By: Mike Hagerty, CFO, MSBO President, Asst. Superintendent, Administrative Services, Kent ISD
When we look at finances in schools, we typically focus on 5 key areas; two on the revenue side and three on the expenditure side. Those 5 areas are:
- Foundation allowance
- Student count
- Retirement costs
- Health care costs
Setting aside #3 wages, which is typically determined through the negotiation process, one could argue that the other four are in the best shape they have been in the last 5 – 10 – or 15 years. For all you newbies out there that have been in schools less than 10 years, I’m sorry to say but times are pretty good right now. Let me explain why I think this by taking them one by one.
#1 — Foundation allowance — we all know this, but this past year we received the highest increase in the foundation allowance in the past 15 years. If we were to break the past 15 years down into three 5 year segments, the past five years have clearly outperformed the previous 10 years. Take a look at the net change in foundation allowance during these three segments:
FY ’15 – FY ’19 = +$795
FY ’10 – FY ’14 = ($240)
FY ’05 – FY ’09 = +$593
The figures above reflect the change in the minimum foundation allowance, however, even when using the 2x formula, the higher funded districts have been much better off the past five years as well. I’m sure we have all seen the chart below from the House Fiscal Agency which illustrates the change over the past 20 years. Needless to say, the late 90’s and early 2000’s were different!
#2 — Student count — we have all seen the chart below from the House Fiscal Agency indicating we topped out in student count in 2004 at 1.71 million students. Since then, we have seen a decline every year for the past 15 years. However, there is good news on the horizon. While the student loss since 2004 has been close to 14% or an average of 1% per year, based on the student count figures from the May Revenue Consensus Conference, the loss of students in 2018-19 is only 5,000 total students or .3% compared to the prior year. And the projected state- wide loss of students for 2019-20 is 4,000 students, which when considering there are 1.47 million students in the system, one could argue that it is essentially break-even.
#3 — Wages — since wages are a negotiated item I won’t address in this article as it will vary district by district.
#4 — Retirement wages — as I illustrated earlier in the foundation allowance piece, from FY ’05 – FY ’14, the foundation allowance increased a net $353. That is over 10 years. If the small increase in the foundation allowance wasn’t bad enough, the retirement rate from FY ’04 – FY ’14 increased from 12.99% to 24.79% (Basic/MIP w subsidy), an increase of 91%!! I would bet at no other time in the history of the retirement system has it averaged over a 9% increase per year for 10 straight years. But the good news for today is that the increase in the retirement rate paid by districts has been quite minimal over the past five years. Over that stretch of time, the rate has only risen from 25.78% in FY ’15 to 26.18% this year for a total increase of 1.5%. Let me say that a different way…over the past five years, the annual increase in the retirement rate has been .3%, while the 10 years before that, the average increase per year was over 9%. And one more point for those that are going to be around 20 years from now (the lucky ones!), the retirement rate in 2037 is expected to drop from around 29% to around 5% once the unfunded liability is paid off.
#5 — Health care costs — in September, the MI Department of Treasury released the medical CPI rate for 2019. The employer portion of medical costs increased 1.9%, the lowest increase in the past seven years and the lowest since inception of this legislation. The average increase had been close to 3% per year, so a 1.9% increase should be welcoming news to districts. Below is a chart I created illustrating the rate increase over the past seven years.
So, are we in the glory days of school district finances? There certainly is a chance that we are. All of the above mentioned metrics are in the best position they have been in a long time. There is also a chance the metrics continue to improve and things get better for districts. We all know the economy is strong which drives money available in the school aid fund, not to mention over $908 million from the school aid fund is being spent on community college and university funding and another $1.25 billion is being spent on pension liability. So I guess the answer to the question of whether we are in the glory days is…“only time will tell”.