Emmer, Dayton, Horner Education Budgets: Call me disappointed

As we head into the meat of the gubernatorial and legislative campaign season, perhaps it is a good time to try to cut through some of the talk about the state of Minnesota school finance. We hear various candidates telling us that they are going to hold education harmless in one way or another, but still it seems to me that the campaign dialog is not drilling down to hard reality that doing that is going to take a whole lot of more thoughtful and courageous action than anyone is talking about today. The problem is on the funding side, on the spending side, and above all on the unfunded mandate side. Candidates rail about unfunded mandates, but they fail to recognize that most of the mandates cannot be removed, because they are federal mandates. Special education mandates, labor cost mandates, and funding reductions--concealed from the public eye through tricks and slights of hand--are creating a public education financial train-wreck than none of the statewide candidates seem willing to confront.

It is really hard to find something in the proposals of the three current candidates that might restore fiscal stability to Minnesota Public Education. The Emmer Budget states that he would freeze the state general fund spending for public education FY 2010–11 is set at $13.8 billion, a figure that Dayton claims is actually a cut. Emmer's website says: "Tom Emmer is committed to ensure that this critical spending of the budget is not reduced." Emmer promises to hold K-12 education harmless, but he fails to account for the one billion per biennium special education shortfall that is increasingly crippling school districts. In addition, Emmer suggests that he while he will freeze the general education budget, he will then redistribute those funds in ways that would cause significant cuts for school districts that Emmer does not identify. Under the Emmer Budget all school districts will be making significant cuts, and a number of school districts are going to receive devastating cuts, but he just isn't telling us which ones.

The Horner Budget is devoid of sufficient specifics to really understand what he is going to do with education and offers no clue that Horner has a grasp on K-12 finance. The Dayton website promises to provide more resources to K-12 education to make up for the revenue shifts and what Dayton argues is a decline in the inflation adjusted general fund formula. But Dayton offers no proposal to make sure that the increases that he would provide will restore financial stability to K-12 education. His proposal seems entirely on the revenue side, while avoiding any discussion of the cost side, which is critically important to K-12 education.

Call me disappointed.

In the last two years, the Minnesota basic funding formula was frozen, that is, the basic funding formula per student stayed exactly the same. In the prior two years, the funding formula increased a total of 3 percent, so that the formula increased by an average of 3/4 of one percent per year over those four years, losing significant ground to the rate of inflation and even further ground to the rate of school personnel cost increases. But that tells only part of the story. Special education expenditures in Minnesota have been increasing at a rapid rate driven primarily by state policy. Special education spending in Minnesota is doubling every 14 years or so. Total enrollment in all forms of public schools in Minnesota has fallen by about 1 2/10 percent since 2003, although in the last several years it has begun to rise again and is projected to continue to rise. But special education enrollment in the state of Minnesota has risen during that same time period by over 9 percent. In the same seven years, special education expenditures has risen by 500 million, and special education revenues to districts has risen by 400 million, increasing the shortfall by 100 million. But in the next several years, that shortfall is slated to grow massively and no candidate has offered a plan to do anything about it.

Rising Special Education Deficit Created by State Policy

This funding gap is completely out of the control of local school districts. In St. Cloud, we have frozen special education expenditures for four years, and still our funding shortfall in special education has grown substantially. That's because as other school districts increase their spending (while we keep ours frozen) the state reallocates the funding shortfall and gives us more of the shortfall. The Pawlenty administration, through a series of Commissioner rulings has forced special education costs upward while regularly submitting special education budgets to the legislature that significantly increase the gap between forced spending and state and federal reimbursement. That has allowed the Pawlenty administration to claim that they are holding districts harmless in regular education, while failing to mention that they are taking money out of special education from many districts. And, since it is against state and federal law to make compensating cuts, the result is to inflict reductions in the general fund formula, but out of the public eye.

In the last two years, as the funding formula has been frozen, most school districts have had to pull more and more money out of their regular education budget and transfer it over to their special education budget to cover the shortfalls coming out of the Pawlenty and legislative appropriations. Our efforts to freeze special education here in St. Cloud--imposing the greatest cost control allowed by state and federal law -- has still resulted in an increasing special education deficits. Other districts which have not been able to implement those cost controls have begun to surpass us significantly in the size of their special education deficits. Our ranking in special education deficit per student is falling significantly, but still our deficit rises.

But the State is projecting that this special education deficit problem will actually get worse over the next three years, and none of the candidates is proposing to do anything to reverse this problem. In the next several years, the Pawlenty administration is projecting a significant widening of the gap between state mandated spending and state reimbursement. Unless something is done about this, holding school districts "harmless" by freezing the regular education budget will be nothing but smoke and mirrors. The state will be forcing school districts to make huge cuts in their regular education programs by forcing them to transfer the money out of regular education and into special education. Again, this is not the result of wanton spending by local districts: it is the result of intentional efforts by the Pawlenty department of education to drive up the cost of special education, while widening the gap between mandated spending and state provided revenues.

Fund Balance Reductions....Rising Labor Costs

The Association of Metropolitan School District has issued a recent report on what metropolitan school districts have been doing to keep financially afloat. That report says that the 33 member organizations pulled money out of their fund balances for a total of $50 million, or on the average about $1.5 million per district. You can find the AMSD's Budget survey by clicking here. Now these fund balance reductions mean that these districts overspent their revenues this year at the average rate of 1.5 million dollars per district, and unless they keep cutting their fund balances (if they have any left to cut) they will have to make cuts of 1.5 million per district, on the average, just to stop the bleeding before any shortfalls are dealt with. Last year, those same districts made total "budget reductions" of $91 million for an average budget reduction of about $2.75 million per district. Also, a number of these districts face potential losses in operating referendum revenue if their operating referendums are not renewed.

Now when school folks talk about budget reductions, what they really mean is the amount of reductions that are required by revenue shortfalls combined with labor and other cost increases and revenue reductions. Rising labor costs are an important component in what is causing the budget reductions described in the report. Let's take Anoka-Hennipen district for an example. The gap between state funding increases and labor cost increases is out of control, and no candidate is offering a plan to deal with that either.

Anoka Hennipen Example. Let's take some numbers from the AMSD Budget Survey and look at what Anoka-Hennipen is facing next year. Anoka-Hennipen took $3 million out of its budget reserves this last year to avoid making further cuts. As I have said, in order to stay even, without increasing compensation costs a dime, Anoka-Hennipen will have to find another $3 million in cuts next year, or bleed down its reserves next year again by that amount, and of course, that cannot go on forever.

Anoka Hennipen reported budget reductions of $7 million just last year, in addition to the $3 million in reserve reductions. Anoka settled its teacher contracts at a MSBA reported total package cost increase of 4%, that is 2 percent per year. (Anoka Hennipen is using a reporting system that understates the actual total package cost as compared to the way our district reports total package cost. Our total package increase was 3 percent, but using the MSBA technique would be even lower, and so its compensation increases grew comparatively faster than these numbers would indicate) So, part of the reason that Anoka had to find a way to get rid of $10 million in expenses is that it raised its labor costs at 4 percent plus, when the State gave it no increase in regular education and likely reduced special education. You can claim that Anoka-Hennipen is just plain foolish, but that ignores the legal and practical structure surrounding public education in Minnesota. Anoka is running its school district and handling its labor costs in accordance with the collective bargaining rules imposed by the legislature, and its actions are the natural and probable and inevitable consequences of that state mandate. The consequence of that system is that employees receive compensation increases, and those increases may well be deserved, but they happen without any requirement that the State fund those increases. In order to make public education fiscally solvent, funding and pay increases are going to have to come in balance and it is going to take state action to make that happen. I'm not trying to engage in an argument here as to whether teachers are underpaid or overpaid. I'm trying to make a point about fiscal dysfunction: Minnesota has a system that forces up labor costs faster than the State provides revenues to fund those labor cost increases.

Whether you think that it should be brought in balance by draconian cuts in teacher pay, or whether you think that it should be brought in balance by increasing revenues to fund inflationary pay increases, the answer is the same. The current system is leading us down the road to ruin, and it is going to take a fundamental change in state policy to allow that to happen.

Now back to Anoka Hennipen. To produce the 7 million dollars in savings last year, Anoka Hennipen had to cut 73 licensed (mostly teacher) positions and 42 non-licensed positions. If the state "holds school districts harmless" by freezing the formula again and significantly increasing the special education shortfall--which is what politicians mean these days by holding K-12 harmless--then Anoka Hennipen is going to have to make significant cuts in teaching staff even if it doesn't increase staff pay by a dime. It would cost Anoka Hennipen another 36 teaching positions and 20 non licensed positions to avoid drawing on the fund balance another year.

But wait, is anyone seriously thinking that Anoka Hennipen is going to be able to get by by freezing teacher compensation completely next year? In order to do that, Anoka-Hennipen would have to freeze health insurance compensations, freeze base pay again, and also freeze completely steps and lanes. To be frank, Minnesota labor law makes that virtually impossible, even if Anoka Hennipen thought that was fair and wise. In order to make this possible (assuming it were fair and wise) the State would have to make significant changes in the balance of power between labor and management, something which even most republicans have not been advocating and is not found anywhere in the Horner or Dayton programs.

So what, then, does "holding K-12 harmless" mean in this context. It means continued evasion by all of the political parties and evidently all three of the candidates. It means more smoke and mirrors and more pretend. The solution won't be easy; in order to get K-12 on an even keel, and to prevent massive crippling cuts, its going to take a whole lot more honesty, a whole lot more courage, than any of the candidates have shown thus far.

Those of you who think the solution is for school boards simply to "live within your means" frankly just don't get it. In Minnesota, its against the law to live within your means. The State doesn't let you and political leaders won't step up to the plate and admit it. The whole problem is massively more complex than the politicians are letting on and its not going to get solves by a magic wand from politicians who are living in denial.