AAPS Seeks Public Input on Budget

Ann Arbor Public Schools budget forum (November 10, 2011): About 60 people joined AAPS superintendent Patricia Green, deputy superintendent of operations Robert Allen and the rest of the AAPS top administrators at a budget forum last Thursday evening.

The forum served two distinct purposes: (1) to educate the public on school funding issues, including its specific challenges for crafting next year’s (2012-13) budget; and (2) to solicit ideas from the public on how the district can reduce its budget by $14 million.

The current fiscal year’s approved budget is $183.62 million.

The district typically schedules budget forums in the spring, but this year wants to involve the community earlier than that.

A second forum will take place Monday, Nov. 14 at 6:30 p.m. in the cafeteria annex at Pioneer High School.

At Thursday’s event, Allen said that the district is projecting a $14 million deficit for the 2012-13 school year. Over the past five years, the district has made a cumulative total of nearly $50 million in cuts.

How the Budget is Developed

Green led off the forum with a review of the main strategies of the district’s strategic plan. That was followed by a brief overview from Allen on how the district is funded, including restrictions on specific funds.

Budget Development: Strategic Plan

Green introduced her cabinet members and other administrators present. She then read the district’s mission statement, and reviewed the eight core strategies of the AAPS strategic plan, noting that the budget will be linked directly to these strategies.

Budget Development: Fund Restrictions

Allen explained that the budget he would be discussing that night is the district’s general fund, or “operating budget.” He contrasted the general fund with a set of other funds that have more restricted uses. Funds with restrictions include: grant funds (Title 1 and special education funds); bond funds (capital projects such as building construction, technology, bus purchases); debt service (to fund debt service on bonds); sinking fund (capital projects such as land acquisition, remodeling current buildings); and special revenue funds (food service, Rec & Ed).

Allen added that a proposed revision to the legislation governing sinking fund dollars could greatly help AAPS because it would allow the district to spend the sinking fund more flexibly, for example, on upgrades to technology.

Budget Development: How AAPS Is Funded

Allen then described how Michigan school districts are funded, which is primarily through each district’s foundation allowance from the state. The allowance is a per-pupil allocation determined by blending student count data from September of each year with the student count data from the previous February, in a 90-10 ratio. Proposal A legislation, which was enacted in 1994, stipulated that state revenue is also factored into the foundation allowance at a variable level, Allen said.

He the explained how the district’s foundation allowance is calculated. The district’s allowance in 2011-12 was $9,020 per pupil.

Of the $9,020, Allen began, $3,310 comes from local non-homestead property taxes (commercial, industrial, rental, seasonal homes, etc.). The state contributes another $4,476 ( from a combination of state homestead taxes, state non-homestead taxes, sales tax, income tax, lottery revenue, etc.). And, the final $1,234 comes local homestead property taxes.

Though Proposal A’s intention was to equalize school funding across Michigan, Allen expressed frustration that the state had “broken its promise” by not allowing wealthier, “hold harmless” districts to continue to fund schools at a higher level than the base foundation allowance. “Hold harmless” funding was eliminated in 2009, costing AAPS $233 per student.

Budget Considerations

Allen then outlined a number of factors that will affect the 2012-13 budget in more detail: the structural funding deficit, administrative costs, the state retirement rate, incentives funding, and fund equity. Community questions and Allen’s answers have been included in each subsection, though at the forum, questions were held until the end.

Budget Considerations: Structural Deficit

Due to the variable nature of the state contribution to the foundation allowance, Allen said, “As the economy goes, so goes our funding.” With property values and other state revenue decreasing, and the consumer price index rising, Allen explained, Proposal A has caused a structural deficit in the district’s funding allocation of $6-7 million annually.

He suggested that the public should be able to look to the state School Aid Fund (SAF) to see how healthy the state budget is. However, he pointed out that the state has recently begun to use SAF surplus to fund other things, even though the intent of the SAF, as created under Proposal A, was exclusively to fund K-12 education. What should have happened to the SAF surplus, Allen argued, was to be added to the per-pupil allocations of the roughly 1.6 million students across the state.

Budget Considerations: Administrative Costs

Allen then showed a few slides summarizing categories of the operating budget as percentages of the total FY 2011-12 budget of $183.5 million.

One of the slides broke out expenditures as a percentage of the total budget as follows: Instruction and Support – 79% (includes principals, teachers, teacher assistants, counselors, social workers, psychologists, media specialists, secretaries, and custodial and maintenance staff in buildings); Operations and Maintenance – 11%; Central Administration – 5% (includes superintendent, executive administration, directors, supervisors, and executive support staff in finance and human resources); Transportation – 3%; and Other – 2%.

In response to a forum attendee’s question, Allen noted that “executive administration” refers to the superintendent’s cabinet.

Regarding the slide showing categories of expenditures, one attendee suggested it might be helpful to see the instruction budget broken out by school. Allen was asked if the budget allocation for all high school students is the same – for example at Community versus Pioneer versus Huron. Allen responded by saying that there is no material difference between those schools and that the district spends about $8,000 per high school student. He added that AAPS spends in the mid-$6,000s on each middle school student, and about $5,000 on each elementary student.

The forum attendee then asked how the allocations for central administration and administration have changed. Allen answered that they have both decreased.

At the AAPS board’s first Committee of the Whole (COTW) meeting on Nov. 2, Allen reviewed a draft of the presentation to be presented at the budget forums, and trustees suggested adding a comparison of AAPS administrative costs with those of districts of similar size.

The Nov. 10 budget forum presentation included a slide based on that recommendation, which showed data taken from the 2009-10 Bulletin 1014, a state report available on the Michigan Department of Education website. Bulletin 1014 ranks districts on a number of financial data points, student count, and average teacher salary, among other metrics. It includes traditional public schools (551 of them) as well as charter schools (232 of them) in its rankings.

Allen pointed out that while AAPS is the seventh-largest school district in the state, it ranks 363rd in terms of per-pupil business and administrative expenses.

One forum attendee asked how AAPS administrative costs compare to similarly-sized districts, such as the 21 districts (as noted on the slide) with student populations between 10,000 and 19,999 students. Allen said he did not know.

Another forum participant asked whether the “business and administrative expenses” as defined by Bulletin 1014 included administration costs for individual school buildings, and Allen said no, that it refers only to AAPS central administrative costs. A third participant commented that if all the charter schools were removed from the rankings, AAPS would look even more conservative with respect to administrative spending.

Budget Considerations: State Retirement Rate

Allen highlighted the state retirement rate as “one of the biggest obstacles” in setting the budget. He stated that one of the stipulations of Proposal A was to pass on the cost of funding the state retirement system to school districts. He also noted that the Michigan Public School Employees Retirement System (MPSERS) is a defined benefit plan (not a defined contribution plan).

School districts are mandated to contribute to MPSERS at a rate set by the state, Allen explained. When Proposal A was first enacted, the state retirement contribution rate was 4%, he said. To calculate the district’s obligation, that percentage is applied to the district’s total employee salaries.  This year, the rate is 24.46%, and is projected to increase to 27.37% in FY 2012-13, and 28.87% in FY 2013-14.

Allen added that staff reductions across the state are compounding the problem, because there are fewer employees left who are contributing to MPSERS. Contributions from fewer employees means a higher rate of contribution is required, in order to fund the defined benefits of the retirement system.

Allen stressed that the district has no control over this cost at the local level – there is no opportunity to negotiate with bargaining units for a lower rate. “This is an area where the legislature needs to make some changes,” Allen said, pointing out that every 3% increase in the state retirement rate adds $3-4 million to the district’s structural deficit.

A forum attendee asked for further explanation of the district’s obligation to MPSERS. Allen clarified that AAPS is required to contribute to MPSERS an amount equal to 24.46% of the total amount the district spends on salaries. Again, he stressed that the rate is non-negotiable, and that the mandated retirement contributions are above and beyond the salary costs themselves.

Budget Considerations: Incentives Funding

One forum participant asked if the district applied for and received the one-time “best practices” incentive funding being offered by the state. Allen said the district had applied, was approved, and that the first payment would come this month.

The participant then asked whether that money had been factored in to the projected budget deficit, and Allen said no. He explained that the 2011-12 budget will be amended three to four times throughout the year, and that the incentives funding will be included in the first budget amendment.

Budget Considerations: Fund Equity

Allen explained that the district’s fiscal year and the state’s fiscal year are on different calendars, meaning that there are two months in which AAPS does not receive state aid. Because of this, he said, AAPS needs to have $16-18 million saved to operate for those two months. If it did not have that money reserved, it would need to borrow money from the state and incur interest expenses.

Even if the interest were only $200,000, Allen noted, “that’s two teachers.” He also pointed out that having had money in fund equity two years ago, when the state reduced school funding mid-year, meant that AAPS did not need to lay-off teachers in the middle of the school year, as many surrounding districts were forced to.

Budget Suggestions

Forum participants formed smaller groups at individual tables. But before opening up the table discussions, Allen offered his own view on ways to address the budget. He stressed that the problem of the structural deficit needs a permanent fix, and encouraged everyone to lobby the state to change the ways schools are funded.

Allen also suggested that the district should focus on: increasing student enrollment; exploring additional opportunities for consolidation or collaboration with other schools and universities; and exploring new revenue options as well as cost savings. Finally, Allen emphasized the importance of considering the effect of any budget cuts on equity among all students.

Allen said that the AAPS bargaining units have worked collaboratively, and that the district has controlled health benefits costs. But, he said, “There are only so many cuts you can make, before your community looks elsewhere.” If students leave the district, the district loses funding, which causes more cuts and more transfers out of AAPS, Allen said. “It creates a downward spiral.”

Community participants then met at round tables in groups of four to six, with one member of AAPS administration (or AAPS board member Glenn Nelson in one case) present at each table to facilitate and take notes. Allen pointed out the summarized audit data on the table for review, as well as the five-year history of budget reductions by category included in the table packets, and thanked people for coming.

Community suggestions on the budget, as reported out by administrators present at each table, addressed the following areas: additional information requested; how to better include parents in the budgeting process; suggestions for budget reductions and priorities; and suggestions for revenue enhancement.

Suggestions: Additional Information Requested

• More detail about what created the structural deficit
• A handout of legislative contacts
• More concrete information about what to say and how to say it to legislators
• A list of what is “off the table,” or things the district has decided already to keep intact
• What other districts have done to reduce their budgets that has been successful
• How much it costs to run Skyline
• Administrative costs broken down by building
• Instructional costs broken down by building
• More “narrative” about revenue streams such as grants – how can we get grants
• Link dollar amounts to items on the strategic plan
• Amount spent on mandated programs versus amount reimbursed for such programs
• Budget breakdown by smaller categories with more detail
• Explanation for inequities regarding transportation
• List of contracted services and associated costs
• More information from a taxpayer perspective
• Re-create “user-friendly budget” document
• The value of property held by AAPS
• How AAPS compares to other districts in terms of cuts being made

Suggestions: Inclusion of Parents in Budgeting Process

• Post this budget presentation on the district’s website
• Explain that legislative reform to MPSERS needs to be done carefully – some proposals be considered would be detrimental to teachers
• Communicate with parents via the neighborhood centers
• Give specific information sooner in terms of what cuts would mean
• Get the PTOC more involved
• Contact school PTOs and PTSOs directly
• Include budget information in e-mails from the school – parents would be more likely to read it
• Attend school coffee hours to discuss the budget and get ideas
• Be more proactive in getting budget information out – send it as an e-mail with a link to the budget
• Put a budget survey online
• Explain the information better
• Address lack of trust (related to last year’s principal-sharing proposal  and the  2009 county enhancement millage)
• Address feeling that cash from parking fees is being “siphoned off”
• Trust parents to be more helpful in a volunteer capacity
• Engage Michigan Parents for Schools, which has many tools and direct e-mail contacts

Suggestions: Budget Reductions and Priorities

• Don’t touch teacher benefits – neighboring districts spend much more
• Remove instrumental music from 5th grade, for possible funding by the AAPS educational foundation
• Be mindful of equity – lower income students are more affected by all cuts
• Cut varsity athletics to keep class size down
• Continue collaborations with local universities
• Close elementary schools that are not at capacity
• Protect teachers and transportation – they were already cut
• Consider closing one or more of the six high schools
• Combine or close Clemente or Ann Arbor Tech
• Close Mitchell, then run Scarlett as a K-8 magnet school
• Consider principal-sharing
• Don’t get substitutes for absent high school teachers – just have a big study hall for all students whose teachers are out
• Don’t rely on lobbying – timeline is not soon enough to get action this budget cycle
• Adjust start times to combine transportation geographically
• Cut high school busing and work with AATA to provide transportation
• Ask parents to bring in supplies to buildings
• Reduce administration
• Reconfigure schools with small populations
• Pool health care costs with districts throughout the county
• Bring in more student teachers to increase collaboration with universities
• Don’t duplicate high school class offerings – hold classes at only one location, and bus students around as necessary
• Be careful of reducing class choices at high schools, as it may reduce enrollment
• Consolidate human resources and information technology with other local districts
• Do not share principals at Title 1 schools
• Do not close buildings this year – not feasible without more planning
• Cut the glossy brochures
• Possibly cut curriculum coordinators or others in central administration
• Figure out how to bring back students who leave for charter or private schools
• Help business community understand that we are educating the work force

Suggestions for Revenue Enhancement

• Lobby the state – the School Aid Fund should be used only to fund K-12 schools
• Help parents to lobby the state more effectively
• Encourage alumni to give back by donating to the AAPS educational foundation
• Ask AAPS educational foundation to lobby for funding change [Another participant ventured that 501c3 organizations are legally prohibited from lobbying.]
• Try to get students from Greenhills
• Offer in-district choice between high schools to increase enrollment
• Open up more Schools-of-Choice seats to increase enrollment
• Open up high schools to Schools-of-Choice enrollment
• Increase grant funding
• Rent out AAPS facilities (pools, planetarium, theater) without interfering with instruction
• Increase volume of parent communications with legislators
• Encourage the AAPS educational foundation to raise more money
• Make better case for tech bond
• Need more active grant searching
• Rent or long-term lease district-held property
• Increase user fees for field trips, athletics
• Increase football parking fees on Pioneer’s lot
• Conduct a better energy analysis – the heat is on at buildings in evenings
• Increase pay-to-play

Next Community Forum on the Budget

Allen closed the forum by inviting all members of the community to a second budget forum on Monday, Nov. 14 at 6:30 p.m. in the cafeteria annex at Pioneer High School. Green thanked everyone for coming and for sharing their thoughts.

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