Twenty-four public school districts in
Michigan operated at a deficit in 2007-2008 and more than half of those
anticipate they will still be in the red at this time next year.
That tally doesn’t include Detroit Public
Schools, which only recently announced it likely will run short of money in 2008
and 2009. While Detroit’s numbers dwarf the rest, other districts also have
projected deficits ranging from thousands to millions of dollars in closing out
the current fiscal year, with no fund balance available to fill the gap.
In dollar amounts, figures vary from $3.2
million in Macomb County’s Clintondale Community Schools, equal to about 10
percent of revenue, to $39,000 in Vanderbilt Area Schools in Otsego County, less
than 2 percent of total revenue.
In comparison, Detroit anticipates a shortfall
of $45 million when it closes the books this year, and a draft budget projected
a deficit of up to $408 million in 2009, according to area media reports. The
district’s projected 2009 budget is $1.37 billion, potentially putting the
deficit at nearly 30 percent of district revenue.
By law, Michigan school districts must adopt a
balanced budget. Districts that spend beyond their ability to pay must submit a
deficit elimination plan to the Michigan Department of Education that outlines
how they will resolve the shortfall within the next two years. A handful of
districts, however, have been in a deficit position for anywhere from two to 10
years over the last decade, according to information from the Michigan
Department of Education.
“For some districts, it might take a few years
to get out of deficit. Some get in and out quickly,” said Elaine Madigan,
director of the department’s Office of School Finance and School Law.
ENROLLMENT, STAFFING ISSUES
Most school districts point to declining
enrollment as a key reason for their revenue shortfall. Since public school
districts receive a large share of state funding on a per-pupil basis, they
receive less money when they enroll fewer students. The decline may result from
families moving away, students choosing to attend a different school, or a
declining birthrate in general.
In Michigan overall, the number of
kindergarten through 12th grade students, including those in alternative
education, has dropped from about 1.7 million in 2003 to 1.67 million as of fall
2006, according to headcounts calculated by the state’s Center for Educational
Performance and Information. That doesn’t include students in ungraded programs,
such as some special education settings, or in prekindergarten.
On the spending side, districts say that
rising costs for wages, health insurance, retirement and energy have pushed up
A few deficit districts also admit to
insufficient oversight of spending as a reason for their shortfall, as well as
“We were administrator-heavy and
secretary-heavy,” Superintendent Paul Rogers of Madison (Heights) Public Schools
told Michigan Education Report in a telephone interview. “They (former
administrators) hadn’t trimmed based on declining size.”
Madison has been in a deficit for at least 10
years, but this year pared the debt from about $2.8 million to $1.6 million,
against a $15 million budget, mainly through reductions in staff, overtime and
In Detroit, teachers already have rallied
against talk of laying off as many as 1,400 staff members in coming years.
District enrollment has decreased from about 150,000 students in 2003 to
approximately 106,000 currently, but board of education members have said that
staff cuts have not kept pace.
In addition to downsizing, districts that have
deficits say they plan to sell unused land or buildings, hire private companies
to operate support services and hope to negotiate savings on wages or benefits
during employee contract talks. At least one district now requires stricter
oversight of purchases.
“… (C)ontracts will not be settled until all
employee groups agree to provide some form of relief on the cost of health
care,” the Beecher Community School District deficit elimination plan stated. In
deficit for eight of the past 10 years, Beecher’s latest plan called for
reducing a $700,000 shortfall to $268,000 in 2007-2008 and making up the rest in
The district’s plan also includes tighter
control of purchase orders and budget overrides and lists reductions of nearly
30 full-time equivalent positions among teachers, support service and
administrative staff over the past two years. For example, the district
eliminated three business office positions in 2006 as it outsourced its
technology and business operations to the Genesee Intermediate School District.
Beecher and Clintondale administrators did not
respond to requests for interviews.
While the state has the authority to accept or
reject each district’s deficit elimination plan, it can’t mandate specific
action, according to state officials.
“We don’t have the authority to tell them what
to do,” Madigan said, though the department does consult with districts about
ways to reduce expenditures. If a district fails to file a plan or fails to
follow through on its plan, the state can withhold state aid, something Madigan
said has happened for brief periods in some districts.
“That little hammer seems to work quite well
as an incentive,” she said.
Extra scrutiny from the state is one
consequence of running a deficit. Another is the cost of borrowing money to
cover the gap. While a number of districts take out short-term loans as a way of
tiding them over between state aid payments, districts in deficit must borrow
FUND BALANCE VERSUS CUTS
That cost increases if districts put off
making unpopular financial decisions.
“It may be that a board (of education)
wouldn’t pull the trigger one year, but the next year they have to,” said Dave
Martell, associate executive director of the Michigan School Business Officials.
Turnover among school board members or school administrators is one reason that
hard choices are sometimes put off, he and state department officials said.
“The reality of the economy is that many
districts have made cuts year after year after year,” Martell said, balancing
their budgets through a combination of reduced spending and use of reserve
funds. In Utica Community Schools, for example, the board of education used $7
million from fund equity and reduced spending by $8 million to balance its
budget a year ago. News reports from across Michigan indicate that many
districts have followed a similar strategy in adopting budgets for 2008-2009.
The MSBO, a nonprofit corporation, recommends
that school districts maintain a fund balance equal to 15 to 20 percent of their
budget as a hedge against unexpected expenses or revenue loss, and also as a way
to avoid borrowing money and paying interest. Martell said school business
managers are looking for ways to operate more efficiently, including working
with other local districts or intermediate districts.
“Their job is to not run a deficit,” he said.
In Madison Heights, Rogers said his district
saved $165,000 by essentially closing its transportation department and
contracting with nearby Clawson Public Schools for busing. A small district
geographically, Madison does not provide transportation for general education
students, but had a staff of five full-time bus drivers for special education
transportation, field trips and athletic trips, Rogers said.
“It would have been cheaper to lease every
parent (of a special education student) a car,” Rogers said.
Rogers was hired by the district in January of
2007. Formerly a school administrator in Anchor Bay, he is also an attorney and
has worked in his family’s lumber and newspaper businesses.
The Pawley Learning Institute at Oakland
University has taken an interest in public school finance in the last year,
developing a program called “Lean Thinking for Schools” that rests on applying
management and production principles learned in the private sector, primarily
the automotive industry, to non-profit and service organizations.
“Lean thinking” calls for continually
evaluating the processes that make up a school district —– instruction,
administration, food service and others — to determine what adds value to the
organization and what does not. The goal is to improve or expand the processes
that add value and eliminate the rest.
“With lean thinking, you want to create value.
If what we engage in is not adding value, it’s waste,” said Dr. Shannon
Flumerfelt, an assistant professor in the School of Education and Human Services
at Oakland who works with the institute. She used the example of an area school
district that added full-day kindergarten.
“They created something of value,” she said,
and were rewarded by higher enrollment. Madison’s new transportation program,
described above, would be an example of providing value in a more efficient way.
“What most administrators do is say, ‘What can
we cut from the budget?’” Flumerfelt said. “You just kind of pick things off.”
In contrast, lean thinking encourages
organizations to look for efficiencies and improvement in processes themselves,
while protecting the value those processes offer, she said. That means the ‘lean
thinking’ district of the future might not look like districts today, she said.
For example, schools already are challenging ideas about how much value a
mandated number of school days or school hours adds to instruction.
The Pawley Institute offers coursework in lean
principles and also offered a seminar for school administrators in southeast
Michigan in March.
HEALTH INSURANCE COSTS
Employee health insurance programs might look
different in the future in some school districts, as a new state law requiring
them to seek competitive bids begins to play out across Michigan.
The Madison district is currently seeking such
bids, Rogers said.
Asked if he anticipates the process will bring
down health insurance costs, as supporters of the legislation predicted, Rogers
said, “Either the bids will or the employees will contribute.” The district has
capped the amount it will pay per employee for health insurance, giving
employees a choice between the Michigan Educational Special Services
Association’s SuperCare plan or a preferred provider option through Health
Alliance Plan of Michigan. The cost of the MESSA plan generally exceeds the cap,
so employees pay the difference, Rogers said. MESSA is a third-party insurance
administrator affiliated with the Michigan Education Association.
Looking ahead, Rogers said he wants to turn
around declining enrollment, possibly by developing an educational program aimed
at the community’s international population. Nearly 20 percent of Madison
students speak English as a second language, he pointed out.
“I’m trying to build a district that fits the
21st century,” he said. “You have to look at your target populations and meet
your community’s needs.”
More than half of the districts currently
operating under deficit elimination plans are located in Wayne, Macomb,
Washtenaw or Oakland counties. The 24 deficit districts represent 3 percent of
all of Michigan’s 781 conventional public school districts and public charter
schools. The number of deficit districts has remained relatively stable over the
past five years.