Another look at the 65% test waiver passed by the Board of Education

In yesterday’s post, I indicated that there was a reasonable justification for approving the waiver on the requirement that schools spend 65% of their funds in the classroom. However, I also noted that a full set of reasoned and detailed justifications for approving the waiver were not provided to the Board. Even so, the Board passed the waiver 5-3, with Meister, Briscoe-Brown and Amos in opposition (Lee was ill and was not present for the vote).

As background, Georgia law mandates that 65% of a district’s expenditures be directed to specific in-classroom activities as defined by the statute. APS failed to spend more than 56.4% in both FY13 and FY14 and, based on the submission of a waiver for FY15; it is unlikely that the percentage in FY15 will increase much above the percentage reached in the last two years. The district can also pass the test if the level of defined expenditures increases by 2% over the prior year. However, the level did not increase in FY14 and it is unlikely that the 2% increase will not be met in FY15.

The submission of a waiver is not required until sometime in mid-2015 after the FY16 budget is prepared when the data is in hand to estimate the level of compliance with the statute. Given the early adoption of the waiver well in advance of the Board needing to do so, it indicates that the administration and the Board members voting for the waiver do not intend to make a serious effort to try to transfer more resources into in-classroom activities in advance of even considering them during the upcoming FY16 budget discussions.

If this is not the case, then why vote for it now without all the facts and information in hand to make a fully informed decision?

From what I could discern from the presentation and subsequent discussion, the administration was justifying the waiver for the following three reasons:

  1. As a matter of expediency to take the issue off the table early in the process.
  2. There was no plan in place to strategically make changes to bring APS into compliance.
  3. The current percentage of in-classroom spending is the result of a number of prior Board actions and decisions that allocate spending in a manner that results in a failure of the 65% test,

I think that justification 1) and 2) above are easily dispensed with – expediency is not a credible justification as the waiver does not need to be submitted until next June and there will be a budget process  in place to develop a strategy and an expenditure plan to start bringing APS into compliance.

However, the third justification has a significant amount of merit and the administration could have easily expanded upon the decisions that the Board has made in the past that significantly impact the organizations ability to become compliant with the statute. But to do so, the administration would have had to open a can of worms that it likely did not want to begin addressing.

If that in fact is the case, then let me be the bearer of some of the bad news.

First, let’s go to the numbers. Based on the data provided by the administration, there was a total of $390 million of qualifying in-classroom expenditures out of a total of $691 million (this includes General and Special Revenue Funds). To meet the full 65% test, APS would have to shift $59.4 million from other activities to in-classroom spending. That means that nearly 20% of the $301 million of spending on non-classroom activities (as defined) would have to be shifted out of that category. Sound impossible? Maybe, but let’s begin looking at some of the policy decisions that have been implemented by previous Boards that impact this.

One of the more recent significant decisions made by prior Boards was to not close some of the small schools in the district. The cost of keeping the small schools open – including extra in-school administrators, building maintenance and operations, security services and bus routes – is very significant. My estimate is that the incremental costs to keep inefficient schools open is in the neighborhood of $12 million. To get this kind of savings would require closing nine elementary schools, one middle school and one high school. This would not be an easy task, but if the Board wants to begin improving in-classroom spending, it will have to tackle the redistricting issue one more time.

Another prior decision that needs to be addressed is the underfunding of the pension plan. In FY14, APS will put over $49 million into the underfunded pension plan and the number goes up from there. Why? Because prior Boards going back 30 years irresponsibly failed to address the problem when it arose in the 1970’s. Had the issue been addressed when it arose, APS would now have the flexibility to use the $49 million for in-classroom activities. However, today the money has to be spent on a pension plan that provides no benefit to current students and only a small fraction of the $49 million is related to current employees.

In addition, over the last three years, the Board has not been able to get the administration to reign in central office school and general administration costs. Since FY13, these combined costs have risen by over $9 million or 29%. And, as I have noted before, these costs continue to escalate even though the enrollment for the traditional schools have declined by nearly 3% during the last four years. While I understand that it is difficult to adjust administrative spending to annual enrollment changes, APS must adjust administrative spending to the longer term trend of declining enrollment. If it had done so, admin spending would not have gone up by $9 million, but in fact decreased by $1 million.

In conclusion, the administration should have made the case for the 65% test waiver based on many of the facts above which indicate that there are structural issues that are not easily solved and impact the in-classroom spending percentage. However, this is not to say that the current Board should make no effort to find a way to add another 2% in FY16 to come back into compliance in the near term. The 2% represents approximately $14-16 million that should be reallocated to in-classroom spending to remain in compliance with the statute.

And, to kill two birds with one stone, how about reallocating the $14-16 million to reducing the class sizes and bringing down the class size waiver that remains a controversial item before the Board?

While it will require some hard decisions, these decisions should be taken on during the upcoming budget season and a reasonable effort should be made to reach the 2% target. And until such an effort is made, there is no compelling reason why the waiver should have been passed in the last Board meeting – or for that matter – even be considered until after the FY16 budget is complete.

[Follow me on Twitter @Financial_Decon & Facebook]

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