The Pontiac district’s headquarters may eventually be as empty as some of its classrooms.
There has been some news since Monday’s report on the dire fiscal conditions of many traditional districts. By the end of the day the piece ran, Michigan state officials decided to shut down the Buena Vista school district after it and another district, Inkster, failed to find lenders willing to hand it a lifeline. The 250 children attending Buena Vista’s schools will now head to other districts served by Saginaw Intermediate, the regional agency that essentially oversaw the district; their parents and other taxpayers will still be taxed by Buena Vista into the foreseeable future in order to pay down its outstanding debts.
At least one newspaper’s editorial board, that of the Detroit Free Press, has bemoaned the shutdown of Buena Vista and Inkster because both will wreak “chaos”, especially for the children attending schools in both districts as well as for their families, who must now seek out other options. Certainly this can be an issue; in fact, one thing the state should do is allow for families to either take over the school building for both districts in order to launch their own schools. At the same time, it also must be kept in mind that families are already quite aware of their options. In fact, one reason for Buena Vista’s demise is that families have been leaving the district in droves, choosing nearby districts under the state’s inter-district choice.
Within the past five years, the district’s enrollment declined by 56 percent as families, tired of the district’s academic and operational failures, sent their kids elsewhere; just 433 students attended Buena Vista’s schools this past February, while 493 students attended public schools elsewhere. The impact of expanded school choice on traditional districts — especially those that have been massive failure mills for decades — will add even more pressure on traditional districts already struggling with the consequences of profligate spending and traditional teacher compensation deals (including defined-benefit pensions) that are no longer sustainable. And given the obsolescence of the traditional district model in providing high-quality education, more traditional systems going bust may not be such a bad thing.
One district that may join Buena Vista in oblivion is the Pontiac district in Michigan. In fact, it may end up in state receivership by the end of this month. Last May, the state treasurer cited Pontiac for failing to provide a timely financial report; earlier this month, the state withheld $660,000 in state dollars after the district failed to make $4.2 million in contributions to the MPSERS, the state’s virtually-insolvent defined-benefit pension, even after striking a deal with the state on a payment plan. The district has run fund balance deficits for four straight years; between 2009 and 2012, its annual shortfalls increasing from $8.5 million to $38 million in that time. This past May, it had to go to the intermediate district that oversees it to get $875,000 just to meet payroll.
Although the district isn’t as debt-ridden as many others (just $20 million in long-term debt as of 2012) its failures on the operations front — including overspending its 2011-2012 fiscal year budget of $67 million by $10 million, and weak financial controls — has meant that it has had to burn through its cash and investments just to stay afloat; between 2011 and 2012, Pontiac’s cash and investment reserves declined from $6.3 million to $3.5 million, according to a Dropout Nation analysis of the district’s audit reports provided online by Susan Loveland, a trustee on the district’s board. Given the struggles as well as the likely increases in pension contributions it will have to make to MPSERS in order to cover its underfunding, Pontiac will likely end up in bankruptcy (or dissolved, if the state passes a new law allowing for large districts to be shut down) by the end of the next school year.
But Pontiac won’t likely be alone. Three districts in the state, including Highland Park (whose academic failures are the subject of a suit launched last year by the American Civil Liberties Union’s Michigan branch) are already under state receivership, while 47 other districts are running deficits.
Then there is Milwaukee’s traditional school district, which ranks with Detroit and Indianapolis Public Schools as among the worst-performing academically in the Midwest, if not the nation as a whole. Between 2002-2003 and 2011-2012, the district ran up $173 million in deficits; it only generated of surplus (of $30 million) in 2004. While state aid did declined by 8 percent between 2003 and 2012, those reductions were offset by a two-fold increase in federal funding in that period (from $80 million to $229 million). By the way: Milwaukee’s revenue increased 11 percent between 2003 and 2012 even as enrollment declined by 23 percent in the same period. This is largely because Wisconsin’s school funding formula — which focuses on annual daily membership (or the number of students within district boundaries regardless of whether they attend its schools — effectively pays the district for more kids than are actually attending its schools; in 2011 alone, the district received dollars for 22,581 more students than it actually enrolled.
The bigger problem for Milwaukee lies with bad decisions on the fiscal (as well as the academic) front. The district is still paying off what’s left of the $112 million in bonds it floated within the last decade to build six new schools, and add classrooms to 34 existing buildings as part of its Neighborhood Schools Initiative. The effort, which aimed to stop families from sending their kids to schools outside their neighborhood as well as bring back families whose kids attended better-performing private and charter schools, was launched by the district in spite of overwhelming evidence that it satisfied neither; it resulted in the district being left on the hook for empty classrooms and buildings. The $1.4 billion in unfunded retiree healthcare liabilities weigh even more heavily on Milwaukee’s finances. The district also reports another $137 million in pension shortfalls in its two early retirement (or DROP) plans, to which teachers and other staffers contribute nothing, yet still receive rather generous annuity payouts at any time between ages 55 and 62; the district bases its assumptions on a rate of return of eight percent on pension investments that isn’t even close to reality given that the Standard & Poor’s 500 hasn’t even had that level of annual gains . Based on Dropout Nation‘s analysis, which uses a more-realistic 5.5 percent rate of return, the two Milwaukee DROP plans are underfunded to the tune of $189 million. [The district only has $146 million in cash, nearly two-fifths of it restricted, and thus, can never be tapped.]
When one adds in the $182 million in in pension obligation bonds floated by Milwaukee to pay off its share of Wisconsin’s defined-benefit pension benefit — along with the reality that the $46 million in contributions (both the district’s share and that which should be paid by teachers and other employees) it makes to the state pension will have to increase in order to pay off the Badger State’s pension deficit, it is clear that the district is in dire straits. Wisconsin Gov. Scott Walker’s successful effort to require teachers and other civil servants to take on 50 percent of contributions into the state pension may help Milwaukee offset some of its burdens. But it won’t be enough for the long haul.
By the time this decade is over, there may be even fewer traditional districts in operation because of fiscal fecklessness and educational malpractice. This is an opportunity to move away from a structure of providing education that is inadequate for a time in which quality matters more than scale.