Sunday, August 15, 2010

Unfunded Mandates Complicate Planning for Budget Cuts

On last Wednesday night the Board discussed at some length the question whether we could begin the budget process for the 2011-2012 school year. Our budget process typically begins around the beginning of the calendar year, which would mean January of 2011. Some have advocated that we should try to advance the budget discussions, so that we can address possible major cuts in finding that some predict will occur. The problem is that there are so many imponderables that it means that basically you budget blind.

One problem is that planning for cuts is complicated by the fact that significant portions of our budget are protected by state unfunded mandates. These unfunded mandates complicated a school board's budget planning in two ways. First, the parts of your budget that are protected by state spending mandates are off the table when you try to manage any cuts that do come. Second, when school districts are mandated to spend, regardless of funding reimbursement, often that is the area that the legislature chooses to cut first. The reason is that the legislature can cut funding for mandated programs, without cutting the program itself. The result is that the pain of cutting revenue from the mandated program is transferred to the entire rest of the unprotected education budget.

We are now five months from the beginning of the legislative session. Most of the candidates for state office have been fairly vague about their plans for K-12 education. The Congress just passed, and the President signed some financial relief for public education and health care, but we are not clear how that will impact local school districts. It is unlikely that we will have any sense of what the legislature will be doing next year, let alone what a new Governor's budget will look like. But there has been some loose talk suggesting that we can be sure that that the State will cut education significantly next year and the following year. Some have argued that we will experience cuts totally $10 million in the next two years. A few politicians have said that they could foresee public education cuts as high large as 30 percent. Let's take a look at how state mandated spending--the protection of some of our budget--operates to magnify the impact of cuts on the portions of our unprotected budget. Special education is the largest mandated spending program, so I'll use that as an example.

The operating budget for the St. Cloud School District for 2011-2012 is $87.8 million. Of this, $23 million is for special education. The special education budget has been frozen at about that amount since 2004-2005. (Another $2 million for special education transportation is found in the transportation budget). State and federal law prohibit us from cutting special education below that $23 million. That's called "maintenance of effort." That law immunizes more than twenty-five percent of our operating budget from cuts and forces any cuts to land on other portions of the budget. To be clear, special education staffing has been reduced significantly in the last 5 years. As labor and other costs have gone up, we have been forced to cut staff in order to keep the budget constant. But we can never go below the maintenance of effort floor, $23 million in spending (plus the transportation costs).

At the present time, the state and federal government combined provide us with about $ 8 million less in special education revenue support than the $23 million that they require us to spend. In other words, they make us spend $23 million (plus the $2 million on special education transportation), but they reimburse us $ 8 million less than that, and that $ 8 million must be transferred out of the funding allotted to regular education programs. This special education shortfall has fluctuated over the years, but it is now at an all time high, caused primarily by state reductions in support for special education. As the state pulls money out of special education support for districts like ours, it inflicts a double-whammy on the non-special education part of our budget, which must absorb any shortfalls in its own budget and the shortfalls that are inflicted on special education as well.

Now let's look at how this maintenance of effort magnifies the impact of a ten million cut in our $87 million budget. At first blush, a ten million cut would seem to be an 11.4 percent cut in the $87 million, but the non-special education portion of our general fund budget is about $64 million. If you have to take all of the $10 million in cuts from unprotected budget lines, then you are cutting $10 million out of $64 million, which is actually a 17 percent cut. But wait: I've only mentioned the special education maintenance of effort requirement. The legislature has protected a variety of other parts of our budget from cuts as well, and many of the unprotected budget areas are critically important to delivery of our core educational mission.

Now when I discuss this with budget hawks who like to trumpet, "well, you'll just have to live within your means," I tell them that cutting a school district budget by that amount is easier said than done. You can't stop heating buildings or keeping the lights on. Its against the law, and foolish, to run schools without principals. The governor signed a law last year that prohibits us from cutting counselors and social workers. Buildings have to be kept cleaned, and a variety of expenditures are necessary to maintain safety. When you remove all of the items that are "off the table" for one reason or another, the rest of the budget would have to be cut way more than by 20 percent, or 1/5. The impact of a 11 percent cut in the overall budget produces a 20 percent cut in the areas of our budget that are not protected by mandated spending.

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