give you a modest raise, but not both.” Some of those “100%” plans are MESSA, but not all. Some are the district’s own self-insured plan. I know of no district in recent history that negotiated any meaningful wage increase AND pays 100% of ANY health plan, but I’m open to correction on this. If thus enlightened, I’d mention a significant number of districts where teachers took either a 0% increase or even a wage rollback in order to keep their “no cost” plans, SOME of which are MESSA. Wages and health insurance are always negotiated in tandem, never in isolation. ALL districts and ALL negotiations struggle with where to draw the line between the two in order to survive the current funding fiasco. Beware of those who point solely at one or the other – INCLUDING teachers who point only at lagging or falling pay!

Steve makes a crucial point about risk pools. The larger the risk pool, the better the plan’s chances of withstanding claims surges and spreading (managing, controlling) costs. By far, the smallest risk pool on the AAPS menu is the district’s self-insured plan. Other districts have tried self-insurance before (Wyandotte comes to mind). They saved money at the front end (no claims, generally adequate but mediocre coverage, special low administrative costs to attract business), but if the pool is too small, claims could force costs up rapidly. Switching back to a larger pool (as Wyandotte was eventually forced to do) is very expensive (claims liability tail WHILE establishing the reserves for the new pool AS the third party administrative fees rise). I’ve heard actuaries use this rule of thumb: a health insurance pool needs a minimum of about 5,000 participants to achieve “critical mass” viability. There are 1175 teachers in AAPS. While AAPS’ self-insured plan remains our least expensive (to the teacher, NOT the district!) plan, the power of large numbers predicts that its costs will continue to rise faster than the other plans AAPS offers. Indeed, in the past year this has ALREADY come to pass. Some AAPS participants (office professionals) are now contributing to their formerly “free” self-insured plan. Those trend lines are on the graph. When and if the lines merge, all questions of choice (cost and coverage) will become moot. I worry that the plan with the most rapidly increasing costs is the one being used as our district’s benchmark… at current trends, that can’t last. Maybe the 5% comment was in regard to their self-insured plan? But because goals and projections don’t determine who gets sick or when, I’m not sure how any number could be anything more than a hopeful prediction. Only divine powers can make 5% an actual goal or target.

More pertinent to the issue of funding than what health care/wage tradeoffs TEACHERS make while active, is what DISTRICTS contribute to the state public employee retirement fund (health care and pensions for public sector retirees, of whom teachers are the vast majority). If your hear MPSERS (“Mip-sers”) mentioned, that’s what they’re talking about. While employed, I’ll pay anything over the district’s benchmark costs, not the district. The moment I retire, I’ll lose my MESSA (or any other district plan) and fall under the state’s public employee plan. Grant one wish to any administrator in any district, and they will choose to cap THAT cost rather than how much I’ll CONTINUE to pay for the increases to the plan of my choice. THAT brings me back to the state’s tax-cut, bait-and-switch move I mentioned previously that took place in 1997. Districts took over the responsibility for additional retirement costs, and from that point forward the state had one less hot potato on their hands. This is one hot potato they DON’T WANT BACK, as witnessed by their general avoidance of the underlying educational funding issues for the past decade. A truly revealing point is that many legislators who say they are “reformists” keep discussing MESSA in the same breath, even though MESSA isn’t even a part of the state retirement puzzle! Such talk about MESSA is a smokescreen that serves only to confuse the underlying issue in the public’s mind, and to take our eyes off of the real issue at hand. So why would those legislators try to tie MESSA and reform together? Good question! Anti-ed, anti-teacher ideology, perhaps? Hmmmm.

Notice I am conveniently making no mention of how to address the real issue at the state level, the retirement issue, other than to say we’re all pretty much up the creek without a paddle until health care receives more than rhetorical attention from national leaders. In their absence, a few states (MA, CA) are cobbling together plans of their own in an effort to cope, and my hat is off to them. Absent national relief, we WILL have to eventually address the issue of teacher retirement benefits here in order to survive, but any “solution” that we find within the national vacuum will directly impact very important efforts to attract new teachers to the profession. Currently, half (!!!) of all new teachers leave teaching within their first three years (no foolin’… I have that from the UM School of Education and elsewhere). There (to the retirement discussion), but for the grace of God, go we. I hope the calvary (long-term rather than stop-gap national political leadership) arrives before teaching steers prospective new teachers away.

Ultimately, it’s public education. Not administration education, not teacher education. Public. And the public will get what it demands (or does not). Too bad that we can’t figure out what we want and how to get it until it already starts to slip away. Discussion, on this site and elsewhere, from all perspectives, is what we need. My thanks to all contributors!

 
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Healthy Correction

I decided to check around about Steve’s comment that the district had set a goal of capping annual increases to health care at 5%. It’s true, the district did set that as a goal. I therefore have to correct my Healthy Discussion comments…

I assumed that the district was contributing the cost of its self-insured program, using that as the “benchmark” beyond which teachers had to pay out of pocket. However, the district benchmark contribution is a negotiated number, not the cost of its own self-insured plan. The negotiated base contribution is what they hope to manage at no more than a 5% annual increase. Sorry for the head fake… I’m learning more each day.

My other comments were OK. The district contributes the same amount no matter what plan an employee chooses. Employees pay out of pocket for 100% of the costs that exceed the district’s base contribution. The cost of the district’s self-insured plan will be determined by its claim experience, has risen significantly over a short period of time, and could be rather volatile due to the small size of its risk pool. If the self-insured plan’s costs continue to rise, it could soon join the other plans on the menu as requiring out of pocket from employees (already does in the case of our office staff). Finally, the major drain on the district is its contribution to the retirement system (the burden passed to schools in 1997).