APS – Budget Commission Actions – Detail and Analysis

In a prior post, I gave you the highlights from yesterday’s Budget Commission meeting. Let’s take a look at each item more closely and analyze what is happening.

$6 million Additional Revenue – the value of the property tax digest (a listing of the taxable value of each property in Atlanta) increased by a bit over 1% resulting in the additional revenue. As a result of the increase being over 1%, the millage rate will have to be republished in local newspapers as the change is considered a tax increase since the millage rate was not reduced to lower the incremental taxes to less than 1%.

This is all rather complex, but it is important to remember the millage rate stays the same as last year – what has changed is the underlying value of property taxed with the result of incremental property tax revenues flowing to APS. While I am generally against tax increases, I will give the Board a pass on this as property values have decreased over the last several years and this is simply a reversal of that trend.

$3.2 Million for 38 Additional Teachers – this is a major incremental victory for the parents who have been begging for reduced class sizes. The Commission – especially in an election year – is listening and taking some action. However, the cost presented by the administration of $3.2 million is still based on the $80 thousand average per teacher.

As I noted in a prior post, I think this is overstated and the number is closer to $61 thousand if teachers with an average of three years’ experience and a Bachelor’s degree are targeted for hiring. If they did so, the $3.2 million would buy 52.5 teachers.

I do not understand why they stick to the $80k number when it would be in their interest to lower the targeted cost for incremental teachers.

Class Size Waiver Remains at +5 – the Commission is still struggling with the level of the waiver and received a commitment from the administration that the average class sizes would not exceed 24 in the Elementary Schools and 30 in the Middle and High Schools (with only minor variations). However, the administration will not budge from the +5 waiver number.

The additional $5.2 million ($3.2 million plus the $2 million added for teachers in a prior meeting) could in fact bring in 85 additional teachers if the lower cost per teacher is used versus the 64 additional teachers proposed by the administration. My sense is that the incremental 21 teachers could reduce the waiver request to +4.

Everyone needs to keep pushing on this as Commission and Board members are not focusing on the “teacher cost” number.

$750 Thousand for Charter Schools – this increase is required by statute and is a result of the increase in local property taxes. You should not read any “goodwill” towards charter schools in this increase – the administration is required by law to provide these incremental funds.

$750 Thousand Reduction in Personnel Costs – this number is not even a good start as it likely only represents 10-12 employees from a total staff of nearly 5,500. Of the $750 thousand, $400-500 thousand is related to a number of vacant positions in Finance, Operations and IT that will not be filled – several of which the administration admitted would not have been filled anyway as they were not needed. One position is simply being transferred to the Special Revenue Fund (no cost savings there). The remaining personnel cuts of $250 thousand will come from positions that are currently filled in C&I. However, that likely only represents three or four positions out of a staff of over 830 (excluding teachers).

Like I said, this is not even a good start. It was interesting to note that Superintendent Davis said that he “did a very detailed review of the staffing budget” to propose these cuts – and made is sound as if this was the first time he had done so. Quite frankly, given the limited number of administration personnel changes to-date (other than ones that had to be dragged out of him); I believe this was the “first time”.

$8 Million Atlanta Beltline Payment Taken Out of Budget – I have addressed this in a prior post – also, for additional detail, see Katie Leslie’s and Mark Niesse’s excellent AJC article on the subject at the link.

However, one detail on this matter continues to bother me. The $8 million payment has been in the budget since it was originally released in early May. As part of the budget approval process, Budget Commission Chairwoman Burks voted for passing the tentative budget.

What concerns me is that Ms. Burks is listed on the Atlanta Beltline site as a Board member and Treasurer of that organization. How is it possible that she held these positions at the Beltline and did not know that the Beltline Project was in serious financial difficulty? Given her position and knowledge of the Beltline’s financial condition, how could she vote to approve a tentative budget with the $8 million still in the revenue projection?

I will continue to pursue this in the near term.

FY14 Budget Deficit Increased from $21.5 Million to $26.7 Million – here are the numbers – begin with the $21.5 million approved deficit. Add $8 million for the loss of the Beltline payment, $3.2 million for additional teachers and $750 thousand for Charter Schools. Deduct $6 million in additional property tax revenue and $750 thousand for personnel cuts. The net impact is an additional $5.2 million added to the deficit.

Projected General Fund Reserve Down to $42.8 Million at End of FY14 – again, the numbers – start with the $48 million projected General Fund reserve at the end of FY14 and deduct the incremental net change of $5.2 million noted above. Everyone agrees that a $41 million General Fund reserve is needed – this is getting perilously close to that number. Even worse, there is still some “risk” in the revenue projection – possibly as high as $6 million.

If the General Fund reserve falls below $41 million, it is likely that APS will have to rely on Tax Anticipation Notes (TAN’s) to manage cash flow and pay its bills on a timely basis. Further, TAN’s are generally very short-term Notes (90-180 days) and must be repaid with subsequent year’s property taxes.

Reliance on next year’s revenues to cover current year cash flows is a perilous territory to enter – think “Payday Loans”.

What is also interesting to note is that the administration is clearly stating that the “can has been kicked down the road” year after year – and the road now ending at a fiscal cliff.

Candidates running for the Board this year are warned – you will face a fiscal disaster during the next budget season. Future “one time revenues” are limited and there is no cushion left in the General Fund reserve. Good luck – and as you deal with the mess, you will certainly earn the $16 thousand stipend you receive as a Board member!

Commission INSTRUCTS Administration to Propose $1.3 Million in Additional Cuts – the capitalized INSTRUCTS was intended. This “instruction” showed that the Commission is losing patience with the administration and the administration’s frustration with the Commission also became more apparent.

At one point, COB McDaniel said, “if all you bring back to us is additional furlough days, we will be very disappointed.

”Superintendent Davis said, “the can has been consistently kicked down the road … to get additional reductions, you [the Board] must consider following policies that are now being ignored”.

It was clearly a bit testy on both sides. However, the Commission was clear – while previously proposed cuts could be brought back to the table – they wanted new ones to consider.

This is going to get interesting!

$6 Million Atlanta International School (AIS) Property Sale at Risk – included in the revenue budget is $6 million for the outright sale of the real estate to AIS that is currently leased by APS to them. This issue has been contentious in the last several meetings and, my sense is that there is a growing consensus on the Board to not proceed with the sale.

This brings into question the $6 million revenue number included in the budget and, if the sale is not completed, the General Fund reserve could fall to $37 million – well below the $41 million fiscally prudent threshold. The Commission requested that the administration look at other real estate that could be sold to replace the $6 million in doubt. Superintendent Davis indicated that the process was already underway.

Summary – All in all, while the budget for teachers (and the implication for “average class size”) is improving to some degree, the fiscal cliff is clearly still looming. The Board members acknowledged that they had to make the tough decisions, but the fact of the matter is that the General Fund reserve could easily fall below the critical threshold.

I will believe that the “tough” decisions are being made when there is at least another $5-6 million taken out of the expenditures budget – until then, in Superintendent Davis’ words – the Board is simply “kicking the can down the road”.

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