Month: October 2017

As we’ve outlined throughout this series, Afton identified 8 ways that school districts can mitigate the effects of enrollment decline (and these were highlighted in CRPE’s “Better Together: Ensuring Quality District Schools in Times of Charter Growth and Declining Enrollment”):

1. Uniform intra-district funding formula for district and charter schools
2. Continued operational efficiencies, with an eye toward making costs more variable
3. School closures and corresponding real estate transactions
4. Redistricting / efficient enrollment planning
5. End “last in first out” methods of reducing staff
6. End unsustainable/unfunded salary commitments (step/lane/raise)
7. End proliferation of long-term fixed cost obligations (pension/OPEB)
8. District commitment to decision-making based on long-term planning

In the final installment of this series, we will highlight remedy 8.

Affording Quality Schools – Remedy 8: Make a Commitment to Long-Term Planning

Districts need to maintain a well-informed long-term plan including detailed projections of enrollment patterns, such that their planning can be adjusted to accommodate student needs. Almost all of Afton’s recommendations for school districts coping with financial challenges from enrollment migration stem from this long-term planning point, and almost all of Afton’s findings for school districts struggling with this issue could have been identified as issues and potentially mitigated through better long-term planning by school districts.

Policies, practices, and infrastructure that drive costs to be fixed or partially fixed take time to adjust – significant changes to contractual commitments, facility footprints and enrollment boundaries, school closures and openings, size and type of central and shared services to be provided, and capital/debt plans take time to develop and execute. But most districts are operating without a long-term plan for serving students that encompasses enrollment migration and the impact of potential charter school authorizations. As evidenced, most of the inefficient money is caught up in organizational policies and facility structures, which could be adjusted given enough time, making seemingly fixed costs more variable with enrollment decline.

Any capital bond program being contemplated by a District should be carefully balanced with the reality that many school buildings may not be needed in the future. One risk with this kind of financing planning is that Districts will incur long-term debt to make significant upgrades to buildings that may need to be closed or reconfigured in the next decade. Comprehensive long-term planning with an eye toward enrollment patterns can lead to better capital planning decisions.

And, while Districts typically have a small amount of perfectly fixed costs, they are still relevant in that the District must pay them no matter how many students it serves, and therefore the long-term planning of the District must ensure there is funding set aside to pay for these obligations. And sometimes there are off-balance-sheet obligations such as OPEB which further increase fixed cost obligations and must be considered as commitments that need funding during long-term planning.

Districts tend to focus on the annual budget and not the long-term enrollment and school-type mix forecasts. Districts need to consider the implications of potential enrollment shifts as they plan their organizational structure, building operations, capital investments, and financing plans.

As we outlined earlier in this blog series, Afton identified 8 ways that school districts can mitigate the effects of enrollment decline (and these were highlighted in CRPE’s “Better Together: Ensuring Quality District Schools in Times of Charter Growth and Declining Enrollment”):

1. Uniform intra-district funding formula for district and charter schools
2. Continued operational efficiencies, with an eye toward making costs more variable
3. School closures and corresponding real estate transactions
4. Redistricting / efficient enrollment planning
5. End “last in first out” methods of reducing staff
6. End unsustainable/unfunded salary commitments (step/lane/raise)
7. End proliferation of long-term fixed cost obligations (pension/OPEB)
8. District commitment to decision-making based on long-term planning
   In this part of our series, we will highlight remedies 5, 6, and 7.

Affording Quality Schools – Remedies 5, 6, and 7: Curb Policies That Inflate Costs as Enrollment Declines

Most districts have long-standing contractual agreements and debt agreements that inhibit a school district’s ability to make changes to operations. Making changes to those agreements and avoiding common pitfalls are critical elements to weathering the financial impact of enrollment decline, as highlighted below.

(5) End “last in, first out” methods of reducing staff. Most districts have collective bargaining agreements that require the most junior staff to be laid off. The resulting impact is an increase in average teacher salary, at a time when a district is trying to reduce costs in proportion to enrollment decline.

(6) End unsustainable/unfunded salary commitments (step/lane/raise). Another commitment that school districts often make is guaranteed salary increases in the form of the typical step/lane/raise teacher salary scale. These salary increases can only be afforded if funding increases proportionally either through economic growth or enrollment growth. Basically, growth can often mask the fact that a district made future commitments that far exceed funding that current and future levels of student enrollment will produce.

(7) End proliferation of long-term fixed cost obligations (pension/OPEB). Even if school districts reduce their staffing levels in proportion to enrollment decline, they are often left with future obligations to past employees. These obligations grow exponentially on a per-pupil basis and in proportion to a district’s overall budget in the wake of enrollment decline. To protect a district’s commitments to the students of today and tomorrow, commitments to support employees with pension and health care far beyond their service time at a school district need to be carefully weighed and front-funded.

• Catch up on this series:
  • Introduction: Defining the Problem
  • Part 1: Solutions and Remedies 1 and 2: Reinventing Funding Formulas and Services with Costs That Seem Fixed
  • Part 2: Remedies 3 and 4: Infrastructure Changes and Redistricting
• Read on to Part 4: Remedy 8: Make A Commitment to Long-Term Planning

As we outlined earlier in this blog series, Afton identified 8 ways that school districts can mitigate the effects of enrollment decline (and these were highlighted in CRPE’s “Better Together: Ensuring Quality District Schools in Times of Charter Growth and Declining Enrollment”):

1. Uniform intra-district funding formula for district and charter schools
2. Continued operational efficiencies, with an eye toward making costs more variable
3. School closures and corresponding real estate transactions
4. Redistricting / efficient enrollment planning
5. End “last in first out” methods of reducing staff
6. End unsustainable/unfunded salary commitments (step/lane/raise)
7. End proliferation of long-term fixed cost obligations (pension/OPEB)
8. District commitment to decision-making based on long-term planning
9. In this part of our series, we will highlight remedies 3 and 4.

Affording Quality Schools – Remedies 3 and 4: Infrastructure Changes and Redistricting

School districts must plan and implement reductions in school infrastructure, staffing and operations to be fiscally responsible as new charter schools are authorized and enrollment is stagnant or declining.

3) School closures. School closures, if done effectively, are among the most financially beneficial actions to take; however, they are also the most complex and controversial given the value of schools in their communities, the turmoil they cause to staff, and the potential negative impact on students when hastily executed.

Yet, keeping under-enrolled schools open creates costs in instructional quality. School-level costs are primarily semi-variable, and often act fixed when enrollment decline happens unevenly across schools and within grade levels. These kinds of “hard to unfix” semi-variable costs include principals, assistant principals, instructional coaches, clerks, and custodians. Every school that is open needs at least one of this or that, and therefore the failure to close schools as enrollment declines drives up per-pupil spending requirements.

To the extent that turnaround schools (a charter operator takes over an existing school) are a compelling instructional option in a neighborhood, they carry with them a financial advantage to the school district in comparison to the authorization of traditional charter schools and corresponding school closure. This option mitigates the financial impairment created by uneven enrollment migration across many grades of many schools because the district is losing students from only one school. As a result, the district eliminates that school’s full cost of instructional staffing, school administration, and other services and goods associated with educating those students. It is also able to eliminate many facility costs such as utilities, janitorial, and repair services.

(4) Enrollment boundaries and redistricting. The financial impact of school closures is greatly enhanced by informed district-wide planning on enrollment. Redistricting and enrollment boundary planning in anticipation of enrollment pattern changes, coupled with school closures, will lead to improved efficiency and therefore better use of dollars in schools.

• Catch up on this series:
  • Introduction: Defining the Problem
  • Part 1: Solutions and Remedies 1 and 2: Reinventing Funding Formulas and Services with Costs That Seem Fixed
• Read on:
  • Part 3: Remedies 5, 6, and 7: Curb Agreements That Inflate Costs As Enrollment Declines

In 2017, The Center on Reinventing Public Education (CRPE) convened practitioners, funders, and researchers from across the country to contemplate the challenges that school districts face when in a period of enrollment decline, specifically when that enrollment decline is influenced by the growth of charter schools. Out of that convening and various research done by CRPE, Dr. Marguerite Roza at Edunomics Lab, Afton Partners, and others, CRPE released Better Together: Ensuring Quality District Schools in Times of Charter Growth and Declining Enrollment.

Afton has completed many analyses with school districts of all sizes across the country related to the fiscal complications associated with enrollment decline, and in some cases, the decline was specifically attributable to students migrating from district-run schools to charter schools. Through our work, we have sought to answer the questions:

• Why does the perception that “charters financially hurt districts” exist?
• Is this issue just perceived, or is this reality?
• If it is real, why, and what can be done at the local level to ensure (a) students in district-run schools do not end up under-resourced, and (b) quality public schools of all kinds can be supported going forward?

Our experience led us to define four major reasons that school districts with stagnant or declining enrollment could be financially impaired by opening and growing new charter schools.

1. Inequitable Funding. School funding formulas used by some states and districts do not allocate resources equitably between charter school students and district-run school students, sometimes leaving district-run school students with less than equitable funding.
2. Lack of District Cost Flexibility. Most school districts lack the flexibility and ability to reduce their cost structure when facing significant enrollment fluctuations; some of this stems from fixed-cost structures and legacy matters that are not possible or easy to unwind, and some of this stems from institutionalized policies and practices that districts need to change.
3. Inability to Take Difficult Actions. Some school districts and stakeholders lack the willingness to take significant action necessary, such as school closures, to adjust to significant enrollment fluctuations.
4. Lack of Understanding in the Charter Sector. Sometimes, charter operators have a difficult time understanding the challenges that enrollment migration presents to school districts, and are therefore hesitant to negotiate terms that would be beneficial to all students, district and charter.

THE PROBLEM: MANY PARTS OF SCHOOL DISTRICT COST STRUCTURES ARE HARD TO UNFIX

As part of work Afton conducted in a large urban school district with declining enrollment partially attributed to the increase in charter schools, we answered the question – is the district allocating more or less dollars for instructional spend than a decade ago? What we found was – yes, the district’s proportional spend on school-level expenses decreased from 58% in FY07 to 50% of the budget in FY14 while enrollment declined 27% during the same period.

We found that the fixed nature of district costs was a big driver of the district’s budget shifting away from instruction during the enrollment decline. A larger portion of this district’s budget went to “non K-12 commitments”, including pension obligations, debt service, and outplacement costs. The district has managed to shrink its staff along with enrollment: staffing decreased by 31% — including a 27% reduction in teachers, 37% in the central office, and 33% in all other positions. However, schools have not been closed at the same rate as enrollment has been lost, meaning there are dollars tied up in administrative staffing positions and operational staff (including maintenance, janitorial, security, etc.). School count decreased by 18% while enrollment decreased by 27%. Additionally, most buildings remained owned/operated by the district, with total buildings (including school buildings, offices, and vacant buildings) decreasing by only 6% – and these extra buildings need to be maintained. Finally, contractual costs for teacher salaries increased by 21% and the pension rate increased by 262% over this period.

This district’s situation highlights how difficult it is to cope with enrollment loss and maintain quality instructional programming and supports. Consider that in addition to the fixed cost challenges, the school district faces challenges with how to efficiently spend dollars left for instruction. Most salaries are contractual and will increase in average cost no matter the funding available, reducing the district’s buying power for teachers. Also, migration of enrollment to charter schools is uneven from grades and schools at the district, leading to inefficient class sizes, further draining resources in non-optimal ways. All of this contributes to a feeling in schools of ‘lack of resources’, as proportional district spending at the school level shrinks and buying power for services and supports gets squeezed.

In the Appendix to CRPE’s “Better Together: Ensuring Quality District Schools in Times of Charter Growth and Declining Enrollment”, Afton shows how and why it is difficult for districts to unwind their fixed costs.

Afton’s work has shown that very few costs in a school district are truly fixed; yet many behave as fixed costs due to district decision-making (for example, contracts, teacher and other staff allocation policies, and facility footprint decisions). By understanding the root causes of fixed or partially fixed costs, districts may be better able to address them. The rest of this blog series will focus on actions school districts can consider to mitigate the challenges.

• Part 2: Solutions and Remedies 1 and 2: Reinventing Funding Formulas and Services with Costs That Seem Fixed
• Part 3: Remedies 3 and 4: Infrastructure Changes and Redistricting
• Part 4: Remedies 5, 6, and 7: Curb Agreements That Inflate Costs as Enrollment Declines
• Part 5: Remedy 8: Make a Commitment to Long-Term Planning and Stop Flying Blind