Introduction Of Gppss District Financial Bench Marking Report

Introduction of the GPPSS District Financial Benchmarking Report As a component of the Budget Development Parameters Resolution passed in January 2008, the Board of Education directed the administration to develop a series of financial reports to aid in development of a multi-dimensional view of key financial metrics and financially related decisions. The five reports to be developed were: 1. Staffing and Class Size Report 2. Cost Reduction Worksheet 3. Variable Cost Report 4. Sources and Uses Report by District Operating Unit 5. Financial Benchmarking Report Each of these reports has played an important role in budget development and management activities. At our Work Session on April 14th, the Board will receive the initial views of the last two of these reports. This document will serve as background on the Benchmarking Report in anticipation of questions. What is the purpose of the report? School districts across the state of Michigan operate under a fairly consistent financial construct and are generally faced with common challenges. Similar in nature to a professional sports team’s payroll salary cap, school districts have limited abilities to increase their revenue, have generally common sets of expenses, and certainly consistent academic objectives. We have all come to learn that no district in the state is immune to the current financial pressures and that most districts are presented with a series of trade off decisions about how to allocate limited funds. Therefore, the intent of the Benchmarking report is to compare how GPPS and other districts generate and allocate their funds. Each line item for each district provides a view into how each community has approached the same challenges on a consistent basis. It also offers a comparison in a longitudinal view for each category over a period of years. How was the data compiled? The Michigan Department of Education annually publishes a Bulletin 1014 (found at http://www.michigan.gov/mde/0,1607,7-140-6530_6605-21514--,00.html ). It is typically published in the late spring for the preceding year’s (not current year’s) financial data. This data is reported by each school district in the state to the Department of Education. So one of the great benefits of the report is that the data is publicly available and inherently impartial. In large part the data appears to have integrity, although there are a few noticeable anomalies (e.g. It is unlikely Birmingham had a student to teacher ratio of 24 in 2003/4 and then dipped to 18 a year later). But with the mass of data, the source should generally be considered reliable. These annual reports are available for past years so the initial report shows data starting from school years 2003/4, 2004/5 and 2005/6. Data from 2006/7 should be posted within a few weeks and at that time the report can be updated. It is worth noting, however, that the latest available data on this report will always be at least a year old. Therefore the district’s most recent financial decisions will not be reflected in the report. How were the school districts on the report chosen? There are 14 districts in total on the report. The list would have been shorter had we selected only those in close geographic proximity, or only other Hold Harmless districts, or only those considered high academic performance districts. Ultimately we saw no downside to taking a sampling on a number based on any of Submitted by: Brendan Walsh Date: April 14, 2008

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these criteria. We did not want the list to be too exhaustive as the data would begin to become too cumbersome to analyze and present. On what basis can we fairly compare such an array of districts? Bulletin 1014 provides an incredible amount of data, but presenting the data from each category on a per pupil basis provides the common denominator needed to make the comparisons relevant. The only report elements not reported on a per pupil basis are the millage rates and the ratio of Instructional Expense to Total Expense (but even this has its roots in per pupil figures). Given that school funding is based primarily on enrollment and delivered on a per pupil basis, the unit of comparison is logical and practical. How were the comparison data elements calculated? To facilitate comparison between GPPSS and the other districts some basic calculations were developed. The first is the calculation of the average for each category and for each year presented. This is nothing more than a straight average. Two variances are also presented. The Actual Variance is the average for the sample group less the GPPSS figure for that year. (e.g. For the 2005/6 Pupil:Teacher ration, GPPSS’ ratio is 2 students lower than the average of the sample group.) The Percentage Variance is the calculation of how much higher or lower the GPPSS figure is from the Average on a percentage basis. (e.g. Again for Pupil:Teacher ratio in 2005/6 the GPPSS ratio was 9.2% lower than the average.) The Trending analysis is the percentage change in category from the earliest year’s report to the most recent year. The first item shows the trend for the average of all the districts. The second is the trend for just GPPSS. The combination of the Variance and Trend data provides both a snapshot and a long-term view of these financial elements. What does the color coding mean? This is where the data analysis begins. In the Variance Analysis row, at least on a preliminary basis, the GPPSS variance to the average is considered Favorable, Unfavorable, or Neutral (Green, Red, or Grey). The same color scheme is used to categorize the trend of the entire sample and that of GPPSS. For example, again using the Pupil:Teacher ratio, it is favorable that GPPSS has a lower average (meaning smaller class sizes) than the average of the sampling, therefore the Variance analysis is Favorable. In the trend analysis, both the sampling trend and GPPSS trend are increasing (which means larger class sizes). In general, both trends are Unfavorable. This trend stands to reason since for the period covered by this report (2003-2006), GPPSS was addressing the budget challenges in large part by increasing class sizes. The data from 2006/7 and again in 2007/8 should show our trend stabilizing since we have not increased class sizes the last two budget cycles. It will be interesting to compare how the other districts trend in this area over the next two years. Not all fields as easily interpreted as Pupil:Teacher ratio. An interesting example is Instructional Expenditure Per Pupil. GPPSS has averaged a 20% investment premium compared to the average, which could be interpreted as favorable - and on some level it certainly is. But the question could be posed, at what point is that premium achievable at the detriment of some other data point? There could be different interpretations of the same data. Either way it is compelling and worthy of notice. Comparing data across different fields is also a worthwhile exercise. For example, the Total General Fund Revenue Per Pupil has increased by 5.5% for the group and by 3.5% for GPPSS. Meanwhile, Total General Fund Expenditures Per Pupil increased by 6% for the group and 5.3% for GPPSS. Obviously the combination of the trends are at odds rendering them both Unfavorable. Submitted by: Brendan Walsh Date: April 14, 2008

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What are the other significant points of comparison brought to light in the benchmarking report? As stated above, individuals may have different views on the same data and the interpretations offered in the initial document are subject to change after discussion. But here is a field by field review of the information. Data Field Pupil Count

Pupil:Teacher Ratio

Instruction Salaries Per Pupil

Revenue Categories

Instructional Expenditure Per Pupil Business and Administration

Operations and Mntc. Total General Fund Expense Per Pupil

Millage and SEV per Pupil Data

Pros GPPSS enrollment appears stable.

At a 9.2% advantage over the average, GPPSS compares very favorably. With staffing and class size being such large components of the budget, this figure clearly shows our investment priorities. The data clearly shows we make the investment necessary to hire and retain the best instructional staff possible, paying a 20% premium over the average.

Cons Sample trend increasing at a more favorable rate while GPPSS is decreasing very slightly. While the ratio has only increased by 1 student over the 3 years covered in this report, the rate of increase is significant.

Other Commentary Worthy of monitoring the trends, but ensuring staffing scales with enrollment is just as critical. Class sizes have not increased since 05/06 and this will remain the case through at least 2008/9. We should continue to compare very favorably in this area.

There can be no substitute for a great teaching staff, but it cannot come at the detriment of other necessary expenses.

This data is obviously closely correlated with the pupil : teacher ratio. As long as we continue to maintain that lower ratio, this category is likely to remain higher than most districts. Proposal A makes these revenue figures really entirely out of our control. It is worth noting, however, the delta between GPPSS and the other high performance academic districts. The 1014 report is not explicit about how this data is different from the Instructional Salaries field. Clearly they are close. All in all, this is more good news than bad. Claims of our district being “top heavy” in administrators are not supported by the data. Large reductions in this category over the last two years should begin to show in the next report. The years covered in the report represent the peak of the recent budget challenges. Watching this ratio and its sub-elements in the coming reports will be beneficial. In general it may come as a surprise that GPPSS’s tax rates compare favorably to many of those in the sample. Even with the Sinking Fund factored, this is offset by a lower Debt Millage rate. We collect a tax premium above the average based on the SEV, but the report elsewhere demonstrates that the investment takes the form mainly in higher instructional expenditure per pupil.

Our 11.2% premium advantage over the average, with a higher index coming from the state, makes our position very favorable.

Our rate of increase is outpaced by the trend of the sampling and below that of Total Expenditures per Pupil.

(See Instructional comments.)

(See Instructional comments.)

Salaries

GPPSS is essentially at the average for the sample and these expenses have actually decreased while the sample’s has increased. This expense category has been flat while the sample’s average has increased sharply. We invest at a 12.8% premium compared to the sample and have the most favorable percentage of investment in Instructional investment against total expenses. Factoring all components, GPPSS millage rates are only 4% higher than the average of the sample. Debt Retirement in GP is much lower than the sample. Our Hold Harmless rate is almost exactly the average for the HH districts in the sample.

Submitted by: Brendan Walsh Date: April 14, 2008

Salaries

Can we be certain that the level of investment is reasonable for our district’s needs? The overall expense per pupil is substantially higher than the average (a 24% premium). As noted elsewhere, our expenses are trending at a rate of increase greater than our revenue.

Only 4 of the districts in the sample have approved a Sinking Fund.

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