It’s a little early for budget season, but Sunday’s State Journal included an article by Matt DeFour that kicks off discussion of the school district’s finances for 2012-13. According to the article, preliminary numbers indicate about a $12.4 million budget gap for the district.
Here are ten quick thoughts on these preliminary figures.
1. To make sense of budget gap talk, it’s helpful to understand the assumptions behind the concept. Budget gaps are traditionally calculated within the context of a school district’s state-imposed revenue limit authority. (For the sake of clarity, it’s helpful to think of revenue limits as spending limits.). Costs are projected to go up by X millions, the school district is constrained by revenue limits to increase its spending by no more than Y millions, and the difference between X and Y is the measure of the gap that traditionally has to be bridged through painful budget cuts.
2. Erik Kass, the district’s assistant superintendent for business services, informs me that we preliminarily project the district’s revenue limit increasing about $5.4 million next year. (Since our total tax levy is about $245 million, this represents a 2.2% increase.) What is described as the $12.4 million budget gap is the amount in excess of this $5.4 million that overall spending is projected to increase next year over this year, prior to adjustments. In other words, assuming no budgetary changes, we’d expect the district’s spending to increase $17.8 million next year.
3. The budget gap calculation does not take into account the school district’s “underlevy authority,” which is the amount by which our spending this year falls below our state-imposed revenue limit. Our underlevy authority currently stands at about $10.5 million, which means we could have increased our spending by that amount this year without bumping up against our revenue limit. The $12.4 million figure also assumes an additional $4 million of underlevy authority (see discussion of 4K below), which brings the total up to $14.5 million. So, theoretically we could eliminate all of the currently projected budget gap for next year by increasing our property tax levy by $17.8 million and still be within our revenue limit. Just like the last couple of years, it seems as if our decisions on spending will be driven more by our sense of how much we’re comfortable raising property taxes than dictated by state revenue limits.
4. The $12.4 million budget gap figure does not take into account the nearly $5 million the district is projected to save as a result of the elimination of the high-cost WPS health insurance option for teachers. This change is specified in the current collective bargaining agreement (CBA) between the school district and Madison Teachers, Inc., which cannot be amended, and so the change isn’t optional. These savings will be realized.
5. The salaries for teachers and most other staff are also frozen next year, as they are this year. This also has a significant budgetary impact – almost $5 million – that the budget gap calculation does include.
6. In addition to forcing all teachers who have subscribed to WPS to switch their health care provider and freezing teachers’ wages, the CBA also permits but does not require the district to require teachers to pay up to 10% of the premium for their HMO next year. (The State Journal article, led astray by confusing information from the school district, is incorrect when it pegs the maximum co-pay percentage at 15% of premiums.) This would translate into another cut in teacher take-home pay. I am not in favor of exercising this option next year and I suspect that this view will be shared among School Board members. (I can see moving toward more of a health care premium co-pay down the road, but only in future years when we’re able to offset that take-back with an increase in salaries.)
7. One of the most challenging budgetary issues we’ll face is what to do about district employees whose jobs are funded for this year only through federal Jobs Act money. We authorized these positions with the understanding that we did not have a continuing source of funding for them. Now, we’ll have to decide which of these positions we’ll want to retain next year and how we’ll pay for them.
Here’s a chart that was prepared in November that identifies these positions:
As the chart indicates, our total expenditures on these positions this year is about $7 million. Roughly $4 million of this cost is attributable to four-year-old kindergarten teachers and staff, whom we will certainly keep. I discuss where this $4 million will come from in the next paragraph. We’ll have to make difficult decisions with respect to the other positions. The $12.4 million budget gap figure assumes that we’ll continue all of them. To the extent that we eliminate some number of the positions, the budget gap decreases. (I’m just describing the trade-off here and not recommending any particular course of action.)
8. We’ll be welcoming our second class of four-year-old kindergarteners next September. Our increased enrollment attributable to our 4K students will increase our spending limit next year by an amount that I think is about $4 million. However, our current funding plan for the program assumes that we’ll use our reserve fund to pay about $4 million of the cost of the program next year – rather than raise the funds through property taxes – as a way of evening out the cost of the introduction of the program before increased state revenues attributable to our increased enrollment catch up with our expenses. As a result of this approach, the preliminary budget assumes a $4 million reduction in our fund balance and also an increase in our underlevy authority of about $4 million, as I note above. As the State Journal article points out, though, we’ll lose about $1.3 million in state aid if our total underlevy amount increases next year over the current $10.5 million level.
9. The budget gap projection does not include any of the new initiatives to address the achievement gap that superintendent Dan Nerad will announce in a couple of weeks. I assume that he’ll recommend the use of our underlevy amount (i.e., increased property taxes) to pay for at least some of the proposed initiatives. The budget projection also doesn’t include anything to pay for, e.g., the continued expansion of the popular AVID program to the middle schools or expansion of the pilot program for dealing with middle school students with mental health issues that got underway this year. I tend to think that the additional $1.3 million in state aid is safe – we’re not going to be increasing our underlevy amount next year.
10. I very much doubt that we’ll again pass a budget like this year’s that does not include an increase in the tax levy. For comparison purposes, here are the percentage increases (and one decrease) in our tax levy for the seven years before this one:
So, over the seven years prior to this one, the median annual increase in the tax levy was 3.5% and the mean increase was about 3.2%.
Assuming no funding of new programs, we could bridge the currently-projected budget gap for next year by making use of the savings from elimination of the WPS health insurance option and raising our property tax levy by 5.2%, which would leave us with about $7 million in underlevy authority. Again, I’m not recommending, just describing. The hard choices will come this spring.