Grosse Pointe Public School System

Financial Transparency Series

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2 0 1 1 - 1 2 F I N A N CI A L STAT E O F T HE DI ST RI CT A ND PROJEC T E D E F FECT O F E MPLOYE E CO NT RACT S

P R E PA R E D B Y: B R E N D A N W A L S H , T R E A S U R E R , B O A R D O F E D U C AT I O N NOVEMBER 28, 2011

Key General Concepts

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Statewide comparison data is from the Michigan Dept. of Education Years 2008 through 2011 figures foot to the districts annual financial audits. (2008 is the 2007-8 Fiscal Year) Years 2012 through 2015 use reasonable projections and also account for the effect of employee bargaining unit contracts (BMU provides budget for next four years)

Source Data

Compensation Definitions

Direct compensation is salary and any additional direct cash payments made to employees, governed by contract (e.g. extra pay for extra duty) Indirect compensation is net health care, FICA and MPSERS, the state mandated retirement benefit system

School Funding

State dictates per pupil operating revenue Health care is negotiated locally, but with expiration of current contract, employee contributions will increase Retirement rate (MPSERS) and FICA are non-negotiable locally. MPSERS costs derived by state set percentage rate applied against salary costs.

Employee contracts Key Concepts

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Theme & Intent

Emphasizes total compensation rather than just direct compensation Shares risk and reward proportionally across all employees Ties total compensation to school funding variables beyond our control

Triggers & Effect

Acknowledgment between the district and bargaining units that a 10% Fund Equity level is sufficient

Implications & Benefit

The districts financial health is protected by the contracts whereas before Fund Equity itself was the protection

If Fund Equity drops below 10%, employee total compensation is reduced proportionally to their percentage on overall budget

Allows the district to make investment decisions guided first by best interests of students, not compensation or budgets

GPPSS and statewide proportional investment by object

Salary costs are our largest expense and most significantly out of skew with state
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Statewide Avg. 70.0%

GPPSS

60.0% 50.0%
40.0% 30.0% 20.0%

10.0%
0.0% Salaries Employee Benefits Purchased Services Supplies & Materials Capital Outlay Other

(Source: Michigan Dept. of Education)

GPPSS and statewide proportional investment by function

Basic Instruction also our largest expense and again most out of skew
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Statewide Avg. 60.0% 50.0% 40.0% 30.0% 57.0% 48.9%

GPPSS

20.0%
10.0%

0.0%
Basic Instruction Added Needs Instruction Instructional Support Business & Admin. Operation Maint. Transport.

(Source: Michigan Dept. of Education)

Revenue and Expenses from 2004 to 2010

A story of irreconcilable trends
Per Pupil 2004 8,915 2010 8,416 Statewide Rank 2004 2010 (of 744) (of 783) 32 31

Enrollment Operating Revenues Local State Federal* Total

* 2010 was a bubble year for Federal revenue

$ $ $ $

3,087 7,524 212 11,028

$ $ $ $

2,912 7,464 649 11,025

82 23 555 42

111 111 472 63

Expenditures Basic Instruction Added Needs Instruction Instructional Support Administration Operations & Maintenance Transportation* Total Revenues less Expenditures
* 2010 state average transport cost/pupil was $377

$ $ $ $ $ $ $ $ 6

5,658 1,033 1,014 1,160 1,458 45 10,368 660

$ $ $ $ $ $ $ ($

6,283 1,505 1,397 1,319 1,175 75 11,754 729)

28 218 86 300 91 571 38

31 134 49 332 199 601 45

(Source: Michigan Dept. of Education)

Good news, bad news story of salary compensation and pupil to teacher ratios
Statewide Rank
2004 Total Operating Revenue per Pupil Instructional Salaries per Pupil Support Services Salaries per Pupil $ $ $ 11,028 6,536 2,645 $ $ $ 2010 11,025 7,444 3,055

2004 (of 744)

42 18 90

2010 (of 783)

63 26 47

Average Teacher Salary Combined Retirement and FICA Rate

General Education Pupil to Teacher Ratio Statewide Average GPPSS Average and Statewide Rank GPPSS Rank among same sized districts (49 total)

66,799 20.64%

85,851 28.26%

22.0 18

22.9 20

144 3

223 3

If projected salary reductions triggered by teacher contract were to happen, our average teacher salaries would rank 52nd in the state
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(Source: Michigan Dept. of Education)

Revenue and Expenses per Pupil

Annual surplus in 2008, Deficits in 2009 through 2013
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$13,500

$13,000
$12,500 $12,000

$11,500
$11,000 $10,500

$10,000
2008 2009 2010 2011 2012 Expense 2013 2014 2015 Revenue

General Fund Annual Revenue and Expenses

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$110.0 Annual Rev. , Exp. in Millions $105.0

$108

Structural surplus

$8.0 $6.0 $4.0 Annual Delta in Millions

$6.8 $3.4

$100.0

$95.0
$90.0 $85.0 $80.0

$1.6

$97

$2.0

$0.0 ($1.0) ($3.2) ($4.2)

Structural deficit ($6.2) 2013 2014 2015

($1.2)

($2.0) ($4.0) ($6.0) ($8.0)

2008

2009

2010

2011

2012

Total Revenue

Total Expenses

Annual Delta

Total compensation by employment group as a percentage of total General Fund expenditure

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95.0% 90.0%

85.0% 80.0% 75.0% 70.0% 65.0%

60.0% 55.0% 50.0% 2012 2013 2014 65.8% 66.4% 67.3% 5.2% 3.0% 4.4% 4.0%

Technology 5.3%
3.0% 4.4% 5.4% 3.0% 4.4%

Exec Admin NIS Parapros TA's Clerical

Plant Bldg Admin Teachers

4.0%

4.1%

Ratio of Employees to Student Enrollment

8% workforce reduction from 2007-8 through 2011-12
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30.0 28.0 26.0 24.0 22.0 20.0 18.0 16.0 14.0 12.0 10.0

Ratio of Employees to Students

8,700

8,600 24.7 26.2

23.4 26.6 26.7 26.7 26.7 8,500

24.4

8,400
8,300 8,200

8,100
14.2 2008 13.8 2009 14.1 2010 14.3 2011

14.3
2012

14.3
2013

14.3
2014

14.3
2015

8,000 7,900

Student to Teacher Ratio

Student to Non-Teacher Ratio

Total Students

If we tried to solve deficit via staff reductions, wed cut 55 employees including 37 teachers

and even then the root cause of the structural deficit would not be solved.

Student Enrollment

General Fund Equity total value and as % of General Fund revenues

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$25,000

20.0%

$20,000
Fund Equity in Thousands

16.0% 14.0% 12.0% 10.0% 8.0%

6.0% 4.0% 2.0% 0.0% 2008 2009 2010 2011 2012 2013 2014 2015 Value % of Revenue

$15,000 $10,000
$5,000 $0

Fund Equity as % of Revenue

18.0%

Expenses per pupil by major expense category

Small margin of expense over revenue is amplified by student count
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$14.0 $12.0
$2.0 $1.8 $1.2 $2.0 $1.9 $1.2

$2.0
$1.9 $1.2

$2.0

$1.8

$1.8 $1.7

$10.0
Thousands $8.0 $6.0

$2.0
$1.2

$2.4
$1.1

$2.5
$2.3 $1.1 $0.9

$1.6 $2.2 $0.9

$4.0
$2.0 $0.0

$7.4

$7.8

$7.7

$7.2

$7.4

$7.3

$6.6

$6.4

2008 Direct Comp.

2009

2010

2011

2012

2013 All Other

2014

2015

Health Care

Retirement/FICA

Revenue/Pupil

Major expenses per pupil as a % of revenue per pupil

Retirement cost escalation is clearly our biggest problem
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Direct Compensation 100%

16%

Health Care

MPSERS/FICA
15% 19% 9% 15%

Other

16%

16%

16% 16%

14%
21%

80%
60% 40%

14%
9%

15%
10%

15% 10%

14% 18% 8%

10%

9%

19%

8%

59%

61%

62%

59%

61%

61%

20%

55%

53%

0%
2008 2009 2010 2011 2012 2013 2014 2015

Retirement costs are a function of state set rate applied to salaries. Salary reduction is only way to reduce retirement costs.

Year over year percentage change in average total compensation by major element
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20.0%

18.1%

15.0%
10.0% 5.0% 0.0% 1.1% 0.3% 1.1% 2.5%

9.6%
2.9%

8.3%

-5.0%
-10.0% -15.0% 2009 2010

-2.8%

-1.0%
-4.4%-4.4% -9.3%-9.3%

2011

2012 Health Care

2013

2014

2015

Direct Compensation

MPSERS/FICA

Total compensation per employee

and average total compensation per employee % change from 2008
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$120.0 Avg. Total Compensation in Thousands $100.0 $80.0 7.7%

10%

$16.4

$16.5

$16.9

6.5% $18.5 $21.9

$23.7
$21.5

6% $20.5
4% 2% 0%

2.3% $60.0
$40.0 $20.0 0% 0.9% $68.1

1.9% -2.6% $68.1 $61.8

$67.3

$68.8

$66.9

$68.8

-2% $59.1

-4%
-6% -8%

-6.6% $0.0 2008 Direct Comp. 2009 2010 2011 2012 2013 2014 2015 Health Care MPSERS/FICA

Change from 2008

Difference from 2008 baseline

8%

Change in per pupil revenue vs. change in average total compensation per employee against 2008 baseline
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10.0%
8.0% 6.0%

Revenue/Pupil

Avg. Total Compensation 7.7% 6.5%

4.0%
2.0% 0.0% -2.0% -1.6% 2.3% 1.9%

-2.6% -3.0% -3.8%

-5.0% -5.0% -5.4% -6.6% 2015

-4.0%
-6.0% -8.0% 2009 2010

2011

2012

2013

2014

Various Revenue & Retirement Rate Scenarios and Effects

Current Projection Change in Revenue per Pupil 2011-12 2012-13 2013-14 2014-15 MPSERS (Retirement) Rate 2011-12 2012-13 2013-14 2014-15 Average Salary Reduction 2011-12 2012-13 2013-14 2014-15 Ending Fund Equity % 2011-12 2012-13 2013-14 2014-15
($58) ($142) $0 ($50) 24.46% 27.46% 27.46% 27.46% Scenario A $0 $0 $0 $0 20.43% 20.43% 20.43% 20.43% Scenario B $0 $0 $0 $0 24.46% 24.46% 24.46% 24.46% Scenario C ($58) $1,155 ($455) ($50) 24.46% 27.46% 27.46% 27.46% Scenario D ($58) $0 $0 $0 24.46% 16.50% 21.10% 22.30%

-2.65% -10.19% -5.62% 8.28% 1.90% 5.49% 12.65%

0.00% -2.19% -1.49% 11.23% 8.61% 8.95% 10.32% 18

N/A -2.15% -6.00% -2.00%

8.72% 5.43% 8.34% 12.91%

-2.65% 0.00% 0.00% 8.28% 10.00% 10.00% 10.00%

-2.88% 0.00% 0.00% 7.78% 10.00% 10.00% 10.00%

Summary
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Despite a massive change in our revenue model, compensation systems never truly adapted.

As MI has lost wealth and tax revenue, GPPSS is similarly not as wealthy in both absolute and relative terms.

Salary costs are our most out of skew expense. Combined with rising retirement rates, this has created a structural deficit unlikely to be fixed with increased revenue.

Our contracts provide a mechanism to rationalize our salary costs against this backdrop while allowing GPPSS to preserve its programs and design.