AAPS Board Gets Briefed on Budget

$15M deficit projected; special ed millage renewal is key

Ann Arbor Public Schools board of education regular meeting (March 16, 2011): The highlight of last week’s meeting was a presentation from interim superintendent Robert Allen on the many budget and funding issues the district faces in the coming years.

Allen told board members that the district faces a $15 million shortfall in the next fiscal year, which begins July 1. That figure assumes the special education millage, on the ballot for May 3, will be renewed. If voters don’t approve the millage renewal, the deficit could grow to nearly $21 million.

During the meeting, board members criticized Gov. Rick Snyder’s proposed state budget, which calls for cuts to K-12 education. They cautioned that his focus on business tax cuts would undermine the quality of public education in the state. “I don’t think most people want education ravaged in order to fund a huge business tax cut,” trustee Glenn Nelson said. “We need to shout this story from the rooftops.”

Allen will be giving an expanded report on the budget situation to the public from 6:30-8 p.m. on Monday, March 21 at the Pioneer High School cafeteria annex. The board also discussed setting up a time to meet with state legislators, to discuss their concerns about the state budget proposals.

Also during Wednesday’s meeting, board president Deb Mexicotte reported that the district is close to wrapping up contract negotiations with Patricia Green, the board’s choice to become the district’s next superintendent. She hoped to provide additional details soon, including a potential start date.

Budget Presentation

Interim superintendent Robert Allen started his budget presentation by describing how public school districts in Michigan are funded. The state controls revenues for local school districts in two ways. First, it collects taxes directly from residential and non-residential property owners – 6 mills each, annually – and pools that money into the state’s School Aid Fund (SAF), which also includes revenues from sales and income taxes, state lottery revenue and other sources. Out of this fund, the state pays local school districts a per-pupil allotment – a variable amount set by the state legislature that can increase or decrease each year.

In addition, state law controls the amount of taxes that school districts can levy directly – those that are not pooled into the SAF. Beyond the 6 mills that go into the SAF, for example, there’s an additional tax on non-residential property owners, but the state caps that tax at 18 mills. Both the funding from non-SAF local property taxes and from the total School Aid Fund are factored into an amount called the per-pupil “foundation allowance,” which varies by district. For Ann Arbor, the current per-pupil foundation allowance is $9,336, with roughly 16,440 students in the district.

These revenue sources, along with grants and private donations from groups like the Ann Arbor Public Schools Educational Foundation, are what the district relies on for everything from employee salaries to mandated special education programs. However, since 1995 the district’s per-pupil funding allocation has only risen once. And if Gov. Rick Snyder’s budget proposal is adopted, per-pupil funding would decrease by about $700.

Allen described in more detail how the many budget changes proposed by Snyder will have an impact on public education funding. For example, the state’s School Aid Fund, which has been dedicated solely to funding K-12 districts, would be combined with the state fund for community colleges and other public institutions for higher education. Allen said this was unfair – it would create a deficit in the School Aid Fund, which had a surplus before higher education was included.

“I don’t think those two are on the same playing field,” Allen said. “[Higher education institutions] have options to raise tuition, whereas school districts have very few options.”

These funding changes drew some questions from the board about the legality of changes to the School Aid Fund. “If these sources of revenue were specifically legislated to fund K-12 education, what authority does the state have to redirect that to higher education?” trustee Andy Thomas asked.

Allen was as uncertain as Thomas was, but trustee Christine Stead had some insight. Stead said that there have been mixed reactions in Lansing to the notion that the state can use these tactics – in light of the fact that communities and school districts are in dire economic straits. ”There may be a constitutional challenge to what has been proposed,” she said.

Another challenge Allen touched on in his presentation is the growing cost of the district’s pension plan. Local districts are being required to make higher contributions to the Michigan Public School Employees Retirement System (MPSERS), which is managed by the state but covers local district employees. Those contributions have grown to the point where the district is paying for at least 20% of an employee’s pension. ”This is the fastest-growing and largest burden for the district,” Allen said.

He characterized the pension issue as contributing to a structural deficit. The current pension system is a defined benefit plan. Having a defined benefit plan is troublesome, Allen said. With growing health insurance costs and fewer employees to support the plan, the district’s mandated contributions to the system are increasing.

Allen contrasted the defined benefit approach to a defined contribution plan, a system used by most for-profit organizations and which has more controllable costs. [In defined benefit plans, retirees receive a set amount per month during their retirement. In defined contribution plans, employers pay a set amount into the retirement plan while a person is employed. The most common of these defined contribution plans is the 401(k).]

All of these issues contribute to a budget shortfall that Allen estimates at about $15 million for the upcoming fiscal year, beginning July 1, 2011. This figure assumes that the upcoming special education millage renewal will pass. [See Chronicle coverage: "AAPS Preps for Special Ed Tax"] It did not take into account new information received by trustees who attended a legislative meeting in Lansing earlier that day, where they learned that estimated education cuts proposed by the Snyder administration may be conservative. About the $15 million shortfall, Allen said: ”This is a best-case scenario.”

Allen will be giving an expanded report on the budget situation to the public from 6:30-8 p.m. on Monday, March 21 at the Pioneer High School cafeteria annex.

Budget: Strategies

After detailing the hurdles the district will have to overcome, Allen laid out some of the ways they can combat the projected deficit.

He said one of the biggest priorities for AAPS is to lobby the state for more local control of funding, and for changes in the distribution of state funding for public education. These structural and fundamental changes are necessary because, as Allen said, currently the district is addressing the yearly shortfalls with “band-aid solutions.”

“We identify a shortfall and come up with ways to meet that,” he said. “That is not a long-term solution.”

Allen also suggested increasing student enrollment, consolidation or collaboration with other organizations, and private donations as other possible solutions to close the deficit. [For additional background on possible AAPS revenue strategies, see Chronicle coverage: "AAPS Mulls Options to Increase Revenues"]

Budget: Strategies – Private Donations

Trustee Christine Stead took the opportunity to discuss private donations, a solution she felt could be lucrative. “I believe there is an opportunity for significant donations to AAPS,” she said. “I’d like to really think about this private giving in a paradigm-shift kind of way.”

Stead pointed out that many businesses in the community want to see the district succeed because that would make them successful as well. If a significant partnership was sought, she said, a donation in the millions was possible.

Even with a significant donation, trustee Andy Thomas reminded the board that private giving alone would not be enough to close the budget gap.

“If we were to get a large donation of $1 million, that would roughly cover one-tenth of the increase in just pension contributions for just one year,” he said. “This is a very difficult problem.”

Budget: Strategies – School of Choice

Increasing student enrollment by opening a school of choice program was another idea that the board felt could have a significant impact on revenue. The program opens up additional spaces for students from outside the district to fill. The application process includes listing a student’s top four school choices, which the district uses to fill available slots. A lottery system is used for schools with more applicants than spaces, and those who are not initially selected are put on a waiting list.

The district used this strategy last year, hoping to enroll an additional 150 students. However, they were only able to attract 76 79 more. According to interim deputy superintendent Lee Ann Dickinson-Kelly, this was due to the district’s inability to bring in siblings of children who applied for the school of choice program. A number of students were lost because their family had other siblings looking to enter different grades, but there were no available openings.

To deal with this, the district is allowing for more flexibility in the amount of school of choice students it can enroll. The district will be opening 60 spaces in kindergarten and first grades for a total of 120. Twenty spaces will also be evenly distributed for second- through fifth-grade classrooms in the district, with each grade getting five openings.

While the district will be opening 140 spaces, they will allow up to 190 students to take advantage of the program. These extra 50 slots are included for increased flexibility, allowing families the opportunity to move all their children into the district without the limits they faced last year.

Liz Margolis, the district’s director of communications, said there will also be an increased effort on marketing the program, with advertisements running in area newspapers, flyers and other forms of publicity.

Dickinson-Kelly concluded the recommendation by proposing a window of April 15 to May 15 for families to sign up. The board will revisit the issue at its next meeting, on March 30.

Budget: Board Commentary on Snyder

The budget discussion led to criticism by some trustees of Gov. Rick Snyder’s view’s on public education funding.

Glenn Nelson opened the commentary, saying that the board can’t let the new budget proposals from the Snyder administration be framed as foregone conclusions. “Education in this budget has been put at the bottom of the priority list,” he said. “I don’t think most people want education ravaged in order to fund a huge business tax cut – we need to shout this story from the rooftops.”

Christine Stead followed Nelson’s point, and touched on the assumptions being made that Snyder’s commitment to tax cuts would create jobs. “The notion that job creation is the solution and that businesses will create jobs in Michigan is an assumption. If you look at Snyder, he didn’t do that,” Stead said, referencing Snyder’s tenure at the helm of the computer firm Gateway.

Stead continued by discussing the assumption that the jobs created would have well-paying salaries that can support a family, saying that this was unlikely to be true. She bemoaned the view that giving tax breaks to businesses would benefit Michigan, saying that business values and the mission of CEOs do not necessarily translate to a better community.

Board president Deb Mexicotte agreed with Stead and Nelson regarding Snyder’s budget priorities, as well as the poor state of public education funding over the past few decades.

“It is obvious to anyone who has been listening to the way this [budget] has been put together, and has been watching the drumbeat against public education for the last 30 years by the Republican party,” she said. “This isn’t new.”

Mexicotte added that, without opposition, the current trend against funding public education would continue.

Susan Baskett made the final argument for action, urging those who have supported education to show more than passive support, and saying that those who do not support education need to be identified and educated about the importance of public schools in the community.

“We have to stop being nice,” she said. “We know people will pay for what they value and we need to remind (legislators) of this. Who doesn’t value education? A business tax reduction over our children?”

Allen used the discussion on possible methods of closing the budget shortfall to segue into his presentation on the upcoming special education millage renewal. He re-emphasized a number of the points made during a presentation at the board’s regular meeting on March 2, given by representatives from AAPS Student Intervention and Support Services (SISS). From Chronicle coverage of that meeting:

By way of background, at its December 2010 board meeting, the Washtenaw Intermediate School District (WISD) voted to place before voters a renewal of an existing tax that supports special education in all school districts in Washtenaw County. It will appear on the ballot on May 3, 2011.

The funds collected through the millage support special ed services for students with physical, mental or emotional disabilities up to age 26.

First approved in 2004 at the rate of 1 mill, the six-year millage expired after the 2010 tax season. The proposed renewal of the special ed tax, at a rate of 0.985 mill, would extend another seven years – through 2017. A tax rate of 1 mill is equivalent to $1 for every $1,000 of a property’s taxable value. The millage appears on tax bills under the label WISD SPEC ED.

Allen expanded on the importance of this special education funding by detailing the district’s entire special education budget, totaling nearly $40 million. Much of this is covered through reimbursements from the state and federal government, though the district spent about $4 million in general fund dollars last year for special education. The special education millage provides about $6 million to cover remaining costs. Without the millage, that $6 million would need to come from the district’s general fund – adding to the projected deficit.

“This truly impacts the entire district,” Allen said.

Special Presentations

The meeting was opened with two presentations from students.

The Skyline Horn Trio, directed by Skyline High School’s band director, Jason Smith, opened the student presentations by performing for the board. Smith said he was very proud of the trio, as well as his entire music program, adding that the three musicians are “great individuals – they’re really very talented.”

After the performance, Larry Dishman, coordinator for the Hikone-Ann Arbor cultural exchange program, talked to the board about the program and introduced a group of middle school students who were at the meeting to report on their experiences.

The program gave students the opportunity to travel to Ann Arbor’s sister city of Hikone, Japan for about two weeks in late October and early November 2010, learning about Japanese culture and living with a host family. AAPS students and their families also hosted students from Japan for eight days, introducing them to an American way of life.

Dishman reported that he had been in contact with program representatives from Japan and he was happy to announce that they were not directly affected by the recent earthquake. “They are safe and sound,” he said. “Their only regret is that they aren’t getting as much information as we are.”

Students from the program then talked about different aspects of their experience. Topics included the classes they took prior to their trip to learn about the language and culture, as well as fundraising they did.

Trustee Glenn Nelson asked the group if there was anything they encountered that they did not expect. Students answered that they were surprised by some of the food they tried and by the affectionate style of interaction they saw – they had expected much more formality.

After the presentation, board president Deb Mexicotte expressed appreciation that the students had an enjoyable time, hoping that other students would be encouraged to sign up for the program.

Association Reports

At each meeting, the board invites reports from six associations: the Youth Senate, the Ann Arbor Parent Advisory Committee on Special Education (AAPAC), the Parent-Teacher-Organization Council (PTOC), the Black Parents Student Support Group (BPSSG), the Ann Arbor Administrators Association (AAAA), and the Ann Arbor Education Association (AAEA). At this meeting, the board heard from the Youth Senate, AAPAC, and the PTOC.

Association Reports: Youth Senate

Aoxue Tang, a junior from Pioneer High School, represented the Youth Senate by delivering the first report. Tang updated the board on the Youth Senate’s philanthropic projects focused on raising awareness about poverty through a series of presentations.

“Students have participated in varied service events and have decided to donate proceeds raised from the presentations to the Washtenaw Intermediate School District’s Education Project for Homeless Youth,” Tang said.

Tang also touched on the role of standardized testing, discussing recent developments that have made the Youth Senate question a test’s usefulness. The Michigan Merit Exam was the focus of this portion of the address, with Tang pointing out that, while the test does provide an opportunity to practice for the ACT, the revocation of the Michigan Promise scholarship makes the MME unnecessary.

Association Reports: AAPAC

Lauren Roland addressed the board on behalf of the Ann Arbor Parent Advisory Committee on Special Education. Roland began by reporting that her son, a fourth-grade student in AAPS with autism spectrum disorder, was doing very well, thanks to the structures and support in place from the district. This included her son’s participation in a field trip to see the Ann Arbor Symphony Orchestra, an event that required preparation due to the increase in sensory activity that would accompany the performance. Her son had a successful trip, she said, and according to one teacher, enjoyed the performance.

She also thanked board president Deb Mexicotte for attending an AAPAC meeting recently to discuss the upcoming special education millage renewal.

Roland closed her presentation by echoing the call for an Ann Arbor-based Young Adult Program (YAP), helping those with special needs transition into society. [The board heard a presentation about a possible YAP for Ann Arbor at their March 2, 2011 meeting.] AAPAC has been emphasizing this cause for months, and Roland reiterated that there is enough parent and community support to justify the creation of a program.

Association Reports: Parent-Teacher Organization Council

Martine Perreault delivered the final association report, on behalf of the Parent-Teacher Organization Council. Perreault opened by welcoming Patricia Green, the district’s next superintendent, before discussing the PTOC’s upcoming meetings.

Perreault highlighted the PTOC’s March 21 meeting, where effective fundraising strategies will be discussed. The meeting will start at 7 p.m. at the Balas Administration Building, 2555 S. State St. She added that the PTOC will be surveying district treasurers on their retail banking habits, hoping to glean the best practices.

Board Committee Reports

The board has two standing committees. The planning committee consists of Christine Stead (chair), Susan Baskett, and Irene Patalan. The performance committee consists of Glenn Nelson (chair), Simone Lightfoot, and Andy Thomas. Board president Deb Mexicotte sits on neither committee.

Committee Reports: Performance Committee

Nelson updated the board on the most recent meeting of the performance committee. He discussed the policy reviews they covered, as well as some of the strategies they discussed for increasing enrollment. He did not provide much detail about the numerous policy changes the committee was presented with at its March 14 meeting, saying generally that they discussed greater transparency and ease of use of district buildings.

Nelson added that he was impressed with how much impact the strategic plan was having with regards to providing a road map for the district and the board. The committee plans on continuing to review the policy changes.

Nelson also touched on the committee’s discussion about enrollment strategies, mentioning a number that were fleshed out during Robert Allen’s budget presentation [see above]. According to Nelson, administrators have suggested several good ideas, something he attributes to their familiarity with the subject matter.

“Administration people are the ones who live with these numbers,” he said. “They’re the experts.”

Committee Reports: Planning Committee

Stead reported on the planning committee’s meeting, touching on policy reviews, the upcoming special education millage renewal and the board’s continuing efforts to advocate for public education.

Stead, like Nelson, did not go into specifics about the policies that the committee reviewed. She said she was pleased to report that the committee would be following a suggestion from Baskett to require a hard copy of any documentation referenced during their review, which would result in a more efficient process.

With regards to special education, Stead had positive reports on some of the meetings she had been a part of to raise awareness about the upcoming millage, emphasizing its importance. “We want the community to be aware that this is an incredibly important millage for us,” she said. “It is one of the few things we can control at crucial at a time of massive cuts.”

Finally, Stead said there needs to be a commitment to educating legislators about the budget proposed by Gov. Rick Snyder’s administration, and its impact on school districts. “The budget proposal is packaged together so tight that it’s tough to break it apart into pieces,” she said, encouraging arming legislators with information on how to respond.

A strategy for response was also brought up later in the meeting, during the trustees’ closing remarks. Stead proposed inviting local representatives to a study session-type meeting to discuss funding issues.

The board decided to move forward with the idea by collecting information to present to the representatives and members of the public who attend, with the goal of educating the public on the issue and on where the legislators stand. Baskett added that taping or recording the session would help to increase awareness. A date for the session has not yet been set.

Interim Superintendent’s Report

Interim superintendent Robert Allen reported on several notable accomplishments in the district. Among those, he highlighted a partnership between the district and the Main Street Area Association that’s featuring local students’ artwork hung in the windows of downtown businesses. As part of that effort, a downtown art walk was held on March 13 – Allen said there was a large turnout of families for the event, which also included performances by the Pioneer High School choir. He added that the artwork will be on display until the end of March, and encouraged people to check it out.

Update on Superintendent Search

Board president Deb Mexicotte gave a brief update on the superintendent search. Mexicotte said the district has entered into negotiations with Patricia Green, the candidate selected by the board at their March 5 meeting. [See Chronicle coverage: "AAPS Superintendent Choice: Hard Decision"] According to Mexicotte, they were close to being able to bring a contract to the board for final review. At that point, she said, she would have more information about the contract and potential start dates.

Board Action

The only voting action the board took was to unanimously approve its consent agenda, which included the second-quarter financial report, delivered by Nancy Hoover – AAPS director of finance and interim chief financial officer – at the March 2 board meeting; board minutes from the March 2 and 5 meetings; and a gift of Shakespeare plays given by Saint Andrew’s Episcopal Church.

A number of policy reviews came up later in the meeting for the board’s first briefing.

The board discussed the district’s policy on homeless students, elementary reclassification-retention, and local wellness. No changes were made, although the local wellness policy may have to be changed in the future due to legislation currently being proposed. This was the first hearing for the policies; no action will be taken by the board until the second briefing for these items at a future meeting.

Board Notes

The board concluded the meeting with general communications from trustees. The remarks were highlighted by trustee Andy Thomas discussing the district’s funding situation and announcing that the Ann Arbor Public Schools Educational Foundation has kicked off its 2011 fundraising campaign with the goal of raising $1 million.

Continuing on this topic, Thomas discussed a piece of legislation introduced by state Sen. Jack Brandenburg that would cap the amount of fund equity a district could accumulate. [The proposal is to cap a district's "rainy day" fund at 15% of its annual operating expenses.]

“This has to rank as the single dumbest idea I have heard anywhere,” Thomas said. “The districts that were responsible would get money taken away to be driven back down. The only explanation is that Brandenburg doesn’t understand the concept of fund equity. It’s not a rainy day fund. This is another opportunity to write to a senator to let them know what a bad idea this is.”

Present: President Deb Mexicotte, vice president Susan Baskett, secretary Andy Thomas, treasurer Irene Patalan, and trustees Glenn Nelson, Simone Lightfoot and Christine Stead.

Next regular meeting: Wednesday, March 30, 2011, at 7 p.m. in the fourth-floor conference room of the downtown Ann Arbor District Library, 343 S. Fifth Ave.

About the writer: Eric Anderson is an intern for The Ann Arbor Chronicle. Jennifer Coffman, who usually covers AAPS board meetings for The Chronicle, is taking a maternity break.