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
PREPARED BY BRENDAN WALSH

APRIL 13, 2011

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 continue to retirement, is Those cost To understand rise at a pace increases are the K-12 local budget, not, by and exceeding budget‟s we need to state revenue biggest large, reckless know the state and some of problem – and but logical budget and the most this is a state given economic related issues. significant realities and obligation costs are rising made in state law rapidly. wealthier times. Gov. Snyder‟s proposal, in and of itself, is not a grand “reset” and the same financial constraints are very likely to recur.

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 deficit. This cut broadens the gap. Reduction ($1.7B) Elimination of Earned Income Tax Credits
• Viewed by some as a regressive tax model, placing burden on low incomes.

Levy income tax on • Deal struck yesterday to reduce this to $0.3B, offset by other tax increases retiree pensions ($0.9B) Reduce K-12 spending by $960M in 2011-2
• This despite the School Aid Fund shows a $507M Fund Balance

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

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Proposal A

Before

Why School Finance and Tax Reform Were Hot Issues in Michigan in 1993

Locally approved Property Taxes are Primary Revenue Source

No Restrictions on Local Millage Increases

Property Taxes were 34% above national avg. (7th in nation)

Wealthiest Districts Outspent Lowest 3:1 on a Per Pupil Basis

Prepared by Brendan Walsh, www.brendanwalsh.us

Implications of Proposal A
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Reduced school property taxes, increased sales , other taxes.

School funding based on student enrollment.

Revenue per pupil is set, capped by state.

Locals traded lower taxes for loss of local funding control.

Low spending districts got “leveled up” to close gap.

Highest spending districts allowed a Hold Harmless 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
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State General

Federal Funds, 0.8%

Fund, 8.6%
Lottery, 7.0%

Income Tax, 11.4% Other Taxes, 3.1% State Property Sales Tax, 46.0%

Tax, 14.0%

Tobacco Tax, 5.0%

Use Tax, 4.0%

Prepared by Brendan Walsh, www.brendanwalsh.us

State School Aid Fund Sources - 2010
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Federal Funds, 12.2% State General Fund, 0.2% Lottery, 5.3% MI Business Tax, 5.5% Income Tax, 13.9%
Other Revenue,

5.9%

Sales Tax, 33.9%

State

Property
Tax, 14.6%

Use Tax, 3.0% Tobacco Tax, 3.0%

Other Taxes, 2.5%
Prepared by Brendan Walsh, www.brendanwalsh.us

State Portion of Total K-12 Appropriation
Growing reliance on non-state funding sources
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$13,500 $12,500 $11,500 $10,500 $9,500 $8,500 $7,500

State Sourced

Total Spend

$‟s in Millions

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
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$12,000 $11,000 $10,000 $9,000 $8,000 $7,000 $6,000

$‟s in Millions

$11,194

$10,341

$7,911
Over $800M in SAF proposed for use for Higher Ed. That $516/pupil.

$7,010

State SAF Revenue
Prepared by Brendan Walsh, www.brendanwalsh.us

State Appropriation

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

$772

$639

$147

Salaries ($66)

Employee Purchased Supplies & Benefits Services Materials

Capital Outlay

($7) Other

Total

($803)
Prepared by Brendan Walsh, www.brendanwalsh.us

$‟s in Millions

Change in total $ spend from2004 to 2009
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Statewide Purchased Services

$772 $563

$36 ($5) ($41) ($15)

$26

$18

$‟s in Millions
Prepared by Brendan Walsh, www.brendanwalsh.us

Changes in total $ spend from 2004 to 2009
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Statewide K-12 Salary

$164

$36

$4
($23) ($7) ($94) ($30) ($127)

$12 ($66)

$‟s in Millions
Prepared by Brendan Walsh, www.brendanwalsh.us

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

$128

$147

$42
$5 $0 -$43 -$4

$26

-$3

-$4

$‟s in Millions
Prepared by Brendan Walsh, www.brendanwalsh.us

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

$595

$339 $256

$1

$14 ($0)

($15)

$‟s in Millions
Prepared by Brendan Walsh, www.brendanwalsh.us

Costs per pupil – change from „04 to „12
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$14,000 $13,000 $12,000 $11,000 $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 2004
Prepared by Brendan Walsh, www.brendanwalsh.us

Capital $858 $869 $1,243 $633 $993 $1,011 $1,261 $5,598 $1,903 $1,403 $2,155 $6,154 Supplies Purchased Svcs

Insurance
Retirement Salaries
A $2,604 increase in cost per pupil in 8 years …and Snyder proposes a $470 reduction per pupil.

2012

Statewide % per pupil on major expenses
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2004
6%

2012
7%
6% 46%

12%

9%
9% 12%

14% 52%
11% 16% Retirement Salaries

Salaries

Retirement

Insurance
Supplies

Purchased Svcs
Capital

Insurance
Supplies

Purchased Svcs
Capital

Prepared by Brendan Walsh, www.brendanwalsh.us

GPPSS Employee Total Compensation on a Per Pupil Basis after New Contracts
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$11,500 $10,500 $9,500 $8,500 $7,500
$550 $1,203 $1,244 $585 $1,265 $579 $1,287

$540 $1,437

$1,179
$7,652

$1,219
$1,174

$6,500
$5,500

$7,196

$7,603

$7,077

2007-8 Direct Compensation

2008-9 Retirement

2009-10 Health Care

2010-11 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
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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
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Students per Teacher

Avg. Teacher Salary

Public School Rev./ Student

K-12 Rev. per $1k of personal income

% of school revenue from state

K-12 expend. Per capita

K-12 spend per pupil

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
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1995 2009

$15,766

103% of US avg. 91% of US avg.

17th in US 37th in US

$16,872

Budget practices, tax policy established in wealthier times.
Prepared by Brendan Walsh, www.brendanwalsh.us

What of financial commitments made during that wealthier time?

Is this reckless spending or predictable?
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Retirement rates & costs increase Legacy obligation remains Districts outsource

Retiree contributions reduced Purchased svcs costs increase
Prepared by Brendan Walsh, www.brendanwalsh.us

Employees reduced

When will the state admit ownership of the legacy costs incurred by a wealthier state?

A final word on the Snyder proposal
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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 7,407 1992 1993 1994
Start of Proposal A Era

1995 8,147

1996 1997
1998 1999 2000

Prepared by Brendan Walsh, www.brendanwalsh.us

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 8,125 8,986

GPPSS Enrollment from 1991 to 2011

2011

State of Michigan and GPPSS Student Enrollment
GPPSS‟ correlates with state‟s pattern
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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
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30.0 Employees to Pupil Ratio 28.0 26.0 24.0 22.0 20.0 18.0 16.0 14.0 12.0 14.5 20.7 14.9 14.6 25.4 26.6

Pupils to Teachers
Prepared by Brendan Walsh, www.brendanwalsh.us

Pupils to Non-Teachers

2010 budget same as 2005; but 24% lower than 2001 in real $‟s
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GPPSS 10 Yr History of General Fund Expend.

$120,000 $115,000 $110,000 Thousands $105,000 $100,000 $95,000 $90,000

$85,000
$80,000

Real Dollars
Prepared by Brendan Walsh, www.brendanwalsh.us

Nominal Dollars

GPPSS: Comparison of Enrollment and Staffing from 1993 to 2010
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Student and Staff Data General Education Student Enrollment Total Number of Teachers Pupil : Teacher Ratio Average Elementary Class Size Public Librarians Clerical Staff Plant and Cafeteria Staff Classroom Assistants/Paraprofessionals Administrators Other Regular Staff Total Employees Total Teachers and Classroom Assistants All Other Employees
Prepared by Brendan Walsh, www.brendanwalsh.us

September, 1993 7,850 527 14.90 23.1 14 93 108 108 30 35 915 635 280

September, 2010 8,125 569 14.28 22.3 0 47 68 130 30 22 866 699 167

% Change '93-'10 3.5% 8.0% -4.1% -3.5% -100.0% -49.5% -37.0% 20.4% 0.0% -37.1% -5.4% 10.1% -40.4%

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Significance of the new contracts:
Staff compensation was formerly uncoupled to the very economic system upon which it should have been primarily dependent. The new contract fixes this.

This was the missing link.

1. State tax revenue linked to state economy
2. Foundation Allowance (FA) linked to state tax revenues

5. New contracts link staff compensation to FA, other variables

4. District staffing linked to enrollment

3. Local district revenues linked to FA and enrollment

Prepared by Brendan Walsh, www.brendanwalsh.us

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

$20,000 $15,000 $10,000 $5,000 $0

22.0% 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

Fund Equity in Thousands

2002

2007

2012

1999

2000

2001

2003

2004

2005

2006

2008

2009

2010

2011

Fund Equity Value
Prepared by Brendan Walsh, www.brendanwalsh.us

Fund Equity % of Expenditures

2013

New Contract and Implications for Budget Decisions
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Key Elements
• Restructured salary grid • Health care contributions (with annual increase provision) • Guarantees 10% minimum General Fund Equity • If Fund Equity drops below 10% all employees total compensation adjusts automatically to return it to 10%
Prepared by Brendan Walsh, www.brendanwalsh.us

Implications
• Contractual ability to adjust human resources costs to respond to funding variables beyond our control • Every $1 million below 10% fund equity amounts to about 1% in total compensation reduction required to return it to 10%.

Data Sources
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 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

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