Consolidation: An answer, not the answer

Sunday, March 17th, 2013 at 3:00 pm by

The Associated Press reports,

The New York state budget currently under negotiation may be remembered years from now as the beginning of the end for many small towns, cities and school districts.

Gov. Andrew Cuomo had tough words Friday for local officials facing fiscal crises and seeking more help from Albany, telling them they should consolidate services, school districts or whole governments rather than looking for relief from Albany.

 The piece goes on,

 “If it was really, really tough, you’d see that happen,” Cuomo said in his strongest comments yet on the local fiscal crises. “If you are a school district, or a city, or a town or a county, and you are looking for a fundamental financial reform, consolidation is one of the obvious ones.”

Consolidation is an answer to some financial challenges and should be one of the strategies available to manage fiscal threats.

But it is not the answer for all situations, and it is no answer for some of the most financially troubled communities.

Merging two small, desperately poor jurisdictions produces one larger, desperately poor jurisdiction.

School districts which merge do get a greater reprieve than local governments, because the state does provide generous financial incentives to encourage school district consolidations.

But after the incentives disappear, the reality re-emerges that permanent revenues do not match permanent expenses.

Also, consolidations typically have not produced upfront savings, because reductions in administrative costs are more than offset by the practice of leveling up compensation of the merged workforce.

Geography presents an insurmountable obstacle in the region where financial fears are most prevalent and most urgent.

In our 2012 comprehensive survey on financial matters, 25 percent of superintendents in the North Country said their districts could become financially insolvent – unable to ever meet some financial obligations – within two years.

In that same time span, 50 percent of the North Country foresee their districts becoming educationally insolvent – unable to fund all instruction and student service mandates.

The average North Country district is 179 square miles, compared to less than 20 square miles downstate, and 80 square miles elsewhere upstate.  For perspective, New York City is 322 square miles, so merging typical North Country districts would result in the need to bus children around districts greater in territory than the City of New York.

In recent years, the real obstacle to consolidations of both school districts and local governments is that voters resist them, a point made in the AP story and one I explored in a blog post more than a year ago.

I observed that if one believes voters are making the wrong decision about consolidations, three solutions are available:

  1. Give the voters better information, in the hope they will recognize the advantages of consolidation;
  2. Provide stronger incentives to approve consolidation – or consequences for rejecting it; or
  3. Take the final decision away from voters under some circumstances.

State government would address at least the first two points by answering the question, “What happens when a school district becomes insolvent?”

The question came up again yesterday when colleagues from the State Education Department and New York State United Teachers and I were addressing a statewide gathering of PTA members.  Currently, state law provides no mechanism for a school district to declare bankruptcy.

Also, past ad hoc state interventions in troubled school districts and municipalities are not entirely pertinent to emerging crises.  Most often, they were directed at helping a locality recover from an episode of mismanagement or a one-time financial disruption.

Current insolvency threats are more structural and enduring  – revenues and expenses may never again match.

Giving local leaders and voters a clear answer to what will happen if a district becomes insolvent might make consolidation a more tolerable option to those voters.

But to focus only on constructing a remedy for insolvency would be like confronting a flu epidemic and saying, “If people get pneumonia, we’ll help them, but we’re not going to do anything to prevent them from catching the flu or from having it progress to pneumonia.”

A theme we have stressed is that current financial alarms arise not from the state budget for the one year ahead, but from forces that have accumulated and accelerated over many years, including local budget cuts already made to accommodate past state aid reductions, as well as surging costs for pensions and health insurance.

The Governor’s proposed budget for the coming year would increase the state aid districts can count on in assembling their local budgets by 3.8 percent.  The final budget will improve on that.

But in this current year, 87 percent of districts are receiving less help from the state than in 2008-09.  Excluding reimbursement for construction costs, only 10 of 676 districts are getting as much state aid as four years ago.

Mandatory charges for teacher pension contributions will absorb the full sum of both a state aid increase plus a 2 percent local tax increase for many districts.

The Governor’s proposed stable contribution rate proposal would offset over 80 percent of this cost.  Variants of it have been included in both the Assembly and Senate one-house budget plans.  But it has been questioned as risky for the retirement systems, and cannot go forward without approval from the Teachers Retirement System board and the State Comptroller, even if enacted into law.

The AP story quotes David Albert of the School Boards Association noting that about 20 districts are studying mergers right now.  That sounds on target — we have seen an expansion of interest.

There are actions the state could take to facilitate consolidation and regional collaboration.

The requirement for a “straw vote” in advance of the actual merger approval vote should be eliminated.

Allowing district territory to be divided between neighbors could help with geographic obstacles to mergers, although it might provoke even more resistance from voters.

Regional high schools should also be authorized, as recommended in the Senate’s budget and in the preliminary report of the Governor’s Education Reform Commission.

 

This entry was posted on Sunday, March 17th, 2013 at 3:00 pm and is filed under Finance, Legislation, State Budget. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

Tags: