It may have struck you, as it did me, that the Portland Public School system shouldn’t be in financial trouble. It’s been losing students for years (about 46,000 now compared to 80,000 thirty years ago) so it should be spending less (adjusted for inflation) on operations but still have the same property tax revenues. This is a side effect of having schools supported by the state instead of by local property taxes.
If our schools were still supported primarily by local property taxes, then PPS would be awash in cash: it would have a large tax base and only about 60% of the demand. Put another way, its revenues wouldn’t depend on how many students it educated. Fast-growing suburban districts, such as Beaverton and Hillsboro, would be in a world of hurt because the demands on their systems would increase faster than the tax revenues.
The current system (as I alluded to early this morning) works differently. Schools raise some money from local property taxes, but get the bulk of their funding from the state basic school support, with is $X per student. (I think it’s about $6000 per student this year, but I haven’t checked.) If PPS enrolls 600 fewer students this year than last, then it receives $3.6 million less from the state. If those students all move to David Douglas, then David Douglas receives $3.6 million more. As long as the receiving district doesn’t have to build another school, it comes out ahead.
I support per capita financing as the main source of funds for our schools. It’s important in any discussion of school finance, however, to be clear on the effect of switching between per capita and tax base financing. The people who gave us the tax limit measures weren’t.
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Given our rising global population, finite energy reserves, and increasing ecological challenges, it is time to stop subsidizing population production.
An initial reform would be to stop providing artificial incentives to have children. Remove tax exemptions for children. Another possibility is to provide a truly basic education system. Make extras the financial burden of the parent. Some schools have mad modest moves already in this direction.
If there was ever a time when procreation was of primarily private interest, that time is past. In the very long term, we face no greater challenge than a perpetual growth in world population.
“If PPS enrolls 600 fewer students this year than last, then it receives $3.6 million less from the state. If those students all move to David Douglas, then David Douglas receives $3.6 million more.”
That is not the way it works, Isaac. The allocation from Salem lags population changes by a year according to an article in last Friday’s Oregonian Metro section. This year, Portland is being funded according to the number of students the district had last year.
Portland is starving because it lost $8 million dollars in “desegregation” funding from Salem this year and its “local option” levy ran out leaving Portland short another $15 million. Next year, Portland is losing its share of the temporary Multnomah County I-tax which will put them in on a real diet unless the taxpayers are willing to come to their rescue again.
Would you believe that David Douglas School District will end this school year with a $28 million dollar reserve in anticipation of losing their share of the Multnomah County I-Tax or that 138 of Oregon’s 198 public school districts finished the 2003-2004 school year with reserves in excess of 20% of that year’s budget.
It strikes me that Portland’s budget problems stem from something other than the State School Funding Formula as it currently exists.
Howard, thanks for the explanation about funding lagging enrollment by one year, something I hadn’t known. (Does that mean that this year the state is sending PPS about $3.6 million more than the PPS enrollment supports?) I understand that Portland has other budget problems, which stem from its reliance on a hodgepodge of funding sources to pay its bills, and they’re all running out at once. The question I hope to examine shortly, which I’m alluding to here, is what happened in the last 40 years to make a district that’s lost 40% of its students and with booming property values run out of money. Undertaxing? Overspending? Health care? PERS? Some combination? To me that’s the real mystery: I could understand PPS being in a financial pinch quite readily if its enrollment boomed from 80,000 to 120,000 without any funding to build new schools and hire new teachers. I’m perplexed at why PPS in particular should be so short of funds when at first glance it should be relatively flush with cash.
Isaac,
It is on the spending side. You know there are serious problems when, “The Portland district saved $10.6 million in the first two years (by contracting out all of its custtodial work), which was more than expected”, said Pam Brown, Portland’s director of facilities.
This was just for custodial work. They have been compensating that much over market value. It is the same with every classification of employee. Hillsboro will be doing the same thing, and they estimate they will save “between $400,000 to $600,000 a year. And this is for union custodians with health benefits.
It is the revelation that most people (within or outside of education) just do not understand. There is usually not more than one person out of a hundred that realize that there are only seven states in the U.S. which compensate K-12 employees higher than Oregon.
howard,
I could make an argument that holding 20 percent reserves is too low. (The pension obligation bond money is just a creative reserve, at the outset, that needs to be added to your 20 percent.)
Suppose the stock market folks, and other investers, cause the investment trust to lose half its value. The actuaries (the folks who foretell great future returns) will demand that the PERB order the delivery of school money to the investment trust; the trust that is sort-of-controlled by the OIC. This will not be school funding, at least not in my book, for not a dime of the increase *cost* would go to anything school related. It is neither a school spending issue nor a school revenue issue, it just an issue of public employees being held as captive clients to a private investment trust that has some limited affiliation with government.
We must first strip the requirement that public employees must give up their liberty interest to invest their retirement savings as they see fit so that we can get back to dealing fairly with the call by the loud politicians, and The Oregonian, to provide stable school “funding.”
Again, if I were a stock broker, or a government-type regulator of the same, then the 20 percent reserve would be far too small to cover the margin accounts.
I know this sounds mean-spirited and trite, but another reason Portland’s district is “starving” is because it voluntarily, willingly, –joyfully– rolls over and takes the big one all night long each and every time teachers labor contract negotiations comes up. Public employee managerss negotiating labor contracts with public employee rank and file? Yikes. There’s no incentive to not give everything they have away, and more. So they do.
Isaac, please don’t take my comments on the school funding formula as an “explanation” of the funding formula. I relied on the statement of Cathy Mincberg, Portland’s chief operating officer referring to Portland’s enrollment declining less than anticipated. She said “The higher enrollment won’t provide any more money for schools because the budget is based on last year’s count.” Whether that applies to the full year, I am not entirely sure. Her statement was in an Oregonian article on 10/08/05 by Paige Parker headlined, “Enrollment falls further, slower in Portland schools Trend persists”
I would suggest that there are a multitude of reasons for Portland School District 1J being the budgetary basket case it has become: Ineffectual collective bargaining over the years on the part of district representatives. The district’s “try to please everyone” stance over the years in setting up language immersion, magnet and special focus schools while allowing many neighborhood schools to become underpopulated, severance packages, legal fees and settlements to former employees, consulting contracts etc. I have been closely following the Portland district since 1980 and there has been an accumulation of costly events that do not occur in most other districts.
Another poster has mentioned PERS as a problem. While I agree that PERS is in need of a major overhaul, it is a problem shared by all other Oregon districts. The same goes for the School Funding formula.
The reasons why Portland District 1J is a budgetary basket case are to be found in managerial, staffing, negotiating and other practices that are unique to Portland District 1J.
I guess I spoke too soon about the $10.6 million that PPS saved in the first two years, by getting private sector custodians. The Oregon Supreme court ruled 4-3 that it was not legal. So that puts PPS in a much bigger financial hole. One blunder after another, it seems. All at the taxpayers expense.
bailie,
I’ve read many of your posts with interest–but on the custodial issue, I’d assume you’d side with PPS.
They got an opinion from multiple attorneys and legal agencies and were upheld at every level of the court system until the SC.
To call this another “blunder” is simply unfair.
Paul,
You are correct. Thank you. It was a misuse of words on my part. Perhaps the word “blunder” was more representative of what seems to be taking place for PPS. It seems that they come out on the wrong end financially with about everything the do.
Bailie
Isaac,
This is a “must read” for a clear picture of Oregon K-12 (and public sector) funding problems. It is time for recognition of the “Oregon Squeeze”.
http://www.registerguard.com/news/2005/10/25/ed.col.bozievich.1025.p1.php?section=opinion
Governments can’t keep up with cost of labor
By Jay Bozievich
Published: Tuesday, October 25, 2005
As Lane County contemplates how to increase revenue to support public safety, it is time to discuss how to achieve fiscal sustainability for our public agencies here in Oregon. Missing from these discussions is the root cause of the current instability – the overheated growth in the cost of labor to fulfill the missions of these agencies.
Labor – that is, salary and benefits – accounts for the majority of spending by public agencies. More than 80 percent of the spending by school districts is for labor. Lane County’s personnel expenses amounted to 60 percent of its general fund budget. For public safety, labor costs are more than 64 percent of the budget.
Unfortunately, this category of expense has been the fastest growing for governments over the last decade and is projected to continue as the fastest growing. This contributes to the projection that Lane County’s expenses will increase at a rate of 6 percent per year. Similar rates of spending growth are forecast for local school districts, municipal governments, community colleges and state government.
Yet revenue is projected to grow just 3 percent per year, creating a structural deficit for all levels of government in Oregon.
First, let’s understand why public labor costs are increasing at twice the rate of inflation. The first contributing factor is the Public Employees Retirement System, or PERS.
PERS charges public agencies a percentage of payroll to pay for the benefits promised by the system. That rate has gone from 8.88 percent in fiscal year 1998 to a whopping 20.72 percent, projected for fiscal year 2006 for Lane County. The PERS Board is projecting another 4.5 percent increase in fiscal year 2007.
The second contributing factor is health insurance. Lane County projects double-digit growth rates in the cost of providing health insurance to employees.
If the employees of an agency file claims for more money than the insurance company charged in premiums, then the insurance company will charge a higher premium the next year in an attempt to break even. And if the agency pays all or most of the premiums for the employees, then the agency will bear the costs of the increase.
Currently, most public agencies pay a high percentage of the premium costs for health insurance. And the plans usually require low co-payments and have low deductibles. Therefore, employees don’t see the impact when they make heavy use of health insurance and spur subsequent premium increases.
Finally, many public employees work under union contracts. Nonunion employees, such as managers, often have their pay and benefits linked to the union contracts in some manner.
Many of these union contracts are set up with pay-grade steps. Employees are moved up to the next step of the ladder for every year of experience they have until reaching the top rung.
These steps can bring pay increases as little as 1 percent to as much as 3.75 percent. The steps are automatic annual increases.
Union contracts also include cost-of-living adjustments on top of the step increases, usually creating automatic annual raises well above the rate of inflation.
So, to review, we have base salary rates that increase more quickly than the rate of inflation. We have health insurance premiums rising at double-digit rates. And we have PERS rates well over 20 percent of base pay and increasing.
Is it any wonder that the cost of government is increasing at 6 percent or more when labor is such a high percentage of government budgets?
The growth of total personal income in Oregon just exceeds 2 percent. So the source of revenue to offset the cost of government is growing at a one-third the rate expenses are increasing. Even if we increase the percentage of the income taken to support government, that amount will still grow more slowly than expenses unless we do something about the growth of expenses.
To restore balance, we need true reform of the PERS programs. Health insurance should return to a system that encourages healthy choices while covering catastrophic care. Public employee contracts need to be structured to promote performance, rather than delivering automatic pay increases.
If we truly wish to have fiscal sustainability for public safety, education and other government services, then the elected officials and public employees of Oregon must be willing to work together to resolve the ever-increasing cost of public labor.
Jay Bozievich is a free-lance writer, public employee, PERS participant and an elected official in Lane County.
WELL BAILIE AND PAUL IF THE SCHOOL BOARD WOULD HAVE: 1 NEGOTIATED IN GOOD FAITH WITH THE CUSTODIANS AND 2 WENT TO THE LEGISLATURE THERE WOULDNT HAVE BEEN A PROBLEM. THE BOARD TOOK A BIG CHANCE AND LOST. HOWEVER, THE DISTRICT WILL PETITION THE COURT FOR A REHEARING SO ITS NOT OVER YET. WHAT IT ALL BOILS DOWN TO IS A LACK OF ETHICS ON SOME MEMBERS OF THE BOARD. WHAT THE HECK, ITS TAX PAYER MONEY SO WHO CARES?