A response to the Governor

Friday, March 18th, 2011 at 9:59 am by

Yesterday, Governor Cuomo asserted that school districts could absorb his proposed $1.5 billion, 7.3 percent, cut in state aid without resorting to teacher layoffs and other actions that would hurt student services.

What follows is a response.

“Tremendous” increases in state aid?
Although this is Governor Cuomo’s first year in office, it is not the first hard year for school budgets.

The Governor asserted that schools have gotten “tremendous increases in funding over the past decade.”

But last spring, with no state budget in place in time for spring budget votes, most districts budgeted for the 5.1 percent cut in state aid proposed by then Governor Paterson, essentially the level of School Aid funding included in the ultimate state budget for 2010-11.

In 2009-10, School Aid increased by 1.9 percent – but only because federal stimulus aid averted the need for a $1.1 billion cut in aid proposed by Governor Paterson.  As expected by Washington, school districts used that aid chiefly to save over 20,000 jobs, according to official statistics.

That year, school districts also proposed the lowest average local tax increase  in seven years, despite the smallest state aid increase in six years.

Continuing austerity = harder choices
Throughout this period, districts have been trying to find efficiencies and make cuts that avoid hurting opportunities for students.  That continues.

But as the need for cuts continues, year after year, it becomes harder and harder to avoid choices which affect what schools can provide for students.

According to the State Education Department, over three-quarters of school expenditures are devoted to instruction.

Some districts have little or nothing left to cut which is not mandated.

Beyond aid cuts, school districts must also accommodate surging costs in mandated pension contributions due chiefly to the 2008 stock market crash.

This year, overall school spending rose by an average of 1.4 percent.  Our estimate is that  pension costs alone would have driven that level of increase, even if all other costs could have been frozen.

Developing school budgets voters can support
It’s also important to remember that school districts have a very open budget process.

Outside the Big 5 Cities, schools must submit their budgets for voter approval every year.  Among other things, that means presenting budgets which parents could be willing to support.

If there were easy choices, would school district leaders consider asking voters to approve budgets that would lay-off teachers, cut arts, music, sports, and advanced placement classes, and close school buildings?

Here is a compilation of media stories from all over the state about the kinds of budgets choices school leaders and voters are actually facing.

Using reserves
The Governor also points to Comptroller DiNapoli’s report yesterday concluding most districts have reserves sufficient to absorb the proposed state aid cuts.

The Comptroller is careful to note that after the coming year, “the reserves would be gone and without other actions, the expenses would still need to be addressed.”

Just as the state does not plan on draining all its reserves for the coming year, it would be a mistake for school districts to do so.

The Comptroller also notes that, “If costs increase by even a modest 3 percent, the number of districts with problems would double.”

Our estimate is that increases in pension and health insurance costs by themselves could drive school spending up by an average of 2.6 percent, even if all other costs could be frozen.  This estimate assumes increases in pension and health insurance costs similar to those the Governor’s budget projects for the state workforce.

Here is a chart illustrating our projections.

Also, the reserve estimates the Comptroller reports are based on what districts had on hand at the end of the last school year – on June 30, 2010.  Actual balances have changed in the months since.

For example, nearly two months into this school fiscal year, the Legislature and Governor imposed a $130 million School Aid reduction to help offset a shortfall federal support for Medicaid in the state budget.

The Comptroller counts as available reserves certain funds in Employee Benefits Accrued Liability Reserve (EBALR) accounts.

By law, these accounts may only be used to set-aside funds to compensate departing employees for unused leave time.  But acting, in some cases, on bad advice from accountants or vague guidance from the state, some districts put money into these accounts to pay for future retiree health insurance.  This is a looming cost the Comptroller has warned will eventually need to be funded.

We support authorizing districts to use “excess” EBALR funds to offset aid reductions.  But we also support allowing schools to save those funds to pay future retiree health costs, as the Comptroller has also recommended.

Some districts do have funds remaining from the “Education Jobs Fund” approved by Congress and President Obama last August.  They will need to use those funds this year or next.  But like reserves, they are also a “one-shot” mechanism for averting cuts.

Last, districts routinely try to use reserves to manage the considerable ups and downs in state aid, to minimize the need for disruptive programmatic reductions or local tax increases.

For example, without the sums districts included in their budgets as “appropriated fund balance” this year, they would have needed to raise taxes by an average of 6 percent more than they did, or make cuts of a corresponding magnitude.

Among the poorest districts, they would have needed to raise taxes by 14 percent more to match what they used from fund balances, or make corresponding cuts.

Districts were already planning on using reserves to help balance their 2011-12 budgets.  But our sense is that the proposed cuts in aid are greater than most districts anticipated.  Plus, the Executive Budget would shift over $250 million in special education costs from the state to the schools.

For the following year (2012-13), schools face the prospect of another freeze in state Foundation Aid, a property tax cap, and continuing large increases in pension and health insurance costs.

Administrative expenses
The Governor calls for reducing school administrative expenditures and districts have been doing more of that, for example, by sharing more overhead functions.

But in fact, even if all central office expenditures by all districts could be eliminated, it would not save enough to match the cut in state aid that the Governor’s budget would impose.

Fraud and abuse
The Governor says there is fraud and abuse in schools.  Some would be found in any collection of more than 700 organizations run by human beings.

But last year, Comptroller DiNapoli completed audits of every district and BOCES.  His office found outright fraud or theft in 19 school districts, out of the 733 audited.  Fraud and other payments deemed inappropriate totaled $25 million, equivalent to about 0.1 percent of total school expenditures, without counting New York City.

Cost and performance
Finally, in a statement, the Governor repeated his assertion that, “New York is number one in education spending and number 34 in performance.”

First, on cost:

School superintendents have been concerned about the sustainability of school spending for some time, chiefly due to rising pension and health insurance costs, and diminishing teacher turnover savings, after the cresting of retirements among baby-boom era teachers.

But New York is a high labor cost state in general.  Recent federal Labor Department data showed New York having the highest average weekly wages of any state.  Education is labor-intensive.  So it should not be any surprise that New York would rank high in education costs.

Note:  According to data reported by the New York Times, average superintendent salaries in New York are only slightly above the national average, despite the state’s higher than average cost of living and overall cost of education.  Last year, the superintendent salaries averaged $163,000 in New York, compared to $160,000 nationally.

The challenge going forward, for school and state officials, is to make changes in spending levels more sustainable.

Second, on performance:

The claim that we are 34th in performance is based on a Census Bureau report finding that that in 2007, New York ranked 34th in the percentage of adults over age 25 with at least a high school diploma.

So the measure looks at the educational attainment of people who would have last been in school more than 10 years ago, in some cases decades before that, and in some cases people who attended school in other states or nations, or may not have attended school at all.

At best, the measure is like evaluating Governor Cuomo based on something that happened in George Pataki’s next to last term as Governor.

More generally, reality is more complicated than any one measure can convey.

New York is hugely diverse, in ways good and bad.  One recent report concluded that we have the widest disparities in spending between high and low poverty districts.

New York is also home to some of the absolute best public schools in the nation.  For example, nearly a third of the 300 national semi-finalists in the 2011 Intel Science Talent Search attend public high schools In New York State.

Education Week, the national newspaper of record in education, found New York to be a leader in several areas in its most recent annual “Quality Counts” report:

  • Percentage of students passing Advanced Placement classes – 3rd
  • Overall education policy and performance – 2nd
  • Raising graduation rates – 4th
  • Closing gap between low income and other students in 4th grade reading results on the National Assessment of Educational Progress (NAEP) – 1st
  • Closing gap in 8th grade mathematics on the NAEP – 1st

The Governor and Legislature face hard choices in assembling a budget for the state.

So do superintendents, boards and voters in putting together budgets for their schools.

Nothing good can come from minimizing the challenges we share.

This entry was posted on Friday, March 18th, 2011 at 9:59 am and is filed under Finance, State Budget. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.