“The way things are currently structured, it’s inevitable,” says Dexter school board president Larry Cobler. “At some point every school district in the state is either going to be under an emergency financial manager or go bankrupt–and we hope to be the last.”
Cobler’s dire prediction may prove accurate. Since Proposal A passed twenty years ago, most education funding has come from the state–but for the last ten years, that cash flow has been steadily choked off. As David Arsen, MSU professor of K-12 education administration, writes in an open letter to governor Rick Snyder, “Between 2002 and 2011, real per-pupil funding of Michigan’s public schools fell by [a total of] $2,643 or 24.5 percent.”
This dismal trend has accelerated under Snyder and the Republican-dominated legislature: In the state’s 2012-13 budget, they cut $200 million from K-12 school districts. But while community colleges can put millages on the ballot and universities can raise tuition, school districts can’t do either. And while the legislature helped districts lay more of the cost of health care on their employees, it’s also doubled their contributions to the state pension fund, to about 25 percent of payroll.
That’s not all of the schools’ troubles. Beyond rising costs, the recession and Michigan’s aging population have hurt enrollment, which means less money from a state that pays on a per-pupil basis. Chelsea has fallen from 3,000 to 2,488 students in the past seven years, while Saline has dropped from 5,500 in 2009 to 5,250 now and is projected to hit 5,000 in a couple of years. Even Dexter, which had held steady for years at about 3,600 students, dipped to 3,543 this year.
The recently passed 2014-15 state budget won’t help much. Though it nominally raises K-12 funding 3 percent, most of the increase is already slated for the pension fund and will never reach the classroom. The districts will see only tiny increases in per-pupil funding–Chelsea is up $11 to $7,191, Dexter up $9 to $7,182,and Saline up $14 to $7,382.
All three districts have cut spending wherever they can, but even so, they balanced their budgets this year only by dipping into their savings accounts. Those “fund balances” are still healthy in Dexter and Chelsea, but Saline’s has fallen so low that it’s run out of operating capital and has had to borrow money.
There may be hope in the long term. Area unemployment is back to pre-recession levels, and local housing sales are rising, promising more children and more tax revenue. But Larry Cobler still hedges his bets. “The money going to the state is going to go up, but is the state going to give more money to the schools? I don’t have confidence that the current Republican administration sees the value in public education.”
To see how local districts are weathering the storm, we interviewed officials at the Chelsea, Dexter, and Saline schools. To find out what funding challenges may be in the schools’ future, we also interviewed state representatives Gretchen Driskell and Adam Zemke. Together they paint a dark and stormy future for local schools.
After a decade of pain from rising costs and falling enrollment, the Chelsea area schools are financially stable. “My predecessor and the board have been very careful on budget management,” says new superintendent Andy Ingall. And very clear-sighted about what had to be done to balance their budget: they closed an elementary school and reduced staff and administration to match.
Just as importantly, the district’s unions agreed to reduce health insurance premiums by 25 percent, and put a hard cap on insurance spending years before the state mandated it. In addition, Ingall says, “we’ve cut [staff] through attrition, so we’ve stayed out of crisis without asking for massive layoffs or cuts across the board.”
After watching enrollment drop 17 percent in seven years, Chelsea has 2,488 students this year, and Ingall says “we expect to be essentially flat next year and are hoping to be flat or even have a small increase going forward.” Recent budgets have run at around $24.5 million annually, and the district doesn’t expect that to change, partly because it’s used its fund balance surplus to cover any shortfalls.
And there’s the rub. Five years ago, Chelsea had a fund balance equal to 26 percent of its annual budget. But after repeatedly tapping savings to balance the budget, Ingall says, “we’re projecting 19 percent this year”–about $4.6 million. While the superintendent notes correctly that “19 percent is very good,” the trend obviously can’t continue: “15 percent is getting low, and if we get lower than that, we might have to borrow from a local bank to pay the bills.”
Ingall isn’t worried–yet: “There are long-term indicators that we’re moving in the right direction. We’ll see if we can really turn the corner.” Echoing Larry Cobler, Ingall believes “the bigger question is the value of the current educational system. Are our schools seeing a lack of funding from the state because of economic factors, or do [politicians in Lansing] not value the current system?”
Cobler, Dexter’s school board president, has literally millions of reasons for his lack of confidence in the state’s commitment to education.
“Over the last four years, we have lost between one and two million dollars per year in state funding. The largest impact was on labor, but our unions helped us there. They’ve had no raises in at least three years. We saved in health care costs because we negotiated a deal with the union that capped the district’s percentage increase in benefits to 5 percent, and anything above that is the responsibility of the unions.” As in Chelsea, that was done before the state’s mandate.
“We’ve also saved by restructuring transportation,” Cobler continues. “We used to have a two-tier busing system, sending out a run for one set of students and then sending out another run for another set, and we went to a single-tier system that gets all the students in one run. Plus, we’ve lengthened the distances between stops and set up a drop-off hub in the center of [the elementary and middle school] campus, so now all buses go to a central location and the students walk from there.”
All this takes a toll on the district. “People have to understand that with decreases in funding and increases in costs you can’t expect the same level of service,” Cobler says. “Class sizes have gone up and will continue to go up. And we will continue to have ‘pay to participate’ fees in athletics”–as do Chelsea and Saline.
Yet like the other districts, Dexter is still losing money. “Even with [increases in] the next state budget, our best expectation is that we’ll have [expenditure] increases of one million dollars per year with inflation, labor costs, and health care and retirement costs,” Cobler says. Like Chelsea, Dexter will cover most of the difference by drawing on its fund balance. Cobler expects it to shrink to $6.1 million, or 17.8 percent of the $34.5 million budget, by the end of the fiscal year.
Dexter’s savings account is still healthy–but like Chelsea’s, it can’t take too many more years like this. “It’s a definite concern,” says Cobler. “We’ve softened the effects of reduced funding by using our fund balance, and obviously that can’t continue.”
The Saline schools are in an even tougher spot–though not as bad as superintendent Scot Graden feared two years ago. “In the last four years, benefit and pension costs have gone up 44 percent,” Graden told the Observer in 2011. “If we don’t address those things in the next eighteen months, we’ll be in a deficit and open for [an] emergency manager.”
The district dodged that bullet with the help of its unions. “Last summer, we settled [contracts] with the teachers and the support staff,” Graden says now. “Together they’re about 90 percent of the budget, and they gave between 4 to 7 percent in concessions. Plus the health care hard cap helped. It’s tough on employees, but those measures have helped us manage.”
Saline has also sold property to balance the budget, explains chief financial officer Janice Warner in an email. “We sold Union School in 2010 and some vacant land at the corner of Woodland Drive and Maple Rd. next to the Middle School in 2012. We also closed Houghton School in 2010 and it remains vacant.”
The district spent the Union School proceeds in the 2010-11 and 2011-12 academic years, and the Woodland and Maple proceeds went to support its fund balance. Even so, with a current budget of $48.6 million, it’s got just $1.8 million in savings, or just 3.8 percent of the budget.
But things may have hit bottom for Saline. The current budget is down 9 percent from five years ago, but at $48.9 million, next year’s budget will be a bit higher than this year’s. More significantly for the district’s long-term financial health, its fund balance is projected to return to its pre-recession level of 5 percent and slowly increase from there.
“We would like (and are working toward) a 10 percent fund balance,” writes Graden in an email. “A solid FB helps with cash flow and to deal with unforeseen expenses.” Because of its low balance, the superintendent acknowledges, the district has “done a line of credit in the past”–meaning it had to borrow money to pay its bills.
“It’s the new normal,” says Graden. “Nobody is happy, but we stopped the bleeding in order to be sustainable. When revenues are flat, what else can you do?” While the superintendent says his district has “rebounded to a degree,” he warns that, at best, state funding will “be flat for three or four more years, so we have to be very, very cautious.”
Saline school board president Dave Holden hopes the state’s done cutting education. “The leadership in Lansing and the governor realize they have squeezed all the blood they can get out of this rock.” But Holden knows that whatever happens to the schools is up to the state because “we’re held captive by Lansing.”
Gretchen Driskell, Saline’s mayor for fourteen years and its state house representative since January, agrees with Holden’s estimation of the schools’ dilemma. “Their hands are tied because they’ve got no alternative sources of income.” And like everyone else we interviewed, Driskell says the cuts to education have been “hugely detrimental to the future of our state. It’s the main reason I ran [for state rep] last year.”
Another legislative newcomer, Ann Arbor Democrat Adam Zemke, serves on the education appropriation committee. “I wanted to be on the appropriation committee because the budget is the expression of state policy,” he says, “and in my opinion we’ve been doing a disservice to Michigan’s children since before the current administration, though they’ve done their share.”
“How you set budget is how you govern,” Driskell adds, “and [under Snyder] the state’s put business first by cutting business taxes at the expense of education.”
The Democrats’ proposed solution “involves increased funding,” Zemke says. “I’m a big proponent of big improvements to public schools, and they all cost more money.” The Democrats have a plan to raise the funds. “Our caucus’s [proposed] budget adds $320 per pupil to the budget without raising taxes,” says Driskell. “We do it by removing some business tax exemptions.”
Zemke argues that a better-educated work force would be in business’s best interests. “Michigan’s twenty-first-century economy is going to be more technology-based, not service oriented. Manufacturing is not dead in this state. I’ve worked in three different sectors of manufacturing, and the jobs are growing, but they demand a higher level of technological training than ever before.”
Driskell acknowledges that whether or not the state decides to invest more in public education “depends on who’s in the majority [in the legislature]. Democrats support public education. Republicans don’t. And right now Republicans control the state government.”
If current trends continue, Driskell predicts harder times ahead for schools with “higher pay-to-play fees for athletics, increased class sizes across the board, and greatly diminished curriculums.”
But since their only alternative is bankruptcy, what choice will schools have?