What Does the Governor’s Budget Mean for the Madison School District?

Governor Walker’s proposed budget was released late this afternoon.  What does it mean for the Madison Metropolitan School District?  My first impression is that while the Governor’s proposals are horrible for teachers, they need not be a disaster for the school district.

The Governor proposes to balance the budget on the backs of our teachers and other public employees, in addition to stripping them of their collective bargaining rights.  His budget repair bill calls for requiring all public employees to pay the employee share of their annual WRS contribution to their retirement account.  This amounts to a 5.8% cut in each employee’s take-home pay.

(In addition, the bill calls for increased employee contributions toward the cost of health insurance provided through the Public Employers Group Health Insurance plan.  Since the health insurance for our teachers and other MMSD employees is not provided through this plan, this provision does not apply to us.)

The Governor has stated that the cuts in benefits he is imposing on public employees will allow school districts and other governmental agencies to absorb the cuts in state aid that they will sustain without requiring significant layoffs or decreases in services.

Does that claim hold up?  Well, for our school district it looks like it might.

If my assumptions are correct, it looks like the big financial hits the Governor wants our teachers to absorb will enable us to make it through the recommended cuts in state aid and in our spending authority without the need for significant layoffs.

I need to emphasize that this conclusion is tentative and certainly subject to revision as I learn more.  But this is how I see it now.

School budgeting issues are invariably confusing.  The confusion can be reduced a bit if two issues are kept separate.  The first is:  How much money can we spend?  The second:  Where will that money come from?

How much money can we spend?

The maximum amount of money each school district can spend each year is determined by the state-imposed revenue limit.  (This terminology contributes to the confusion right out of the box.  While the accepted term is “revenue limits,” what we are actually talking about is each school district’s annual spending limit.   I will refer to the concept as a spending limit in the rest of this discussion.)

Madison’s spending limit for 2010-2011 is roughly $290 million.  The Governor’s budget calls for a 5.5% reduction in the spending limit for 2011-2012.

This would result in a $274 million spending limit for MMSD for 2011-2012.

But wait.  Our 2008 referendum authorized the Madison school district to exceed its spending limit by $4 million in 2011-2012, and on a recurring basis thereafter.  I assume that this means that our spending limit for 2011-2012 will therefore be $278 million, but I have no confirmation of that and I could be wrong.

I understand we are underutilizing our maximum spending authority by about $10 million this year.  This means that our spending subject to the spending cap this year is about $280 million.

We are starting our 4-year-old kindergarten program next year.  This will increase our expenditures on a net basis by about $8 million.  Since our spending limit next year seems to be less than our actual spending this year, we’ll have to find $8 million in savings to accommodate the 4K program.

As I mention above, the Governor’s budget repair bill proposes that all public employees incur a 5.8% pay cut as a result of their paying the employee contribution toward their WRS retirement account.  If this becomes law, the annual cost savings for the District will be about $11 million.  It appears that this would create enough savings to allow us to bring the first year of the 4K program within our spending limits for next year.

So, if my assumptions are correct, we’ll have a spending limit next year of $278 million.  If we take this year’s spending that is subject to the cap, add the incremental cost of the 4K program, and subtract the amount we’d save as a result of the retirement contributions, we’re at about $277 million.

We’ll have expenses, like utility costs, that will increase next year over this year, but the spending limit situation for next year does not appear to me at the moment to be disastrous.

Where Will the Money Come From?

Most of the money that pays for our schools comes from three sources:  state aid, federal aid, and property tax revenues.

We can’t control the amount of state or federal aid we receive, but, subject to the overall spending limit, we do have discretion over the amount of the property tax levy we impose.   This means that if we face reductions in state or federal aid, we can, if we choose, make up the difference by increasing the property tax levy, subject again to the overall spending limit.

There had been rumors and speculation to the effect that the Governor was going to propose a freeze on the level of school districts’ tax levies.  This would mean that even if a district was below its spending cap, it could not make up for a loss in state aid through an increase in the property tax levy.

From my review of the materials describing the budget proposal that were released today, it appears that this is not part of the package.  The proposed budget restricts the authority of counties and municipalities to increase their property tax levies, but not school districts.

This is huge.  It means that the spending limit is the binding state-imposed restraint on us.  So long as we stay within the spending cap, we can decide how much of the loss we’ll sustain in state and federal funding we’re willing to make up by increasing the property tax levy.

The state aid we receive comes in two forms:  general or equalization aid and categorical aid.  For the current year, we are receiving about $50 million in equalization aid and about $21 million in categorical aid.

The Governor’s proposed budget calls for an 8.4% reduction in equalization aid for next year. If this is equally distributed among the state’s school districts, the result would be a reduction in state equalization aid for us of $4.2 million.

In fact, increases or decreases to the amount of state aid are never equally distributed to school districts, given the vagaries of the school funding formula.  Madison always seems to do worse than average.

However, another provision in the proposed budget actually offers us a bit of protection.  According to the budget summary,  “the special adjustment aid hold harmless provision is increased to guarantee school districts 90 percent of their prior year general aid amounts for fiscal year 2011-12.”  Current law pegs the hold-harmless level at 85 percent of the prior year level.

This means the maximum decrease in our equalization aid for next year would be about $5 million, which is in line with the levels of reductions we have sustained the last two years.

It is harder for me to tell how much we will lose in categorical aid.  In all, the state doles out about $600 million in categorical aid.  The lion’s share is for special education (about $370 million) and the SAGE program that provides for lower class sizes in the primary grades for schools with a high percentage of low-income students ($109 million).

The Governor’s budget calls for the elimination of a number of categorical aid programs, but, blessedly, seems to leave special education and SAGE alone.

The elimination of the targeted categorical aid programs is said to save the state about $29 million, or about 5% of the overall categorical aid spending.  Almost $10 million of the $29 million is made up of a pupil achievement program for the Milwaukee school district.  I don’t know how much of the remaining $19 million on the chopping block currently goes to Madison.   Let’s assume $2.5 million as a guess.

This year we are also the grateful recipients of about $28.4 million in direct federal aid (not including federal payments toward our free-and-reduced lunch program).  About $5 million represents Title I payments, which are earmarked for high-poverty schools.

There have been rumors that the Governor intends to decline Title I funds.  No one from the governor’s office has confirmed or denied the speculation.  Since declining the funds would be so utterly counterproductive, I’ll assume for now that the governor does not plan to do so.

Another portion of our federal money represents stimulus funds, which we won’t be getting next year.  We’ve been pretty careful in using the funds on one-time expenditures. We’ve also held on to about $4 million to use for new 4K teachers next year.  The upshot is that we probably won’t need to raise property taxes much to make up for a loss in federal funds.

So, let’s recap.  Given the state-imposed spending limit, we are probably looking at spending roughly the same amount on our schools next year as we are spending this year.  We stand to lose maybe $7.5 million in state funding next year.  We’ll also lose federal funding, but probably can sustain that loss.

This suggests that we’d be looking at about a $7.5 million increase in the property tax levy next year, to make up for the loss of state funding while our overall spending holds steady.

Our property tax levy this year is about $245 million, which was about an $11 million increase over the property tax levy for 2009-2010.  A $7.5 million increase next year would not be out of line with recent history.

All that I say here is based on my first-blush review of the released budget documents and incorporates some assumptions I haven’t yet had a chance to confirm.  Subject to that large caveat, it looks like the adoption of the financial aspects of the budget repair bill and the enactment of the Governor’s proposed budget would not compel layoffs of a significant number of teachers or otherwise lead to a financial catastrophe for the Madison school district.

UPDATE:  The original version of this post had what I now think is an erroneous figure for our current spending limit.  I changed the number.

LATER UPDATE: I have now had a bit more time to look at this.  I’ve also had a chance to discuss my analysis with Erik Kass, the school district’s assistant superintendent who is responsible for budgets and financial analysis. 

My figures appear to be basically correct.  I understand now that the amount of state categorical aid we will lose is likely to be considerably less than the $2.5 million figure I kind of pulled out of a hat.  Erik also informs me that we are unable to increase the property tax levy to make up for a loss of categorical aid, though I do not understand the reason why.

One point that that receives insufficient attention in my post is that the Governor’s proposed budget will require us to make a number of difficult decisions.  The school district’s expenses go up every year.  Under a best-case scenario, we’ll be able to spend about as much next year as we are spending this year.  It will require tough choices for us to be able to hold our overall level of spending next year at close to this year’s level. 

These are the sort of challenges that the school district has had to wrestle with at budget time for the last several years.  My point is that, as a result of some fortuitous circumstances, the Governor’s proposed budget shouldn’t increase our budgetary challenges by an order of magnitude.  I expect that the situation in most other school districts in the state is far graver, and the situation in Milwaukee looks nothing short of horrific. 

Finally, there has been discussion about the Governor’s budget having about a $21 million impact on the school district.  This figure refers to the spending limit, not the amount of state aid that we will lose.  Current law authorizes our spending to increase next year by $275 per pupil, or by about $6.9 million.  Our initial budget models had assumed a $200 per pupil increase, or about $5 million.  In fact, the Governor’s budget proposes changing the law to require about a $16 million decrease in our spending authority.  The $21 million figure represents the combination of the $5 million increase in spending authority we initially were planning for, plus the $16 million decrease in authority the Governor proposes.

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5 Responses to What Does the Governor’s Budget Mean for the Madison School District?

  1. TJ Mertz says:

    Thanks for the quick and thorough take. I’m waiting for the full bill, the LFB analysis and Erik Kass, but with what we know, the numbers seem right.

    I want to emphasize that MMSD doesn’t get hit too hard because of things are are unique or nearly unique to the district: Extensive unused revenue authority, unused EduJobs money, how the “hold harmless” works. If MMSD comes out without too much damage as district (the core of the district, the employees, will be certainly suffer), we need to understand that for most districts — where these factors are not in play — things will be brutal. We have to look beyond our borders.

  2. Jeff says:

    Ed, thank you for the quick breakdown of the likely impact of the governor’s proposed budget on MMSD. I appreciate all your writings on this blog which have helped keep me informed of issues on a deeper level.

    One request: please consider hard not raising the property tax levy on Madison families. We’re already being hit very hard in the wallets with the budget repair bill. Any further increase, even a small one, will be difficult to swallow.

  3. BarbS says:

    Thanks for the quick informative summary…

  4. Jackie says:

    I would think the school board would be looking long at hard at actually DELAYING the start of the 4K program. I have to agree with a poster on a Channel3000 article that stated the school board and district should really be focusing on the education they are providing for the existing K-12 students before focusing on 4K. This is incredibly important for the schools with low income populations at 60% or higher, which I am afraid to say is probably going to be showing up in more and more schools in this district.

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