Facing a clouded future: options

Part II: The problem, and a glimpse at solutions we might consider

by Steven J Norton

In part I of this essay, we examined the overall challenge that faces our community and our schools: the challenge of recognizing our own ways of thinking about schools and then having an authentic conversation about what we want for and from our public schools. But what should that conversation include?

One thing our school leaders need to do — and are finally prepared to do — is to discuss concretely the steps they have already taken. I won’t go into detail here, but let me give a sampling, drawn from the Ann Arbor Pubic Schools experience: caps on employee health benefit contributions (2006-), privatizing food service (2007), wage freezes for every employee group one or more times over the last several budget years, increased class sizes at every grade level (2006), continued staffing cuts (by attrition or buy-out, so far), reduction or elimination of enrichment and field trip spending, consolidation of services with the Washtenaw ISD (substitute teachers, and others), and so on. While people may disagree about whether it has been enough, we need to at least agree on what has been done already.

But the regular budget deficits (which by law must be eliminated each year) of the past pale in comparison with what is coming. AAPS officials are preparing to find $4 million to cut from the budget during the current school year. They appear to be hoping that a bill currently before the state Senate, HB 4860, will pass; it replaces most of the mid-year cuts invoked by Governor Granholm, using Federal stimulus dollars that had originally been set aside for next year. If this bill passes, the mid-year cuts to AAPS will be limited to $292 per pupil, down from a potential $525 per pupil. This represents an overall loss of close to $4.8 million. If $4 million in cuts to recurring costs can be found this year, it will preserve more of the district’s reserve fund for next year.

And that’s when the fun begins. AAPS officials are operating on the assumption that the district’s funding levels will be cut by a further $331 per pupil for 2010-11, to $9100 per pupil (from $9723 per pupil in 2008-9). That will mean the loss of a further $5.4 million, on top of the increase in costs for the programs our schools offer right now. Unfortunately, the picture does not get any rosier after 2011 — it’s just that no one is brave enough to predict what the cuts will look like in the years after that. Economists agree, however, that Michigan’s economy will not recover anytime soon, meaning that — absent change in how they are funded — more cuts to schools are coming, and when the cuts do stop they will not be made back up for years, if ever.

Remember: we still have kids to educate. AAPS’s total enrollment actually increased this year. Unlike, say, the auto industry, our schools are not in trouble because of a lack of customers. Demand for a good education has never been higher.

Moving forward, we have two issues on each of two levels: revenues and costs, at the local and state levels. Let’s look at each.

The cost side of the equation really comes down to one thing: the breathtaking increase in the costs of health care and health insurance. Other costs, like energy, are also rising, but even in these times of negative inflation, health costs continue to soar. According to the Kaiser Family Foundation [1], the total cost of employer-sponsored health insurance for a family of four has increased on average 131% nationwide over the last ten years. Over the same time, the consumer price index has risen less than 29%. Even over the last year, when inflation was slightly negative, the average cost for group coverage of a family has increased by 5%, according to the Kaiser survey. (Year on year inflation for September was -1.3%, according to data from the Bureau of Labor Statistics.)

Local costs: The bulk of any school system’s costs are in people, and most of those are classroom teachers or others who have direct contact with students. But what we make of teacher compensation depends on the lens we use. On the one hand, the average teacher salary reported by AAPS to the Michigan Department of Education increased by 11.9% from 2004-08 (a time span chosen because census data are available for comparison). After inflation, that’s about a 1.5% increase over the four years; hardly lavish. But over the same time period, most Michigan workers did even less well: according to Census data, earnings of those with some college education or associates degrees fell by 5% after inflation in the period, while the earnings of those with bachelor’s degrees did little better: 3.8% behind inflation. Only workers with graduate or professional degrees, a group most teachers would fall into, beat inflation: their earnings went up 3.2% after inflation over the four year period. While good comparative data are not available, teachers also shouldered an increasing share of the health care burden, as did other workers.

What do we make of this? No one should be surprised if people who have been losing ground against inflation for years balk at increasing their taxes to help support school employees who appear to have been spared some of the pain they feel. And yet, does this argument really make sense? We do not begrudge good pay to other professionals whose work we consider important — doctors come to mind. If people like me are correct, that teachers and schools offer the best hope for economic recovery now and prosperity in the future, shouldn’t we want the very best people working in our schools? I think it is not only possible, but crucial, to acknowledge the pain most Michigan citizens have been feeling for years now and yet still argue that our community should scrimp to make sure our schools remain strong.

Shared sacrifice means just that: school employees (administrators, teachers, office professionals, custodians, and others) will need to be modest and contemplate changes in pay and benefits, and taxpayers will need to reconsider offering support in the only way we can, locally — a regional millage. If each of us digs in and expects the “other guy” to take the hit, we will remain in our current impasse and end up doing untold damage to our schools.

Another option mentioned frequently is to privatize services, including custodial and busing services. While this might succeed in cutting costs, it may cost our children and our schools in other ways. For instance: as a parent volunteer, I work regularly with our school custodians to set up for and clean up after school events. Working with people who are not only skilled but committed to the school and the school community makes all the difference. Would replacing these dedicated staff with a rotating set of private workers earning much less really bring benefits to our schools? Likewise, I have seen the responsibilities placed on bus drivers and how they exercise their authority to solve problems on their buses. Bus drivers often escalate issues to the teachers or principal of a school building, making sure that troubles on the bus are not handled differently from troubles at school. Would private contractors share the same feeling of responsibility?

It is worth remembering that state rules for evaluating private contractors place a huge weight on price to the exclusion of other factors. Parent volunteers who participated in the evaluations of food service contractors a few years ago expressed dismay that all their careful assessments of the firms on a number of metrics — everything from nutrition education to internal financial responsibility — were completely swamped by the weight placed on the financial value of the bid. The winning bid had taken second or third place on every other criterion, but there was no flexibility to change the formula for choosing a winner. Do we really want our children transported, and their schools maintained, by the lowest bidder?

Other things can be done on the cost front as well, and indications are that AAPS is on a detailed hunt to find further operational savings. Program cuts, consolidations, and even school closings may be on the table. But this effort will not be easy and will require skilled personnel to complete. As so often is the case, efforts to save money in the long run will require investments in people, equipment, and process in the short run.

State costs: Once again, the primary driver of costs at the state level is health care. The largest state-regulated chunk of school spending is the contribution to the public school employee retirement system (MPSERS) which school districts are required to make. The problems with MPSERS were outlined in a 2004 report from the non-partisan Citizens Research Council of Michigan [2], and the situation has not improved. While the “pension” portion of retirement benefits has been fully funded (current plan investments are sufficient to cover future liabilities), the health care portion is, like Social Security, “pay-as-you-go.” This means that current contributions from teachers and districts go straight out the door to pay for current retiree health benefits. When the number of retirees grows faster than the number of current employees making contributions, you have a mess on your hands (just like Social Security).

With this kind of system, switching to a “defined contribution” retirement plan with individual accounts (as has frequently been suggested) poses huge problems. The main difficulty is that large sums of money need to be available to cover current benefits once employees start contributing to individual accounts. While this sum would shrink over time, right now Michigan does not have the wherewithal to cover those benefits. A slower, phased in, change might minimize the financial barriers, but it would also mean no significant savings would be realized for decades. Even the significant changes to pension rules passed by the Legislature in 2007 will not produce savings for 10 to 15 years, but they do have the potential to cut costs substantially.

All the technical details aside, we return to the same question: at what point do our efforts to save costs by reducing pay and benefits become self-defeating because we make it too difficult to attract and retain the best people? Do we want dirt cheap schools, or good schools? It is a fantasy to believe that we can have both. We can balance costs and programs, but you can’t get something for nothing.

Lest we forget, the state and federal governments can push costs onto our schools by layering on requirements for reporting and data collection. While these measures aim at increasing accountability — a worthy goal — they also require the full time effort of a number of central administration professionals. (It reminds me of the punch line from a Dilbert comic strip: “I want daily status reports on why your project is so far behind.”)

Local revenue: Besides a regional millage, AAPS does have some alternatives for revenue which are worth considering. These could help, but will not solve the problem (and may involve costs of their own). One is to consider opening up the district to “schools of choice,” meaning that residents of other school districts could apply to send their children to AAPS. From a financial point of view, resident students are most helpful because they bring the full per-pupil allocation to the district. Students who live in other districts would bring with them the per-pupil funding level from their home district, which in our region is likely to be a good bit less than Ann Arbor’s. AAPS does not have huge excess capacity in its schools (except for Skyline, and that is only temporary). My own children’s elementary school is bursting at the seams. But some schools do have room, and bringing in students from outside is likely to be a better option than closing schools and magnifying the crowding problem at remaining schools. Will this work? Only time can tell. But it is not likely to warm the hearts of the surrounding school districts, with which we are also trying to cooperate to consolidate services.

Another option, popular in California since Prop 13, is to rely on private giving. The AAPS Educational Foundation [3] has moved to significantly expand its fundraising and granting efforts, placing it in a position to help spark new and save existing programming. They are doing important work, and their programs also help to reduce the inequalities among AAPS schools. But expecting the AAPSEF to cover a $15 million shortfall, and more in the future, is simply too much.

Making extra-curricular activities optional, paid activities could help bring in some revenue, but at the cost of excluding students from families who are not able to pay. The same can be said of any efforts to shift programming and enrichment over to parent contributions; without a sustained effort to pool resources through the AAPSEF or a similar group, this will only exacerbate the inequalities inside our own district.

Finally, of course, there is the option of the regional millage. Right now, there is little appetite for such a measure, but the next few months of poring over school budgets and coping with state cuts may well change how people feel on this score as well.

State revenue: Unless your aim is to “starve the beast,” reform of the state system of funding education is where the action has to be. Right now, the amount every single school district has available to educate children is determined by the state Legislature, in a formula they revise each year. The funds available to support those state aid payments comes primarily from the sales and income taxes: two taxes which can take a nosedive very quickly when the economy sours. This is precisely what has happened since 2007, and it is at the root of our school funding problems.

Layered on this problem is the longer-term issue that tax revenues earmarked for schools have been on a slow slide relative to our state’s overall income. A flat income tax, a sales tax that ignores the booming service sector, and a passel of “sin” taxes on tobacco and alcohol simply do not provide the revenue our schools need. Options currently under discussion include a graduated income tax (which would require amendment of the state Constitution), a sales tax that covers services (perhaps at a lower overall rate), and even changes to the state education property tax. Most of these changes would require a state-wide referendum and thus would not be solutions in the short term.

Other options include measures to give local districts more options to raise revenue locally. While this is appealing, it does not solve the problem of adequate funding for districts that do not have substantial local tax bases.

These state measures highlight the choice we face: it is not a question of having schools live within their means. We, the voters, decide what the schools have available, by setting up the funding system and the tax system that supports them. So it is up to all of us to decide what we want our schools to do for our children and our community, and how to pay for it.

Moving forward

There are no “plug and play” solutions. Solving our schools’ budget and funding problems will require real work, real compromise, and real sacrifice on everyone’s part. Getting involved, and getting educated, about issues on both the local and state level is the most important thing every citizen can do.

For now, our top priority must be finding common ground, moving from finger-pointing to reconciliation. If we fail at that, little good can come from this whole process. But if we succeed, we may yet give hope not only to our community, but to hundreds of others across Michigan which are all struggling along the same path.

Steve Norton was campaign manager for the Ann Arbor Citizens Millage Committee, and is Executive Director of Michigan Parents for Schools, a public interest advocacy organization working to secure stable and adequate funding for public education and to encourage citizen participation in local school issues.