Why are so many school districts worried about insolvency?

Friday, February 8th, 2013 at 5:17 am by

Last Thursday evening (January 31), over 1,200 concerned parents, community members, educators, and school district leaders gathered for a forum titled, “Your Public Schools in Fiscal Peril – Running Out of Time & Options.” Organizers hoped for 800 and planned for no more than 1,000.

The Council’s November 2012 survey report found 9 percent of superintendents anticipating financial insolvency for their districts within two years and 41 percent in within four years.  Even higher proportions foresaw “educational insolvency” — becoming unable to fund instructional and other student service mandates.

Why do so many Capital Region residents see their schools as in peril?

Why do so many school district leaders across the state fear insolvency?

1. School districts have endured a series of tough budgets; easier budget cuts have already been taken.

• State aid was cut in 20101-11 and 2011-12 and most aid was frozen in 2009-10.  Nearly 90 percent of districts are getting less state aid this year than they did in 2008-09. Even with the increases Governor Cuomo has proposed, 80 percent of districts would still be getting less help from the state in 2013-14 than in 2008-09.  (Chart).

• Districts have been holding down spending and taxes:  over the past four years, spending increases have averaged 1.7 percent and tax increases have averaged 2.7% percent.  (Chart).

2. School districts have been drawing down reserves to spare students and taxpayers from budget actions that would have had more drastic impact. But those resources are disappearing fast.

• Half the districts in the state used more from fund balance in their budgets this year than they have remaining for use next year.

• Without the use of appropriated reserves (appropriated fund balance) in their budgets this year, districts would have needed to raise taxes by 7 percent more than they did (9.2 percent, instead of 2.2%), or make cuts of corresponding magnitude.  (Chart).

3. Some hard to control costs – especially pension contributions and health care premiums have been surging.

• Employer contribution rates to the State Teachers Retirement System are due to increase from 11.9 percent of payroll, to 16.5 percent. For nearly all districts, TRS cost increases will exceed what they would receive in state aid from the Governor’s budget or what they would generate in local revenues with a 2 percent tax increase. For roughly 40 percent of districts, this one cost would exceed the sum of both revenue increases.  (Chart).

• State government projects that health insurance costs on behalf of its employees and retirees will rise by and average of over 7 percent per year over the next three years.  (See p. 84 here).

4. There has been limited action on mandate relief, and new mandates have been adopted.

• The new “Tier VI” in state retirement systems will significantly lower school district pension costs – but only over the long term. Other significant mandate relief has yet to be enacted.

• New mandates have been imposed – for example, implementing Common Core learning standards new teacher and principal evaluation requirements.

• Some of New York’s high education costs are driven by unique laws: No other state we have found has a Triborough Law requiring payment of salary “step” increases even after a contract has expired, or a Wicks Law mandating use of multiple prime contractors on construction projects.  New York also has complex special education mandates.

5. The two major revenue sources for schools – local taxes and School Aid – are now subject to state-imposed growth limits.

• Again, just state-mandated increases for Teachers Retirement System costs will exceed what nearly all districts would receive from either of their two primary revenue sources given the state’s caps on School Aid and property taxes.  For many districts, that one cost would exceed the total revenue they would receive from both sources.

 

Our testimony at last week’s legislative hearing on Governor Cuomo’s proposed budget for education assessed how his recommendations would help schools with these financial challenges.

 

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