State of Michigan Budget and

Executive Budget Proposal

A RE V IEW A ND A NA LYSIS I N RE L ATION

TO L O C AL S CHOOL D I STRICT B UDGETS
APRIL 13, 2011
PREPARED BY BRENDAN WALSH

WWW.BRENDANWALSH.US

Disclaimer: This presentation is the independent research and analysis of

Brendan Walsh and does not represent in any way the views or opinions of
the Grosse Pointe Public School System or its Board of Education.
 Amidst a sea of numbers in what
follows, here are the key points:
Legacy costs,
K-12 costs mainly
Gov. Snyder‟s
continue to retirement, is Those cost
proposal, in
To understand rise at a pace the K-12 increases are
and of itself, is
local budget, exceeding budget‟s not, by and
not a grand
we need to state revenue biggest large, reckless
“reset” and the
know the state and some of problem – and but logical
same financial
budget and the most this is a state given economic
constraints are
related issues. significant obligation realities and
very likely to
costs are rising made in state law
recur.
rapidly. wealthier
times.

Prepared by Brendan Walsh, www.brendanwalsh.us 2

 The Snyder Budget Proposal
Controversial Issues
3

86% Business Income Tax • The state General Fund projects a $1.4B
Reduction ($1.7B) deficit. This cut broadens the gap.

Elimination of Earned • Viewed by some as a regressive tax

Income Tax Credits model, placing burden on low incomes.

Levy income tax on • Deal struck yesterday to reduce this to

retiree pensions ($0.9B) $0.3B, offset by other tax increases

Reduce K-12 spending • This despite the School Aid Fund shows
by $960M in 2011-2 a $507M Fund Balance

Use $700M of School Aid • Snyder/GOP argue this is legal, but it‟s
Fund for Higher Ed. never been done before (to this degree)

Prepared by Brendan Walsh, www.brendanwalsh.us

 4

Before
Proposal A Locally approved
Property Taxes are
Primary Revenue Source
Why School
Finance and Property Taxes were
Tax Reform No Restrictions on Local
Millage Increases
34% above national avg.

Were Hot (7th in nation)

Issues in
Michigan in Wealthiest Districts

1993 Outspent Lowest 3:1 on

a Per Pupil Basis

Prepared by Brendan Walsh, www.brendanwalsh.us

 Implications of Proposal A
5

Reduced school
School funding Revenue per pupil
property taxes,
based on student is set, capped by
increased sales ,
enrollment. state.
other taxes.

Locals traded lower Low spending Highest spending

taxes for loss of districts got districts allowed a
local funding “leveled up” to close Hold Harmless
control. gap. Millage.

Pre-Proposal A, GPPSS residents were levied 29 mills on

Homestead properties. In 2011, same are levied <15 mills.

Prepared by Brendan Walsh, www.brendanwalsh.us

 State School Aid Fund Sources - 1995
6

State General Federal Funds,

Fund, 8.6% 0.8%

Lottery, 7.0%

Income Tax,
11.4%

Other Taxes, Sales Tax,

3.1% 46.0%

State Property
Tax, 14.0% Tobacco
Use Tax, 4.0%
Tax, 5.0%
Prepared by Brendan Walsh, www.brendanwalsh.us
 State School Aid Fund Sources - 2010
7

Federal Funds,
12.2% Other Revenue, Sales Tax,
5.9%
33.9%
State General
Fund, 0.2%

Lottery, 5.3%

MI Business Income Tax,

Tax, 5.5% 13.9% State
Property Use Tax, 3.0%
Tax, 14.6%
Other Taxes, Tobacco Tax,
2.5% 3.0%
Prepared by Brendan Walsh, www.brendanwalsh.us
 State Portion of Total K-12 Appropriation
Growing reliance on non-state funding sources
8

State Sourced Total Spend

$13,500
$‟s in Millions
$12,500

$11,500

$10,500

$9,500

$8,500

$7,500

Prepared by Brendan Walsh, www.brendanwalsh.us

 SAF State Tax Revenue v. State K-12 Spending
Snyder proposal largest non-K-12 use of SAF ever
9
$12,000
$‟s in Millions $11,194
$11,000

$10,000
$10,341
$9,000
$7,911
$8,000
Over $800M in SAF
proposed for use for Higher
$7,000
$7,010 Ed. That $516/pupil.
$6,000

State SAF Revenue State Appropriation

Prepared by Brendan Walsh, www.brendanwalsh.us

 Statewide K-12 Total Spending
Change in total $ spend from 2004 to 2009
10
$772
$639
$595

$147

($7)
Salaries Employee Purchased Supplies & Capital Other Total
($66) Benefits Services Materials Outlay

$‟s in Millions
($803)
Prepared by Brendan Walsh, www.brendanwalsh.us
 Statewide Purchased Services
Change in total $ spend from2004 to 2009
11

$772

$563

$36 $26 $18

($5) ($41) ($15)

$‟s in Millions
Prepared by Brendan Walsh, www.brendanwalsh.us
 Statewide K-12 Salary
Changes in total $ spend from 2004 to 2009
12

$164

$36
$12
$4

($23) ($7) ($94) ($30) ($66)

($127)

$‟s in Millions

Prepared by Brendan Walsh, www.brendanwalsh.us

 Statewide Supplies and Materials
Change in Total $ Spent from 2004 to 2009
13

$128 $147

$42
$26
$5

$0 -$4 -$3 -$4

-$43
$‟s in Millions

Prepared by Brendan Walsh, www.brendanwalsh.us

 Statewide Employee Benefits
Change in Total $ Spent from 2004 to 2009
14

$595

$339
$256

$1 $14

($15) ($0)

$‟s in Millions

Prepared by Brendan Walsh, www.brendanwalsh.us

 Costs per pupil – change from „04 to „12
15

$14,000 Capital
$13,000 Supplies
$858
$12,000 $869 Purchased Svcs
$11,000 Insurance
$1,903
$10,000 $1,243 Retirement
$633 Salaries
$9,000 $1,403
$8,000 $993
A $2,604 increase in
$7,000 $1,011 $2,155 cost per pupil in 8
$6,000 $1,261 years
$6,154
$5,000 $5,598
…and Snyder
$4,000 proposes a $470
2004 2012 reduction per pupil.

Prepared by Brendan Walsh, www.brendanwalsh.us

Statewide % per pupil on major expenses
16

2004 2012

7%
6% 12% 6%

9% 14% 46%

52%
9% 11%
12% 16%

Salaries Retirement Salaries Retirement

Insurance Purchased Svcs Insurance Purchased Svcs
Supplies Capital Supplies Capital

Prepared by Brendan Walsh, www.brendanwalsh.us

 GPPSS Employee Total Compensation
on a Per Pupil Basis after New Contracts
17
$11,500

$10,500 $585 $579

$550 $540
$9,500 $1,265
$1,287 $1,437
$1,203
$8,500
$1,244 $1,219
$1,179 $1,174
$7,500

$6,500 $7,196
$7,652 $7,603
$7,077

$5,500

2007-8 2008-9 2009-10 2010-11

Direct Compensation Retirement Health Care FICA
Horizontal line is Foundation Allowance per pupil.
Prepared by Brendan Walsh, www.brendanwalsh.us
 Comparing Michigan‟s State and Local Taxes
Tax burden is % of personal income taxed
18

10.0%

9.0%

8.0%

7.0%

6.0%

5.0%

MI State State & Local U.S. Avg.

Prepared by Brendan Walsh, www.brendanwalsh.us

 Various Michigan National Rankings
19

Public K-12 % of K-12

Students Avg. K-12
School Rev. per school expend.
per Teacher spend
Rev./ $1k of revenue Per
Teacher Salary per pupil
Student personal from capita
income state

8th 12th 21st 3rd 11th 21st 15th

Difficult to argue we don‟t spend enough on K-12, but legacy

cost drivers are the biggest problem.
Prepared by Brendan Walsh, www.brendanwalsh.us
 Loss of per capita income in Michigan
20

1995 $15,766
103% of
US avg.
17th in
US

2009 $16,872
91% of
US avg.
37th in
US

Budget practices, What of financial

tax policy commitments made
established in during that
wealthier times. wealthier time?
Prepared by Brendan Walsh, www.brendanwalsh.us
 Is this reckless spending or predictable?
21
Retirement
rates & costs
increase When will the
Legacy
Districts
state admit
obligation
remains
outsource ownership of
the legacy
costs
Retiree incurred by a
Employees
contributions
reduced
reduced wealthier
Purchased state?
svcs costs
increase
Prepared by Brendan Walsh, www.brendanwalsh.us
 A final word on the Snyder proposal
22

Proposal has been packaged as a “getting

our house in order” solution.

Legacy costs are K-12‟s greatest problem,

and getting much worse rapidly. This
proposal does nothing to mitigate that.

Snyder aims to drive job growth via

corporate tax relief. As jobs return tax
revenues should increase.

The question is this: Will Snyder choose to

increase K-12 spending at any time?

Prepared by Brendan Walsh, www.brendanwalsh.us

 1991
1992

7,407
1993
1994 Start of Proposal A Era
1995
1996

8,147
1997
1998
1999

Prepared by Brendan Walsh, www.brendanwalsh.us

2000
23

2001
2002
2003
8,986

2004
2005
2006
2007
2008
2009
2010
GPPSS Enrollment from 1991 to 2011

2011
8,125
State of Michigan and GPPSS Student Enrollment
GPPSS‟ correlates with state‟s pattern
24

3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%

GPPSS State of MI
Loss of students means revenue relief for state and enabled even
moderate per pupil funding increases, but all in all a huge problem
for local districts.
Prepared by Brendan Walsh, www.brendanwalsh.us
GPPSS Teaching & Non-Teaching Staff to Enrollment Ratio
25

30.0
28.0
Employees to Pupil Ratio

26.0 25.4
26.6
24.0
22.0
20.0
20.7
18.0
16.0 14.5 14.9 14.6
14.0
12.0

Pupils to Teachers Pupils to Non-Teachers

Prepared by Brendan Walsh, www.brendanwalsh.us
 GPPSS 10 Yr History of General Fund Expend.
2010 budget same as 2005; but 24% lower than 2001 in real $‟s
26

$120,000
$115,000
$110,000
$105,000
Thousands

$100,000
$95,000
$90,000
$85,000
$80,000

Real Dollars Nominal Dollars

Prepared by Brendan Walsh, www.brendanwalsh.us

 GPPSS: Comparison of Enrollment and Staffing
from 1993 to 2010
27

September, September, % Change

Student and Staff Data 1993 2010 '93-'10
General Education Student Enrollment 7,850 8,125 3.5%
Total Number of Teachers 527 569 8.0%
Pupil : Teacher Ratio 14.90 14.28 -4.1%
Average Elementary Class Size 23.1 22.3 -3.5%
Public Librarians 14 0 -100.0%
Clerical Staff 93 47 -49.5%
Plant and Cafeteria Staff 108 68 -37.0%
Classroom Assistants/Paraprofessionals 108 130 20.4%
Administrators 30 30 0.0%
Other Regular Staff 35 22 -37.1%
Total Employees 915 866 -5.4%
Total Teachers and Classroom Assistants 635 699 10.1%
All Other Employees 280 167 -40.4%
Prepared by Brendan Walsh, www.brendanwalsh.us
 28
This was
the missing
Significance link. 1. State tax
of the new revenue linked to
contracts: state economy

5. New contracts 2. Foundation

Staff compensation link staff Allowance (FA)
compensation to linked to state tax
was formerly
FA, other variables revenues
uncoupled to the
very economic
system upon which
it should have
been primarily 4. District 3. Local district
dependent. staffing linked revenues linked to
to enrollment FA and enrollment
The new contract
fixes this.

Prepared by Brendan Walsh, www.brendanwalsh.us

 GPPSS General Fund Equity
2012-3 projections reflect Snyder proposal if no other offset found
29

22.0%
Fund Equity in Thousands

$20,000 20.0%
18.0%
16.0%
$15,000
14.0%
12.0%
$10,000 10.0%
8.0%
6.0%
$5,000
4.0%
2.0%
$0 0.0%
2002

2007

2012
1999
2000
2001

2003
2004
2005
2006

2008
2009
2010
2011

2013
Fund Equity Value Fund Equity % of Expenditures

Prepared by Brendan Walsh, www.brendanwalsh.us

 New Contract and Implications
for Budget Decisions
30

Key Elements Implications

• Restructured salary grid • Contractual ability to
adjust human
• Health care contributions
resources costs to
(with annual increase
respond to funding
provision) variables beyond our
• Guarantees 10% minimum control
General Fund Equity • Every $1 million
• If Fund Equity drops below below 10% fund
10% all employees total equity amounts to
about 1% in total
compensation adjusts
compensation
automatically to return it to reduction required
10% to return it to 10%.

Prepared by Brendan Walsh, www.brendanwalsh.us

 Data Sources
31

 State of Michigan, Center for Educational

Performance and Information (CEPI)
http://www.michigan.gov/cepi
 Michigan Senate Fiscal Agency
http://www.senate.michigan.gov/sfa/
 Michigan House Fiscal Agency
http://house.michigan.gov/hfa/
 National Education Association, Rankings of the
States 2010, http://www.nea.org/
 Grosse Pointe Public School System Financial
Transparency Series, http://www.gpschools.org/

Prepared by Brendan Walsh, www.brendanwalsh.us