State Aid Cuts Out; Deeper than Expected

Yesterday the Department of Public Instruction (DPI) released its estimate of general aids to school districts.  Of course, the disclaimer on this has to be that these estimates are based on information available as of July 1, 2011, and are subject to change.

   DEPARTMENT OF PUBLIC INSTRUCTION

11-12 JULY 1 ESTIMATE VS. 10-11 OCT 15 AID CALCULATION

                                                TOTAL GENERAL AID ESTIMATE
                                                                                       
                                                13    DISTRICTS THAT INCREASE             1,073,642
                                               410    DISTRICTS THAT DECREASE          -399,800,040
                                                 1    DISTRICTS WITH NO CHANGE                    0
                                                                                  =================
                                                                                                                    -398,726,39
Read them and weep.

Recall that Gov. Walker's budget called for an 8.4% decrease to school funding.
These data reflect an average decrease of 9.1%.
For a dataset this large, and with this variability, the median is a better value to focus on than the mean (average).  For the 424 school districts, the median decrease in state aid is 10.13%.  In fact 230 out of the 424 districts received a cut of exactly 10.13%.

73% of districts had their state aid slashed by MORE than the average.

Is Walker's plan really working??

Statewide, School Portion of Property Taxes Rises 3.4%

In a report by the Wisconsin State Journal, the school portion of property taxes increased 3.4 percent this year. This represents the smallest change since taxes dropped a half a percentage point in 2006.

The average school tax rate is $9.11 for every $1,000 in property value. That is up 55 cents from last year.

The report says part of the reason for the increase is a 3 percent drop in the value of property taxed.

Nearly $4.7 billion was levied in taxes by school districts this year. That is 1.6 percent below the maximum that could have been sought under the law.

http://host.madison.com/wsj/news/local/education/local_schools/article_2d1010a8-0ac8-11e0-9602-001cc4c03286.html

Post Election Observations

OK...so the mid-term elections are in the can.
We have a new governor. We have a complete change in leadership in the government.

50 Lashes for State Employees
State employees are bracing for a firestorm. Scott Walker has preached for months that state government is simply to porky. He's talked about cutting positions (hopefully mostly ones yet unfilled). Several articles have talked not about maintaining furloughs, but INCREASING the number of furlough days. There are rumors of across the board wage cuts (although such a move must come via union negotiations). There is serious talk about carving deeply into employee benefits, including state payment of retirement contributions.

One cannot balance the budget on the backs of state employees alone. Sure salaries and benefits can be cut. Furlough days can be handed out. But what those eyeing things from the 50,000 foot level seem to miss is the fact that state employees are taxpayers as well. Cut their salaries? Give them unpaid holidays? That adds up to less income and that means less revenue for the Department of ...well...revenue. One can't be taxed upon what one does not earn. Funny how that works. All we hear is that we need to "get people back to work". Doesn't more furlough days mean NOT going to work?

Our personal favorite is the effect of furlough days on the thousands of state employees that are not even paid out of the state coffers (called General Program Revenue, or GPR). What many do not understand is that The state saves no money on the front end and actually LOSES money in the form of income taxes. Sheer brilliance. Of course, as our outgoing governor believes, we have to treat all individuals alike...apparently even if it hurts the state to do so.

How does this impact school districts?
That's the $64,000 question...isn't it? Certainly, less revenues collected by the state means less money available for school districts in the form of state aids. That's a fact. So...if the new Guv cuts state employees off at the knees, there will be a negative effect on state aids.

The new Guv is not necessarily a believer in spending money on education at all costs either, now is he? We have heard talk about loosening the restrictions on how one gets licensed to teach. That could open up the teaching profession for a lot of folks. Supply and demand folks. When the supply of teachers is high, how do you suppose that affects the demand for salary?

Why 0% increases May No Longer Mean a 3% increase
Many districts have cut way down on salary increases this year. Funny how a sour economy works that way. Sun Prairie has already cast in stone a 1% salary increase paired up with increases to the employee paid portions of health and dental insurance for administrators and administrative support staff. Local 60 is in contract negotiations right now. Care to guess at the salary increase figure that has been tossed out as part of those negotiations?

Teachers are next. This winter/spring, negotiations will begin on a new teachers contract. It would seem that the writing is fairly indelibly etched on the wall. Logic would suggest that a 1% increase is on the table. GASP! Only a 1% increase? But those teachers won't be able to put food on the table! Don't cry for them, Sun Prairie. The truth is we never leave them empty handed. Raise your hand if you knew that based on the standard "salary grid" that teachers receive an automatic salary increase of 3% every year?

Didn't think so. That's right, folks. How many of you have it built into your contracts that even if management gives you a 0% increase in tough times, your salary automatically increases by 3% anyway? Not to be repetitive but...didn't think so.

Solving the Problem
We've all (hopefully) heard the gloom and doom about NEXT YEAR's expected double digit tax levy increase. Wanna guess what that means for a mill rate increase? If we're going to beat that down, people, it has to start with these contract negotiations. Perhaps its time to end the automatic 3% increases? There is no question that entry level teachers are underpaid. So...we need to raise the floor. But there is likewise no question that it's simply fiscal lunacy to be paying kindergarten teachers and elementary school librarians more than $80,000 per year. So the ceiling has to come down as well.

Self-Serving Interests
What we always find interesting is that complexion of any bargaining teams is generally heavily weighted with those union members that have more seniority. Hmmm...you don't suppose that that would lead to sacrificing the needs of less tenured members to ensure big salaries for senior members? We're just wondering...

Stay tuned...

Will State Superintendent Tony Evers' School Funding Plan Work?

Admittedly, State Superintendent Tony Evers tells us that he has withheld the intricate details of his plan. His hope is that over the summer, people will at least get talking about school funding. Mission accomplished, Mr. Evers; you have our attention.

Evers points out that about $900M in school tax levy "credits" is given to municipalities to lower property tax bills. If it were split evenly to the approximately 450 public school districts, that would amount to about $2M per district. Currently, Sun Prairie, a larger school district, gets about $4.4M. Of course the credit would not be equally distributed.

Evers' plan --at least the extent of which he has shared is essentially based on returning the "School Tax Levy Credit"-- which you may or may not recall seeing on your property tax bill-- where it belongs: schools. Presently, the school tax levy credit dollars are paid from the Department of Revenue directly to municipalities, who in turn apply it, according to a formula, to each property owner's property tax bill. School districts see not one thin dime of that money--although the money is "counted" as a state aid towards schools. Evers' plan is to instead pay out that money directly to school districts, who in turn will apply it against their budget to reduce the tax levy.

With that as a very basic lead-in, and understanding that none of us knows exactly what Mr. Evers has in mind just yet, let's see if, on the surface anyway, it passes the smell test.

* DISCLAIMER *

We are using real numbers, but applying them as best we can tell from information we have at this time. Until we get detail from Evers, this remains conjecture, not fact. The numbers are factual; the way they are applied may change once we learn the details of Evers' plan. We are also simplifying it by using ONLY City of Sun Prairie numbers. In theory, we should be entitled to a larger pool of school tax levy credit dollars from based on a portion of tax levy credit provided to other municipalities within the Sun Prairie School district.

Superintendent Evers wanted to generate discussion. This is our 2 cents.

What are the key numbers?

• In December 2009, for the 2009-10 school year, the City of Sun Prairie received a little over $4.4M in school tax levy credit.
• The Sun Prairie school district's "average" home (which they have used for years to demonstrate Referendum impacts is assessed) at $255,400 for 2009.
• This "average" home paid property taxes of $5,546.85 for 2009.
• This "average" home received a "School Tax Levy Credit" of $455.09 for 2009.
• The effective mill rate "credit" of the school tax levy credit was $1.78 per $1,000 assessed value.
• The actual -after credits-- Sun Prairie school district portion of the property tax for our average home was $ 2,556.94
• The after credit effective mill rate of the SPASD portion of property taxes (for all SP homes) was $10.01 per $1,000 assessed value.
• The 2009 tax levy for SPASD was $ 44,249,461.

Key Assumptions

1. We remove the school tax levy credit ($ 455.09).
2. We reduce the tax levy by the amount of the Sun Prairie school tax levy credit ($ 4,430,336)
3. This reduces the tax levy required by the same amount to $ 39,819,125.
4. Using the re-calculated $ 9.01 effective mill rate, the new SPASD portion of the property tax for our average home is $ 2,300.93.
5. All other property tax portions remain the same.

The Result

Based on the assumptions above, the property tax for an average home in Sun Prairie actually INCREASES by just a hair under $200, or a 3.6% increase from what this average homeowner actually paid.

Does it really help the schools?

Again, we lack the details of Evers' plan because he has not released them. On the surface, it would seem that there is simply a trade-off as the tax levy needed to run schools is reduced by the amount of the tax levy credit. If the plan calls for just simply giving the tax levy credit directly to the school district as an additional state aid, then we're just substituting tax levy dollars with levy aid dollars. No new revenue is being generated. It's the same revenue, with more coming from the state.

Why it doesn't appear to work

Two big reasons:

1. Unless the plan allows for more spending (increases revenue limits), it has a net zero effect on schools.

2. It actually INCREASES property taxes -- at least for Sun Prairie under this scenario.

Go back to one key figure: the effective mill rate of the school tax levy credit - $1.76.

Now consider that the SPASD portion of the property tax bill is reduced by $256.01. That amount translates to an effective mill rate credit of only $1.00. That means that by trading away our school tax levy credit for the ability to directly apply the entire credit against the district's tax levy, we are effectively trading away a $0.76 mill rate credit. That's a loss of $76 per $100K home value.

The reason for this MAY be the missing piece of the Evers plan. Because Sun Prairie's tax levy is so high: $44.25M, the net effect of the tax levy credit ($4.3M) represents only a 10% reduction to the tax levy. However, the school tax levy credit for our average homeowner, $455 represents a 17.8% decrease in the school district portion of average homeowners tax bill.

What We Don't Currently See in the Evers Plan

What seems to be missing is how exactly this plan gives more money to schools. With the information we have at this time, it appears that Evers' plan simply trades one dollar source for another. The tax levy credit actually has more value to a property owner when it comes directly off the top rather than after it is diluted by the overall tax levy.

Of course, that depends on the absolute value of the tax levy, wouldn't it? For instance, if the school district tax levy was only $4.3M - the same as the total value of the tax levy credit-- then the adjusted tax levy would be zero, meaning the school district portion of the property tax would be reduced to zero.

Where's the Spendability?

What's missing from the Evers Equation is the basic spendability. If he wants to provide more money to schools, then the plan has to be more than just placing the school tax levy credit on a different line of the property tax bill. In short, the money allocated to municipalities to reduce property tax bills must be ADDED to each given school district's revenue limit. That's the only real way that "more money" can be given to schools. They have to be able to SPEND it. And, that, folks is scary monsters with the captains we have at the helm.

What does Raising the Revenue Limit Mean?

Remember the old "See Dick. See Dick run. Jane likes to watch Dick run" book?

Here's an updated version.

See the Revenue Limit.

The Revenue Limit "limits" how much a school district can spend.

See Revenue Limit expanded.

See school district budgets expand as allowed by expanded Revenue Limit.

School district budgets are 80-85% personnel costs.

See school districts hire more people and pay them even more ridiculous salaries and raises.

See Dick lose his school tax levy credit.

See no change to the school district portion of Dick's property tax bill because the school district won't be taxing any less.

See Dick's property tax bill go way up.

See taxpayer Dick take it in the shorts.

Education Reform through a People's Mandate?

We can't help but wonder if all the actions that have occurred in recent months are not part of some quiet plan to bring school reform ever closer to an event horizon.

Event Sequencing

• Fall 2008: The country --actually the world wide-- falls into a deep recession.
• Winter 2009: Massive bank failures
• Winter 2009 to present: Huge workforce reductions, businesses collapse, salary reductions and furloughs for remaining workers.
• Winter 2009 to present: Hard times and questionable bank loans lead to unprecedented foreclosures.
• Spring 2009: As tax revenues roll in, government realizes that due to people not working, or reduced salaries, tax collections are down, causing massive budget gaps.
• Spring-Summer 2009: To balance state, county, and municipal budgets across the nation, governments focus on furloughs and repealing contractual specified salary increases. Governments also realize that with deeper cuts necessary, even schools must be targeted. In Wisconsin, the governor repeals the QEO--part of the infamous 3-legged stool of school finance-- effective July 1, 2009.
• Spring-Summer 2009: As school districts set their budgets for 2009-10, they come to grips with reduced state aid. So who picks up the shortfall? There are only two options: make deep cuts to budgets which are typically comprised 80-88% of employee salaries and benefits. So...do districts cut staff? Reduce staff? Cut Programs? Or pass the costs on to tax payers via property taxes?
• Summer-Fall 2009: As districts across the state complete bargaining agreements with their staffs, a singular theme emerges: RAISES! In Sun Prairie, contractual raises (as a package) were at least 3.8% , while other jobs statewide faced layoffs, furloughs, and pay cuts.
• Summer-Fall 2009: School budgets and Tax levies are due by November 1st. All across the state, statutorily mandated "annual electors' meetings are held, where the "people" determine the school tax levy. In many districts across the state (Google it!) taxpayers, like those in Sun Prairie, are coming out in force and doing what (most) school boards will not do: reduce the tax levy.

Are we nearing an event horizon? If the government can no longer afford to fund schools at former rates (nearly 2/3 funding), then WHO picks up the slack? Wisconsin is quickly becoming one of the leaders in property tax rates. Can we continue to pass school costs off in the form of taxes to homeowners?

We don't be-grudge teachers and administrators from pushing for more pay. Who are we kidding--don't we ALL believe we deserve a higher salary? But the simple reality -- and this extends beyond Sun Prairie and Wisconsin, it's a national problem-- is that salaries and benefits have to be commensurate with both the job, and the ability of the corporation (the state, the taxpayers) to pay.

• We have a problem when kindergarten teachers can retire with a salary of just under $80,000.
• We have a problem when these salaries are based on only 180 (give or take a couple) days when the rest of us on "standard" pay schedules (2,080 hrs/yr; 8 hrs/day) work 260 days. That's 80 fewer work days! That's a 30% reduction!
• We have a problem when district administrators earn more that the state governor, himself.
• We have a problem with a system that forces any cost savings in benefits such as health insurance costs be made up by increasing salaries.
• Yet we also have a problem when young, right-out-of-school teachers earn less than $30,000.

Now, there are those that will leap forward and say that teachers work all summer long. Sure...some do...particularly the "newbies" who haven't developed a game-plan. To those people, we'd say, "Who are you kidding...yes...some of you DO put in more than 180 days. But that's also true for those "regular" salaried workers who frequently put in more than 8 hours a day, working nights and weekends to do their job." We'd also tell them to "do the math": many of us either know or are related to someone in, the education profession, and we know that not nearly as much time outside of the classroom is spent as is claimed. And, yes, teaching and administration staff do take time to further their education-- some of which is mandatory. But you also get (at least partial) tuition reimbursement for that, and, in most if not all districts, a salary increase once you obtain a certain number of credits. In Sun Prairie, every 6 credits earned (that's TWO night classes, or even on-line classes) earns staff a 2% increase on the salary grid.

Folks, we need reform. The answer is not to take money from "fund balance" to balance the budget. We know that. Memo to school board members: contrary to popular belief, we are NOT stupid! It's time to start managing this business of educating our kids. If the budget is comprised 85% of salaries and benefits, then can you guess what needs to face the axe first? Don't even THINK about those tired and worn scare tactics of cutting programs, clubs, or athletics. Pull out your OWN wallets first. No one is saying you have to have your salaries cut such that you end up on skid row. But they WILL have to be frozen first, and then cut. It';s what the rest of the world is doing.

One final note is that everyone in the education business needs to step outside of their shoes and look respectfully at the rest of the world and ask a few questions.

Ask Yourself This:
It always seems to come down to quiet, private discussions about the net worth of a particular job.

• Are teachers at private/parochial schools (look at our own Peace Lutheran, or Sacred Hearts) doing any less work for a far lower salary/benefits package?
• Are the jobs of police and emergency positions - who earn far less in salary/benefits-- any less important than teachers/administrators?
• Are the jobs of those that treat the very wastes that you dispose of every day- who earn far less in salary/benefits-- any less important than teachers/administrators?
• What about the farmers, that grow the food you eat?
• There are an endless number of similar comparisons. We think you have the point

The endgame is crystal clear. Somebody has to start the ball rolling. It's time to be leaders.

We're just sayin' what most of you are already thinking. For whatever reasons, however, you don't say it publicly. That needs to stop, too. Are you just DYING to see how Dr. Culver will subliminally rebut this in his InspirED blog?

Why NOT use Fund Balance to lower the mill rate?

The school board keeps telling you that they must not use fund balance to lower the mill rate because it adversely impacts our bond rating, making it harder or more expensive to borrow money. Wait...aren't we DONE borrowing large amounts of money after this last set of bonds for the final phase of high school construction?

The school board's own policy says that there is money available in fund balance.
School board policy #DIBA, UNRESERVED, DESIGNATED FUND BALANCE says,

" The Board’s goal for the unreserved designated fund balance shall be ten percent ( 10%) of the annual proposed level of expenditures. All unreserved, undesignated funds shall be used for this purpose. "

Hold on...if there was $8,003,169.28 in the general "fund balance as of 7/1/09 (page 21 of the annual meeting booklet

...and the projected expenditures for this year are: $68,825,330.00 ((page 21 of the annual meeting booklet

...and 10% of that figure is $6,882,533

...then that means that they could use about $1,200,000 of fund balance to lower the tax levy (and mill rate) while still be meeting their "goal". And isn't a "goal" something one strives for (rather than MUST achieve)? And fund balance IS a "rainy day" fund, and folks, the economy suggests things do not get much rainier.

What does DPI say about how large fund balance should be?
How Large A Fund Balance?
Determination of an appropriate fund balance is a critical factor in district financial planning and budgeting processes, but it is strictly a local matter. The Department of Public Instruction makes no recommendation regarding the amount a district should have as its General Fund balance, except that the department encourages districts to seek legal counsel should they contemplate budgeting for and/or operating with a negative general fund balance.
As part of the budget process, the board must determine fund balance amounts to be:

• retained for working cash needs, recognizing that the working cash fund also serves as district's contingency or "rainy day" fund.


• used to fund expenditures of the next fiscal period, recognizing that if used for recurring expenditures, future budget decisions will revolve around finding resources to continue funding these expenditures.

The most commonly asked question regarding fund balance is how large should it be? Perhaps the best answer would be: "an amount sufficient that short term borrowing for cash flow could be avoided and would also allow the district to set aside sufficient assets to realize its longer range goals." However, this may not always be practical or politically possible. The school board must make a policy decision as to the extent they will borrow for cash flow rather maintaining a working cash balance.
- Wisconsin DPI on Fund Balance

Tarnished Deeds: When SCOs Go Wild

The 2009-10 school year began this week. Eastside elementary kids were greeted by wonderful new playground equipment, funded by "ESCO", the Eastside School-Community Organization. That's a great thing....right? A success story? Sadly, there's more here than what you hear from the school district. And when you dig a little bit, things really begin to stink.

There is a LOT of detail to this story, so let's start you off with the summary of our findings.

► There is no evidence to refute that the new Eastside playground equipment was at least in part financed by inappropriate "class fees".

► Class fees represent a double tax for parents. The school district budget, which is paid by state aids and property taxes, should cover ALL classroom/student needs.

► Class fees represent an inequitable financial advantage for a school. We could only find evidence of this practice at Eastside.

►The school district and school board SHOULD have been aware of this situation (were they?)and nipped it in the bud.

►There is crystal clear evidence that principal Coulthart, deputy district administrator Phil Frei, and 3 school board members (McCourt, Shimek , and Slane) SHOULD (arguably MUST) have been aware of these class fees--and done something about them.

►The transparency of government becomes clouded-- to say the least-- when SCOs do not have to provide financial accountability for their revenues.

►Board member Jim McCourt is constantly prattling on that teachers who are not getting things they need should speak to school board members--and that such a need doesn't exist. They shouldn't HAVE to, Jim. You were present at the ESCO meeting last fall when class fees were discussed: how much, and the fact that they paid for things teachers need but don't get.

---

SP-EYE: Ponder that for a bit. We'll be presenting all of the DOCUMENTED FACTs on this issue a followup. There are some many layers to this issue that it needs to be peeled slowly...like an onion.

Take out all the subplots and it boils down to 3 main issues:

1. The idea of "voluntary" class fees to supplement teachers in their classrooms is fundamentally a bad idea. The school board needs to take action to stop this practice permanently.

2. Too many administration and board members had to have their heads in the sand to NOT know this was going on. This is one of those "Have you stopped beating your spouse" questions. No matter how you slice it, it comes down to, "Were you that clueless? Or did you look the other way?" And, if it was the latter, then did you pull a Pinocchio when asked directly about the fees?

3. The perceived need for class fees to purchase things which teachers need to do their jobs, passively supported by administration, lends credence to arguments that the 2009-10 budget should not target classrooms for 5% cuts.

Open Enrollment- a Closer Look

A special thanks to one of the "WE" for putting this together.

The Wisconsin State Journal recently put togetheran article, that appeared on the front page regarding Open Enrollments in Madison Area schools(Open enrollment numbers for all Dane County school districts). For those who don’t know what Open Enrollment is and its effects on a school district, we can help. Open enrollment is when a student applies to attend a school in a different school district than where they live.

This is done for a variety of reasons; but the focus of the article was the Madison Area School District and their increase in Open Enrollment requests. The report suggests that the primary reason that students open enroll OUT of the school district where they live is because their home district is not meeting their needs and they are dissatisfied. From our experience the report is dead on with this assessment.

So what is the big deal with kids leaving a school district via Open Enrollment? First, when a student leaves the district for another district that student takes with them the funding that is provided by the State to the district to pay for their education. It’s a loss of revenue to the tune of roughly $10,000 per year/per student! Second, if a school district has a high number of students leaving under open enrollment it may be a sign of some problem in the district that is causing the students' parents to seek a different school somewhere else.
[SP-EYE: Anyone ever catch that short-lived Animal Planet series about an ER doctor specializing in snakebite victims? His tag line was "time is tissue". With open enrollments, the tag line is "losing kids is losing money"]

Back to the Madison Metropolitan School District. They are so concerned that their Open Enrollments out of the district are increasing they decided to survey the parents their reason behind the decision. What a novel idea! It seems like MMSD is saying, “Let’s see what’s going on to see if there is something we can do better or if it is just a trend that is beyond our control.”

So where does the SPASD fall compared to area school. The article places SPASD second in terms of net efflux from the district. The only difference here is that Sun Prairie seems to just accept the fact that there are some dissatisfied students and parents that are looking in other places for their needs. Unfortunately with the outward movement of these students so goes the money.

I’m sure the district will spin this as something that is inevitable [SP-EYE: We're taking bets that Dr. Culver will offer a spinning rebuttal in his District Super Adminisintendentrator comments at the June 8 school board meeting. Odds are 7-2, any takers?] and that there are students coming into the district under open enrollment that offsets the net loss. That might be true to a certain extent but wouldn’t it seem prudent to do as the MMSD did and survey the parents of students open enrolling out of the school district to see if there is some common thread or reason why they are leaving the district? Perhaps there is something that could be done to minimize or reduce the movement of students out of the district? I guess we will never know because the School Board and district Administration have talked about surveying these families for the last two years but it is nothing more that lip service to those who express concern over this issue.

The taxpayers of this district should demand that the school board, our elected officials, should require that the district survey the parents of students that have open enrolled out of the district over the last three years to see why they are doing so. Further the DO should be contacting the parents who have pulled their students from the SPASD and are now enrolled in private schools (another way the district loses state funding).

Unfortunately we think the issue comes back to the old adage, “Don’t ask a question if you really don’t want to know the answer.” After all what do you think the parents would say in their survey response that left the school district after the latest boundary change? We are pretty sure we have an idea and it is nothing that is too favorable of the school district. Our take on this is that while the district has a tremendous pool of teachers and support staff most residents are dissatisfied with the get-what-we-want-at-all-costs administration and spend-happy school board.

So it goes with SPASD, highlight and embellish the positive things in the district and bury the negative. If you are concerned over lost revenue and increasing taxes please contact all of the school board members and request that they have the school district do a detailed and meaningful survey of parents who open enroll their children out of the district and address the things in their control to stop the bleeding and the exodus of students from the district.
To contact the school board with your thoughts on this issue use the e-mail links provide in the menubar on the right.

N

Quid Pro QEO

As we get closer to post-QEO life, school finance and the QEO are hot political topics. We've talked about the QEO in generic terms, but the devil is always in the details. How does the QEO work (or not)? That's the question we hear a great deal. A good beginning to such a discussion, is an informal comment from board member Terry Shimek, who said, "The fate of the QEO is really a non-issue for Sun Prairie because we [the board] have never issued a QEO-based offer."

Mr. Shimek is correct. Since the QEO was established, Sun Prairie educators have not had to come face to face with what the QEO means. Some people see the QEO as simply a means to cut or rigidly control the rising cost of salaries an benefits. Can it do that? Sure. But the QEO is merely a tool, not a panacea. And issuing a QEO-based offer has far reaching long-term ramifications.

To better understand the QEO, we have to first look at the rules behind it (that are not simple, by any means). Then we need to look at an example. First off, why have the QEO? The answer was stem the rising costs of salaries and benefits that were occurring in the late 80's and early 90's. According to the Wisconsin Association of School Boards, average annual raises for teachers dropped from 6.5% for salaries and fringe benefits in 1991-1992 to 3.6% for 1996-1997. The Wisconsin Education Council claims that since the QEO was first applied in 1993, salary increases have averaged just 1.6% per year. ( http://www.mtalliance.org/faq.htm). The QEO is/was a means to basically make the infamous offer that could not be refused. Making a QEO offer eliminated the threat/concern of going to binding arbitration. Under law, if the two sides can not reach agreement on a contract, negotiations go to binding arbitration. Binding arbitration is scary for both sides because the two sides basically turn in their final offers and an independent arbitrator decides which one is "it". (S)he who hath brought forth the fairest proposal wins. That, mes ami, is a high stakes game of chicken.

Once again, fair warning, we're providing a stripped down approach to facilitate understanding.

So...what are the rules of the QEO?
1. Fringe benefits and contribution percentages must be maintained.
The district must maintain both the existing employee fringe benefits package and the district's percentage contribution effort to that package. So...benefits cannot be reduced, and if the district is trying to increase the percentage of employee contributions to things like health care, then the QEO is NOT an option.

2. The typical "step" increases that result from another year of teaching experience must be funded, to the extent possible based on the rules below. Sun Prairie includes step progressions of 3.0%, 3.3%, or 3.6% increases, depending on whether a teacher is in the "Bachelors", "Masters", or "PhD" lane of the funding highway.

3. The 3.8% rule. For a QEO offer to be valid, step one is that the offer must result in a 3.8% increase to the "total package" (the total cost of salaries + fringe benefits). A QEO offer has two components, the fringe benefit component, and the salary component. Fringe benefits must be increased at least 1.7% and salaries must increase at least 2.1%.

4. The 1.7% rule: fringe benefits. The district must provide for a benefit package increase which is at least 1.7% of the "total package". If the cost of maintaining current fringe benefit package is LESS than 1.7%, then the "savings" must be reflected in an increase to the salary portion of the offer. The 3.8% must always be maintained. So....switching to a different health care provider may make sense logically, but the district doesn't really save any money, as the savings are passed on to the other component of the QEO offer. For example, if switching health are providers actually results in a net 1% decrease in the cost of fringe benefits as a %age of the total package, then the salary component of a QEO offer would have to be 4.8% (-1.0% + 4.8% = 3.8%).

Conversely, if the cost of maintaining fringe benefits rises above 1.7% of the total package, then the salary portion begins to be gnawed away. If increasing health care costs mean that the cost of maintaining fringe benefits results in an increase of 2.5% to the total package, then the required salary increase component drops to 1.3%. Maintaining fringe benefits always comes first.

In a worst case scenario, if the cost of maintaining fringes exceeds the magic 3.8% mark, then the law allows the district to adjust the salary "grid" --for a 12-month period--to reflect a salary reduction for teachers. The amount of the reduction would be the amount necessary to offset the fringe benefit cost increase in excess of 3.8%. Just as those teachers with more tenure and in the higher "lanes" earn progressively more in salary, they stand to lose more (dollar-wise) in this worst-case scenario.

5. The 2.1% rule: salaries. This rule is to a large extent governed by the fringe benefit rule as outlined above. Barring an huge increase related to the cost of maintaining fringe benefits, the salary component of a QEO offer must reflect at least a 2.1% increase to the "total package". If the 2.1% cannot be offered due to fringe increases, then the first priority defaults to funding the annual step increases according to the rules established by the existing contract.

6. Pay the step increases, then provide "raises". If there is insufficient salary funding generated under the QEO to provide a full single step increase for each eligible employee, the amount of the required step increase must be prorated. The salary funds generated under the QEO that remain once the employer has provided for all step costs must then be used to fund general salary increases for all eligible employees in the bargaining unit.

7. The QEO means status quo; no lane reductions, no cutting steps . The salary range structure, number of steps, requirements for attaining a step, or assignment of a position to a salary range may not be modified unilaterally under a QEO. However, a school district employer and its represented professional employees may, by mutual agreement, decide to alter the existing salary range structure, number of steps, requirements for attaining a step, or the assignment of a position to a salary range. So, basically, if you want to change the grid, the QEO is not an option.

8. No penalty for changing lanes. Since July 1, 2001, the costs associated with any salary increases to eligible employees due to a promotion or the attaining of additional professional qualifications (generally referred to as "lane" progression) are no longer included under the salary component that must be funded within the QEO. As a result, any such amounts represent additional costs to the employer that are funded outside the QEO. This means that any teacher that has attained the necessary credits or degree to "change lanes" within a salary grid must be provided with the additional compensation associated with that move, and the cost of funding that increase is NOT a part of the QEO offer. That remains additional cost born by the district (and taxpayers).

In reality, most school districts do not stay within the QEO, agreeing to settlements in excess of the 3.8 percent limit. The WASB (Wisconsin Association of School Boards)reports that the average total package of salaries and benefits was 4.29% during 2006-07, 4.25% during 2005-06, and 4.31% during 2004-05. The percentages are higher than the rate of inflation, and more than likely are greater than increases provided in the private sector. (http://www.legis.state.wi.us/senate/sen28/news/Press/2007/col2007-001.htm )

WI School Funding 101

Now that the guv's budget plan has been released, we keep hearing rumors that the QEO might be lifted, or that revenue caps might be eliminated. One thing is certain is that Gov. Doyle has spoken strongly of a commitment to education. [Has anyone ever heard of a Governor being OPPOSED to education?] The discussion of the QEO and revenue caps is always an interesting one because the average Joe (and a many school board members, we think) doesn't really understand how schools are funded. And with school funding, the devil is in the details.

Fair warning: We don't profess to be experts, but we'd at least like to take a crack at summarizing the key issues and then point out some places where you can obtain more detail. This is designed to be a view from about 20,000 feet up, not a doctoral dissertation on the subject. Phil Frei is correct when he says that there's a ton of detail involved in these calculations. We run the risk of over-simplifying by limiting the discussion to major points vs. the minutiae. But we think the risk is worth taking the plunge.

2/3 Funding
Basic premise is that the state funds 2/3 of education costs. In reality, typically amounts to a maximum of about 55% because the “2/3” includes the “School Levy Credit”
which is paid directly to property owners. In Sun Prairie, the property tax levy accounts for about 52% of the "General Fund", which actually funds tthe education process itself. That means that we obtain only about 48% of the annual education costs in the form of "equalized aid" from the state.

The 2008-09 budget for Sun Prairie is a whopping $111.3M--but about $32M is for current construction projects . Of that total, thye main piece, $65.2M, is for the "General" fund, and about $30M of that comes from equalized aid from the state. In addition to the $65M, two other principal components are: Debt Service (pay for buildings)-$8.7M, Food Service- $2.3M

Districts with lower than average property values actually can receive >2/3, while “property-rich” districts receive less. "Property rich" districts, of which Sun Prairie is one, will typically receive what is termed "negative" tertiary aid.

Revenue Limits
Designed to control property taxes by limiting the amount of the tax levied by a school district. Further broken down into primary (first $1000/pupil funding), secondary (funding per pupil up to ~$8,300, and tertiary aids. Property rich districts (those with property value per pupil in excess of state average) actually lose funding -- known as "negative"tertiary aid. Sun Prairie is a "negative tertiary aid" district.

The biggest factor in determining the revenue limit is the number of students enrolled (as with everything else, there is a complicated calculation to obtain this number) and the number uses a 3-year average. Therefore, if a district adds 400 new students in a year (like with the 4K program), the revenue limit will only be increased based on 1/3 of that in the first year.

You can see why districts with declining enrollment are in serious financial trouble. Declining enrollment means a reduction in the revenue cap, and students don't decline in a manner that an equivalent number of teacher positions could be cut. This frequently leads districts to increase class sizes. Sun Prairie, of course continues to enjoy a bit of a luxury with steadily increasing enrollment. At some point, however, that enrollment will level off and eventually may even decline.

A school district can exceed revenue limits temporarily or permanently through referendum.
Sun Prairie had a referendum to exceed the revenue cap for 4-5 years when Horizon was opened. The recent pool referendum will allow Sun Prairie to indefinitely exceed revenue limit by about $300,000 annually to cover pool operation costs. Establishes maximum per pupil revenue ($9,835 for 2008-09). This amount increases about 2.1-2.3% annually ( up $274.68 for 08-09). The revenue limit for Sun Prairie for 2008-09

QEO Qualified Economic Offer)
Established w/1993-95 biennial budget. If school districts offer a combined package annual increase of 3.8% (2.1% salary; 1.7% benefits), teachers union must accept without arbitration. The QEO was conceptually designed to control salaries and benefits—the largest part (~80-83%) of a school district’s budget.

You've likely heard people say school funding is a "3-legged stool" and that lifting the QEO or lifting Revenue Caps would effectively cut one of the legs out from under the stool causing the whole system to collapse. Another term frequently heard is "structural deficit" caused by the QEO. The structural deficit is a term used to describe the increasing squeeze that occurs when the revenue limit is only increased by about 2.0 to 2.5% annually, while the QEO provision calls for a minimum increase of 3.8% to the largest portion of a school district's budget.

The graphic at right shows a fictional school district with a $50M revenue limit and salaries and benefits ("fringes" account for 80% ($40M) of the budget. This scenario shows what happens if NO CHANGE occurs to the system (NO change in the number of students, no referenda to exceed the cap). In this example, 15 years down the line, salaries and benefits eat up the entire allowable revenue limit. That means that long before 15 years, the district would be forced to take drastic measures such as a referendum to permanently exceed the revenue cap, shut down, or merge with another district. Now certainly there are other factors involved, and no district has a 15 year steady number of students.

So...have revenue limits and the QEO helped keep property taxes down? Sure. Is change needed? Most definitely. The problem at this point is that neither the QEO nor revenue limits can simply be eliminated without fear of another property tax explosion. It's a complicated problem that needs some serious thought before tinkering with it. School funding reform is needed, but we have to get it right. Trial and error is not going to work.

A few excellent resources on the subject:

School Funding position paper April 2007

School Funding FAQ

WEAC- What is the QEO?

Alliance For Strong Mequon-Thiensville Schools- School funding FAQ

Wisconsin Legislator Briefing Book 2009-10 (Chapter D - Education, Elementary-Secondary )

Wisconsin Legislative Fiscal Bureau - January, 2009 --Dispute Resolution Procedures
for Municipal Employees