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COMMENTS FOR ALN FINANCIAL FORUM
NEWPORT PUBLIC SCHOOLS
Our past forums have pretty much ignored the School
Department portion of Newport's budget. We have been
remiss in doing so, since the Schools represent over
20% of the City's overall budget and over 30% of that
portion of the budget supported by property taxes.
There are several aspects of the School's budget that
deserve attention.
Seemingly on the positive side, the School's budget
has been able to hold its annual increase to a steady
one percent per year for the past five years. However,
over that same period of time, school enrollment has
decreased by close to 20% -- as the slide demonstrates,
6% between 2006 and 2008 alone, the school staff has
decreased by more than 20%, and two of its seven schools
(three of eight if you include Lenthal) have been
closed. Yet the expense level continues to climb.
Per student expenses are projected to be in excess
of $18,500 this fiscal year - 40 to 50% greater than
that of Middletown and Portsmouth. Why?
City Council Member Justin McLaughlin shared an interesting
accounting exercise with me. Beginning with data from
2002, he first reduced the City's contribution to
the School's budget by an amount proportional to the
drop in enrollment that year, as the Council is entitled
to do by State law. He then increased that result
by the maximum tax rate increase allowed by Rhode
Island State Law. That result was the starting point
for the same adjustments in 2003 - reduction in keeping
with enrollment followed by increasing in keeping
with the maximum allowable tax rate increase. This
process was continued for years 2004 through 2009.
The final 2009 result of this exercise was a City
contribution to the School budget of nearly $4million
less than the actual contribution. There is a good
argument for saying that the Schools should be managing
to that lower number, possibly adjusted upwards for
decreases in State funding - which amounts to less
than $500,000 presently.
I believe a major portion of the answer to "Why?"
comes from looking at personnel costs, which represent
80% of the School's budget. For fiscal years 2008
and 2009 the School's staff decreased by close to
10%, but expenditures for salaries and benefits climbed
by close to 5%. That means that during a period where
the cost of living increased by less than 2% and the
unemployment rate in Rhode Island nearly doubled,
the School's employees received salary and benefit
increases of 5.5%, maintaining these costs among the
highest in Rhode Island and well above the national
average. Of more concern is the fact that if 80% of
the budget, the personnel costs, increased by 5% but
the entire budget increased by only 2%, then the remaining
20% of the budget, the non-personnel costs, had to
decrease by nearly 20%. What impact has that had on
the quality of education provided by Newport's schools?
Are additional personnel costs savings possible? What
about the $109,000 in the FY2010 Budget for overtime?
Then there are the two very large elephants in the
school closet. The first is the School's unfunded
Other Post Employment Benefits (OPEB) liability --
mostly retiree health benefits -- estimated at close
to $70million. Consistent with its past practices,
the Schools continue to ignore the future liability,
with one relatively minor exception, and handle costs
on a pay-as-you-go basis. The exception is that annual
employee contributions, an amount in the range of
only one percent of the needed annual cost to fund
the liability, are directed to the OPEB Trust Fund
established by the City. For fiscal year 2010, the
pay-go cost is budgeted at more than $3,700,000. Without
a pre-funding plan for the liability, that pay-go
annual cost will keep climbing to over $10million
within the next five to ten years. The City has adopted
a program to fund its OPEB liability for non-school
employees over a thirty year period -- it is now in
the third year of that program -- and the School Department
should consider doing the same to avoid being overwhelmed
by future costs.
The other elephant is the need for a new elementary
school. The School Committee is proposing a ballot
issue for next year's elections asking Newport's voters
to approve the issuance of at least $24million of
bonds to pay for a new school. The State is expected
to reimburse 30% of the cost. However, it remains
unclear as to 30% of what will be reimbursed - the
K-4 school proposed by the School Committee or an
amount equivalent to the cost of a K-2 school that
the State insists is all that Newport really needs
due to excess space in Thompson and Rogers.
Touching on this issue is the subject of consolidation
of the school districts on Aquidneck Island, or at
least a more cooperative arrangement among the Island's
municipalities. The Rhode Island Public Expenditure
Council (RIPEC) sponsored a study by the Aquidneck
Island Advisory Council of the benefits that would
accrue from various levels of consolidation. One of
the most eye-opening benefits relates to the building
of new schools. All three of the Island's municipalities
are in need of new and/or greatly refurbished schools.
If Newport and Middletown each build a new school
for $24million apiece (a total cost of $48million),
the State would reimburse 30% of the cost, or $14.4million,
leaving roughly $34million to be borne by taxpayers
-- $17million for each municipality. However, if Newport
and Middletown combine their effort and jointly build
one school, the State will reimburse 60% of the cost.
With economies of scale the total cost of a single
school should be held to $40million instead of the
$48million for two schools. 60% of $40million is $24million,
leaving $16million for taxpayers, $8million for each
municipality. It's not rocket science folks! What
makes more sense, a $17million liability or an $8million
liability? Assuming current level bonding costs, this
translates to annual savings of more than ten cents
per thousand valuation for Newport's property taxpayers.
The RIPEC Study goes on to enumerate many other benefits,
beyond the financial aspect, to the quality of education
that would come from consolidation. Better quality
education for a steeply lower cost - what more could
you ask?
What are the chances of consolidation happening anytime
soon? It will be very difficult. There are many entrenched
parochial interests in the three communities and fears
about job security and issues of seniority among the
school districts' employees allied against progress
in this direction. Action at the State level is required
and the same allied interests in other districts across
the State make that just as problematic without a
statewide grass roots effort. RIPEC has called for
grass roots support, but that is not yet forthcoming.
In my opinion, RIPEC deserves our support. The Aquidneck
Island communities need to work together and get their
state government representatives to commit to trying
to make this happen.
Actually, there is a third elephant in the School
Department closet, but its size is not yet known.
I'm speaking of the efforts of the Governor and the
State Legislature to maintain mandates for the State's
schools while reducing State funding for those mandates
in order to balance the State's budget. One big problem
for Newport's schools is that the State has awakened
to the fact that the City has enjoyed the same level
of state funding over the past several years as has
the State's other school districts while enrollment
here has decreased steadily. This puts Newport's per
pupil funding way out of proportion to that of other
school districts whose enrollment has increased or
at least not decreased anywhere near as much as has
Newport's. In the midst of a move to realign funding
for the State's school districts, efforts are being
made by Newport's legislative representatives to have
Newport's funding level frozen until such time as
the original proportional level is achieved by increases
to the other districts rather than subjecting Newport
to a sudden decrease in funding, which could amount
to well over $2million, an amount the City would find
almost impossible to replace. This year the School
Committee successfully persuaded the City Council
not to reduce the School's budget allocation proportionally
to the drop in enrollment, as the Council was legally
entitled to do. I hope they are equally successful
at the State level.
We are not attempting to propose specific solutions
to the financial problems faced by Newport's schools.
Our purpose is to raise public awareness in the hope
that this will stimulate the Newport School Committee,
the School Administration and the Newport City Council
to work jointly and openly with the public to develop
solutions. Labor costs, new schools, state funding
and unfunded OPEB liabilities all are huge problems
that require immediate action. The alternative is
an eventual financial meltdown for the City's schools.
Where there may be controversy over various possible
solutions, ALN extends an offer to sponsor public
forums at which all sides of any such controversies
can be aired.
Created by Ron Becker for presentation September
28, 2009
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