Nothing brings out the best in New Yorkers like school district budget season, and this year's no exception.
Just to keep the bare-knuckled brawls from becoming mundane, this year many Upstate districts are structurally bankrupt as a result of the combined forces of no-negotiation union contracts and unfunded state and federal mandates. Better, in New York, many districts will be unable to raise the tax levy more than 2% thanks to Gov. Cuomo's tax cap legislation. Uncontrollable costs and inflexible pricing require districts to provide a product at a loss. Only in government is this viewed as a viable model for the provision of services.
In 'Puter's little neck of the woods, the local one-room school house is about $4.2 million short on a $110 million proposed budget. The district proposed layoffs and program cuts. And, as night follows day follows night, the usual parties started their usual caterwauling.
The union complains that program cuts hurt children. The parents complain that program cuts hurt children. The children complain that program cuts hurt children. The taxpayers feel badly because program cuts hurt children, but aren't complaining much because they’ve gotten shafted for years. Even state assemblymen and senators complain that program cuts hurt children.
The public casts the district’s school board and administration as villains in this farce, and certainly these folks bear some responsibility for the current fiscal difficulties. However, in the public’s zeal to demonize the board and its monstrously unfair (!!1!eleventy!!) program cuts, it fails to adequately recognize its own critical role in public education’s virtual bankruptcy.
Faction after faction spews hateful vitriol at the Board of Education. “How dare you! You hate kids! You're stupid and don't understand finance!” But, interestingly, not one other party has put forth a plan to compete with the District's. Not a one. Not parents. Not taxpayers. Not the union. No one wants to talk facts.
Various groups for various reasons are happy to have the debate comprised of baseless accusation and emotional pleas to undefined notions of “fairness.” Well, not so much the ‘Puter. ‘Puter wants to talk about the pesky numbers and facts. ‘Puter also would like to provide some education to the ignorant, both willfully ignorant and naturally so, regarding finance.
While no one has manned up and proposed a competing plan, there are plenty of half-truths and innuendo floating around town. Many claims are facially absurd. Other seemingly rational concerns don’t withstand scrutiny. And still other concerns, while sound in a private sector context do not survive contact with public school finance’s Bizzaro world accounting and funding conventions.
Here are the most frequently repeated claims ‘Puter’s heard about the budget. Your ‘Puter thoughtfully provides an easy-to-use debunking guide for each “truth.”
1. “If only the District would cut transportation and make the kids walk to school just like I did when I was their age, there would be billions of dollars to finance our mink iPad3 covers, critical race theory electives and .
First, transportation accounts for $5.4 million of the proposed budget. That’s a whopping 4.9 percent. Even if you eliminated every single bus route, bus, driver and mechanic and plowed every cent back into the budget, it would barely cover this year’s projected shortfall, leaving aside next year’s gap.
Further, it is wholly unrealistic to expect kindergarteners to walk to school in Upstate winters. ‘Puter understands that you did it back in the day, but it is not a viable option. Hell, if parents and unions are raising this much of a stink over cutting electives such as Jewelry Making 2 (really), what’s going to happen when you tell them Suzie Precious-Snowflake now has to walk the three blocks to school. ‘Puter has personally witnessed a district bus stop directly across from an elementary school to pick up a child, only to turn directly into the school’s parking lot and let said child off. This gives you an idea as to the world view of his district’s parents.
Leaving aside the Suzie Precious-Snowflake conundrum, even if voters magically agreed to get rid of all transportation (which they won’t), there would be daily gridlock at each school caused by a flotilla of stay at home moms in yoga pants and full makeup, berthing massive SUVs to deposit their precious cargo off at the front door of the school. Not. Going. To. Happen.
Second, in New York, transportation is one of the few things the state actually does aid (i.e., partially pay for). If so inclined, you can review the Byzantine rules and calculations for the current year here, at pages 24 through 28. According to ‘Puter’s district’s assistant superintendent for business (who ought to know such things), after applying appropriate formulae, for each current year dollar spent, the state reimburses ‘Puter’s district about 72 cents. Using ‘Puter’s mad math skillz, that’s like getting three “free” dollars for every dollar spent. In the real world, we call that concept “leverage.”
It is financially prudent to use other people’s money (“It’s free!”) to pay your expenses, particularly as you are sitting on reserves sufficient to cover anticipated future expenses. Which brings us to our next discussion topic: reserves.
2. “If only the District spent all of its Scrooge McDuck-like ill-gotten reserves to cover this year’s shortfall, it will be smooth sailing from here. Even the NY State Comptroller’s Office told the district in 2009 it was carrying too generous reserves. No need for us to feel any pain.”
Sure, the district is carrying reserves. In fact, the district carries a bunch of reserves, to fund planned recurring expenses and to provide a cushion against unexpected expenses. Examples of reserves ‘Puter’s district carries are: capital bus reserve, liability reserve, repair reserve, insurance reserve, unemployment insurance reserve and employee benefit accrued liability reserve. Hell, the district even reserves for unexpected spikes in mandated employer payments into the state pension system. It’s sound and prudent financial planning to carry reasonable reserves.
Critics rant and rave, waving the Comptroller’s report, claiming the district stole money from the taxpayer, and should pay every penny back, right now. Dammit. Right now!!1!one!! It’s not that simple.
Critics should take a deep breath and realize a couple of facts: (1) an auditor’s job is to find issues, so if an auditor finds no issues, he finds himself out of work; and (2) adequate capital reserves, replenished when possible, stabilize tax rates by smoothing spikes in expenses and shortfalls in revenues, benefiting the taxpayers and students, especially in light of the tax cap.
‘Puter acknowledges that the Comptroller required the district to review its reserves and plow overfunding back into current year and one shot uses. However, blowing the entire overage in one year is short sighted. The district is liquidating its reserve overages to “acceptable” levels over five years. Again, this is prudent financial management. The gradual draw down enables the district to avoid tax rate spikes and cushion expected shortfalls.
Further, if the district liquidated all its reserves in one year, it would have no ability to fund such allocated uses in future years, except for increasing revenues. For those of us who have difficulty with financial concepts, when a government entity increases revenues, that means it’s raising your taxes. Government (and yes, Suzie Precious-Snowflake, schools are government entities) only funds itself through taxes.
In theory, if you fund $10 million in current year expenses with a one shot reserve expenditure, you have to come up with an additional $10 million in revenue the following year to maintain the same level of services, assuming no cost increases or decreases. As we all know, government costs only move in one direction: up. So, spending all your money at once, on the assumption you’ll figure out where to come up with 10% of your operating budget when next year rolls around is the government finance equivalent of using payday loans to buy McDonald’s.
3. “The District should cut anything except items that affect THE CHILLDRUNZ!11!1!!!eleventy!! and their precious, precious education.”
Umm, folks? When the district’s annual expenditures are approximately two-thirds salaries (pages 46-47, $46.5 million) and benefits (page 40, $27.8 million)*, there’s not much to cut other than labor costs. And, where the labor (teachers) produce the product (classes, electives, education), a cut in FTEs results in a decrease in available classes.
Let’s put the blame for labor costs on the shoulders of those who should properly bear the brunt: unions and state lawmakers.
New York is a closed shop state. That is, in order to teach, you either have to join the union, or not join the union but pay the same amount of dues the union steals -- um, deducts -- from its members’ paychecks. In ‘Puter’s district, union dues are about 1.5% of a starting teacher’s gross pay. If your union is stealing 1.5% of your pay, before taxes, you need higher pay just to break even. Think of union dues as another mandatory New York tax, unnecessarily inflating labor costs and driving employers from the state.
Not only is New York a closed shop state, New York has insanely generous pensions. There are five pension tiers currently, with a proposed sixth that has no chance of passing, as it involves a 403(b) style plan. For pension tiers affecting current employees, assuming you reach 55 years of age and have 30 years of creditable service, you get 60% of the average of the best three years of earnings, including extra pay for coaching and club monitoring. Not only that, but in most districts, you get guaranteed health insurance at current employee levels for life, whether or not you’re fully covered by Medicare or not. Additionally, you get social security and anything you’ve managed to sock away in your 403(b). Did ‘Puter forget to mention that state pensions are untaxed in New York, meaning you’re getting an additional 6.85% kicker annually. And best of all, pensions get COLAs annually. Let’s assume you’re situated as Mrs. ‘Puter is, a secondary earner in the household. Mrs. ‘Puter will have her 30 years in at 65. Let’s say at current increases, she’s at around an $85,000 best three years’ average at retirement. Further assume that she’s maxed out her 403(b) for 30 years (assume a $22,000 per year cap over time). That’s $51,000 in pension alone, plus around $20,000 annually in social security, plus health benefits worth about $10,000, plus $20,000 in annual withdrawals from her 403(b) (assuming a 0% annual return and a 30 year draw down). That’s a compensation package, without COLAs, of about $101,000 per year until age 95. ‘Puter didn’t account for the $3,500 in income taxes that would otherwise be paid on pension income; there’s no need to rub salt in your wounds.
Not only is New York a closed shop state with insanely generous pensions, the state Constitution guarantees the pensions. Article V, §7 provides “[a]fter July first, nineteen hundred forty, membership in any pension or retirement system of the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired.” So New York is stuck with a New Deal era labor protection that is driving government subdivisions to bankruptcy and productive citizens from the state.
Not only is New York a closed shop state with insanely generous pensions guaranteed by the state’s Constitution, New York’s legislators have granted extra rights to unions. For example, did you know that teachers’ unions can refuse a new contract and continue to work under the existing contract in perpetuity, getting raises and benefits that their employers can no longer afford? Welcome to the wonderful world on New York’s Triborough Amendment, passed in 1982 by union controlled legislators.
The district’s hands are tied. It cannot renegotiate existing union contracts, and unions have no incentive to negotiate at all. Pensions are governed by insanely generous state law and constitutionally guaranteed. Short of firing teachers, the district has no control over its labor cost.
So, in reality, the district isn’t cutting programs. It’s cutting FTEs. And existing laws require the district to use an axe, not a scalpel, in making cuts. For example, the current contract in ‘Puter’s district contains LIFO (last in, first out) provisions, requiring the district to fire new teachers first. It’s seniority, not effectiveness that matter. And, as we’ve seen, the unions can refuse to negotiate LIFO protections or benefit levels, falling back on the Triborough Amendment to maintain their unsustainable and cushy pay packages.
Unions, in cahoots with lawmakers, have set up a system where the district has to cut teachers in order to make ends meet. Parents and kids (as well as many teachers) may not like the results, but the district can’t do anything else. If you have to make up a budget shortfall of any size, and between 66% and 80%* is labor, it stands to reason that labor costs are going to (and properly should) take the biggest hit.
People who complain about program cuts are union true believers or dupes. Programs aren’t cut, FTEs are cut. The unions don’t care, because they’re preserving their cushy lifestyle, regardless of effect on THE CHILDRUNZ!!1!one!!1! The union complains, the sheep bleat and the board (in this case unfairly) takes all the heat.
‘Puter’s put an awful lot down here for your consideration. But let this be your takeaway. In ‘Puter’s school district, the board has put forth a reasonable proposal to cover a funding gap. People are choosing to shoot the messenger. But the messenger’s not wrong.
For too long, government (especially in blue states) has promised more future benefits than it could ever hope to provide. Better, government spent the meager funds taxed to provide the exorbitant benefits on current year expenses, figuring they’d come up with a way to fix the problem later. Well, later’s here, and ‘Puter’s school district is the canary in the coal mine. The District is faced with cutting services to the bone through firing employees and liquidating reserves, but the people don’t want to hear it.
It’s someone else’s fault. It’s not true. Denial, plain and simple.
If ‘Puter’s fellow citizens’ reactions are an indication of America’s preparedness to deal with the impending collapse of the welfare state, we are all f*cked.
*’Puter left out approximately $12.19 million in appropriations he could not affirmatively determine were salary or not. If included, the percentage of salaries and benefits to overall budget would be 78.6%.
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