The Schools' Fiscal Cliff
The board faces hard choices
"We're all marching toward the cliff," says Glenn Nelson, treasurer of the Ann Arbor school board, "and we want Ann Arbor to be far back in the line."
The cliff is the seemingly inevitable bankruptcy of every public school district in Michigan. The Buena Vista district, outside Saginaw, ran out of money in May and closed down. Bleeding students and money, the Ypsilanti and Willow Run districts merged in July. Later that month, the Inkster system dissolved; like Buena Vista, Inkster terminated its staff and sent its students to surrounding districts.
And it's not just poor districts at risk. Dexter school board president Larry Cobler seconds Nelson's belief that if present trends continue, "at some point every school district in the state is either going to be under an emergency financial manager or go bankrupt."
One-third of the AAPS's budget comes from local millages, but all the rest comes from the state--and over the last five years, the legislature has repeatedly cut that funding. "It happened first in the last year of the Granholm administration," says board president Deb Mexicotte. "We were cut midyear, and that created a tens-of-millions-of-dollars deficit. There's also an ongoing six-to-seven-million dollar structural deficit caused by state funding cuts, and in the past several years they've cut us ten million dollars above that."
Mexicotte blames Proposal A, the state school funding shift that voters approved in 1994. "Rich districts were set up to help poor districts, so the poorer districts were getting more money while the state sent us less," she says. "That helped the poorer districts, but between rising mandates and cost-of-living increases, we can't keep up."
Ann Arbor's state funding peaked in 2008 at $9,723 per pupil. It's down to $9,020 now, and, while that's more than other school districts in Washtenaw County, it's also less than the $9,181 it was ten years ago. "If we'd just kept up with inflation we would be getting eleven, not nine, thousand dollars per pupil now," says
Rising retirement costs add to the pain. In 2010, the district's contribution to the state schools retirement system was $13 million. By 2012, that mandatory payment jumped to $17.5 million. This year's increase was smaller--but still big enough to absorb most of the state's 3 percent raise in per-pupil funding, the first in five years.
Prohibited by Proposal A from raising its operating millage, the board turned to its only source of cash: its fund balance. Previous boards built the district's savings account to $40 million by 2003, a healthy 25 percent of that year's $157 million in expenses. But as income fell further and further behind expenses, the board tapped the balance for about $2 million per year--until the recession, when the withdrawals jumped to $5 million a year.
Now the fund is down to just $5 million, a sickly 2 percent of this year's $184 million in expenses. That puts Ann Arbor's schools much closer to the cliff. For the first time this year, the district set up a $10 million line of credit to cover potential short-term deficits.
The board hasn't spent blindly. "We cut $60 million out of the last three years' budgets," says Mexicotte. "If we hadn't used the fund balance, we would've had to cut music, languages, theater, and athletics. As it was, we still had to cut 350 full-time positions."
Nelson ticks off some of the changes. The district has raised fees and increased class sizes, and it no longer has its own school buses: "We have a transportation consortium run by the intermediate school district now," he says. "We use new software that's cut down on central office staff. We passed a new special education millage and gotten it renewed twice. We have a technology bond rather than using the general fund."
But with continuing deficits and a depleted fund balance, the district now must face even tougher choices: asking voters to reconsider a previously rejected countywide "enhancement" millage; redrawing attendance boundaries; and closing schools.
Mexicotte and Nelson take responsibility for spending the fund balance. "We made the choice to maintain the excellent educational experience of Ann Arbor's schools thinking the economy and the state would turn around," says Mexicotte, who was first elected to the board in 2003.
"It was a deliberate policy," affirms Nelson, who's been on the board since 2002. "It would have been completely irresponsible to not use it."
"We didn't want to spend it down," says trustee Simone Lightfoot, who was appointed to the board in 2009 and elected in 2011. "But it was what we had to work with."
Nelson thinks the worst of the funding cuts may be over. "We're just coming out of the worst recession since the Great Depression, and now there's an established up-cycle in the economy, so soon it will be time to accumulate again."
"We're looking at adding to the fund balance this year," Mexicotte confirms. "We put in place financial controls last year to increase scrutiny and reduce expenses, which may contribute to avoiding using the line of credit so we can add to the fund balance." But even if the board can find enough cuts to erase the red ink, it still has a long way to go. The current budget sets a "long-term goal" of increasing the fund balance to 15 percent of expenditures. That would equal about $27 million this year--five times the balance now and very ambitious considering the circumstances.
Nelson mostly blames those circumstances on the Republican-dominated state government. Republicans, he says, believe the Democrat-dominated teachers' union is "too powerful as a political force, and less money for education is a way to rein in their power."
Lightfoot agrees wholeheartedly. "No question the leadership in Lansing is hurting us. If you're a public employee, you're enemy number one. They're tearing us up and dismantling us. They want to dismantle collective bargaining and take out the political infrastructure of their opposition."
Current teachers' union president Linda Carter declined interview requests. But former president Brit Satchwell--stressing that he now speaks only for himself--emailed that "the luxury of hindsight shows [the trustees] have made some mistakes, [but] they have generally done an admirable job of making nothing but impossible Sophie's Choices, year after year. They trimmed administration before teachers and truly kept cuts as far away from kids as possible for many years. The fact that we've taken this long to get to this state of public outrage is a harsh tribute to their work."
For Satchwell, "there is plenty of blame to go around among teachers, unions, parents, and administrators. But the legislature has clearly been the prime agent of the dismantling of Michigan's public education system."
Bill Rogers, chair of the state's house appropriations committee, rejects that charge. "The state of Michigan has been in a recession, pure and simple," he says. "The only thing we can hope for is breaking even because the economy hasn't really turned yet."
The Kent County Republican also points out that state funding has finally begun to recover: after bottoming out at $12.7 billion in 2009, last year it edged up to $13.3 billion. And Rogers vehemently denies that his party is deliberately starving schools to break the teachers' union. "It's a pretty sad and disingenuous argument. The subject never comes up at committee meetings or in any discussions with my colleagues.
"We are not trying to starve schools. We're trying to make people aware that students, parents, and teachers are getting squeezed.
"I know teachers deserve more. My daughter is a teacher, and my father was a teacher."
The recession's impact was political, too. "When we proposed the [Washtenaw Intermediate School District] enhancement millage in 2009, we had the worst timing in the world," says Nelson. "Ann Arbor passed it, but other places in the county more affected by the recession didn't."
"We were surprised when the millage failed," admits Mexicotte. She believes a big part of the reason was an aggressive negative campaign, adding that the loss "traumatized the [WISD] into not trying again."
They fault poor planning for the huge increase in retirement costs. "Twenty years ago we paid for teachers with promises of a very nice retirement," says Nelson. "But we didn't put in anything but IOUs [into the retiree health care fund]. The question now is: who should pay, and the current practice is that current students should bear the brunt of it.
"The unions were complicit in this," Nelson continues. "The unions bet that politically they could force the system to come up with the money." The system did, but at a cost: "Money that should be going to education is going to retirement."
The district's retirement contribution "could be at 27 percent [of the budget] next year, and in three years it could be at 30 percent," Mexicotte says. "Eventually it will go down, but it will take decades."
But the unions have helped the district, too. They agreed to cap health insurance costs for current employees in 2005, and during the recession, Mexicotte points out, the teachers "came forward with 3 percent, or $3.4 million, in concessions." Other unions gave up an additional $400,000.
But the concessions and staff cuts to date only dented the deficit. If anyone still had doubts about the severity of the crisis, they vanished this spring, when the district sent layoff notices to 233 staff members.
"We're expecting to recall teachers" from that list, Mexicotte explains. "But we have to take the worst-case scenario. We think twenty-seven teachers and seventy-three overall positions [will have to be cut], everything from custodians to crew chief to central administration, full-time and part-time."
Unlike most districts, Ann Arbor is not losing students: the pupil count was 16,743 ten years ago, and though it dipped to 16,526 in 2010, it recovered to 16,747 last year. It's likely to stay about the same this year.
With fewer teachers and the same number of students, classes have gotten larger. That's saved money in the short term, but the trend can't continue indefinitely. When classes grow past set limits, the teachers' contract requires the district to either pay teachers more, or hire aides for them.
Last year, those contractual costs contributed to a bigger-than-planned deficit. District superintendent for operations Robert Allen left for another job shortly before that news belatedly reached the school board last winter. Superintendent Patricia Green followed a few months later.
In July, a divided board voted to hire New Jersey superintendent Brian Osborne--only to have him turn them down. The board then turned to its second choice, Colorado assistant superintendent Jeanice Kerr Swift--who quickly said yes.
Swift will immediately face the most unpopular choice in public education: closing schools. "We've issued a request for a proposal to redraw attendance boundaries," says Nelson. "We will examine how many buildings we need and of what kind, and, based on the results, we may close schools."
"People love their neighborhood schools," says Mexicotte, "and if we do close a school we may use it for another purpose, another K-through-eight school like Ann Arbor Open, or a language immersion school--something that would attract students."
There are students to attract: currently, 1,200 school-age children in the Ann Arbor district don't attend the public schools, instead choosing charter, religious, and home schools for their education. That costs the district about $12 million in state funding.
"Parents will rightly do what's best for their kids," says Nelson. "For us, we're going to have to be the best, so charter schools aren't as attractive an option."
Meanwhile, the latest budget cuts are taking another bite out of the district's schools. "The reduction in the teaching staff will cause an increase in class sizes," emails Huron High principal Arthur Williams. "Additionally we will have a reduction in the number of classes we can offer. Our building budget will be reduced, [and] the replacement and repair of equipment will be affected." And that's just the top of his list.
Eberwhite Elementary principal Bill Harris speaks passionately about the budget's impact on his students. "We lost 30 percent of our reading intervention staff. We used to have ten teachers across the district, and three are gone. We have less money for supplies. It was 7 percent down last year, and it'll be more than that this year. And math tutoring is gone."
Harris has already reduced office, lunch hour, and custodial staffs at the school. "Floors and bathrooms get cleaned less often," he notes. And the school can no longer afford field trips. "At Eberwhite, our PTO provides the funds for one field trip for each of our grades," says Harris. "Our PTO has always done fund-raising, but they've had to get more aggressive."
Parents, though, can raise only so much. In the long run, Mexicotte believes, the funding system created by Proposal A needs to change.
"It's pulling the top down, but it's not raising the bottom up," she says. "We've been giving and giving and giving, and we're portrayed as either corrupt or incompetent, and we're neither."
But changing the state's constitution is a huge task. Short of that, Glenn Nelson sees other options. "Saline has a recreation millage that funds their theater program, and we could do the same," he points out. "Or we could get funds for the schools' pools from the community, and let the community use the pools."
Nelson also is willing to think about more radical changes. "We could form a new mega-charter school district," he suggests. "We'd look as much the same as possible but make ourselves a charter school. The state would scream bloody murder to have 3,000 less contributors. But we need to shift into a sector that isn't being held responsible for an unfunded liability, or we might not survive."
And then there are the district's considerable assets. "We have significant amounts of land that are parks and woodlands, for example, across the street from Pioneer. The city could use greenbelt money to buy them," he proposes.
If the city's not interested, Nelson sees another use for Pioneer's woods. "Let's sign a ninety-nine year lease with an Indian nation to put a casino and hotel complex there. It could yield $800,000 a year. It's an abhorrent idea, but for the good of the children, we could develop that land."
Though the community would surely cringe at that idea, Nelson's colleagues agree that both new funding sources and more savings are desperately needed. In addition to considering school closings, Nelson says the board will ask the new superintendent "to lead a millage campaign, to work on private giving, and to pursue shared services at the county level, among other things."
Swift isn't daunted. "I'm not a newcomer to tough budget cycles," she says. "We've reduced year after year in Colorado. Throughout it all, the priority has, and will always remain, first the students and second the staff."
Swift makes it clear she values community input--but also that she'll be looking for permanent solutions. "Ann Arbor has been through years of reduction, but every year we come back to the table with the same issues," she says. "We can't do that anymore."
[Originally published in September, 2013.]