Schools, Politics, and Common Sense

MPSERS Unfunded Pension Liabilities Grow to $45.3 Billion, or $53.9 Billion?

2012-02-04T12:31:00.000-05:00

Looks like things are getting worse, while we’re told they’re getting better. The just released Michigan Public School Employees’ Retirement System (MPSERS) annual financial statement should dispel any notion of a School Aid Surplus. Remember, most of the unfunded liability (+$45.3 BILLION) has to be paid for by annual transfers from the yearly operating budgets of local schools and colleges that participate in MPSERS. This year that transfer will represent an added cost of 27.4% on top of all employee salaries. Salaries and benefits are 80% to 90% of a typical school budget so this is significant impact to operating budgets.

The MPSERS unfunded liability is significantly worse than the reported number. Consider, the fund uses an accounting rule (trick, gimmick, game) to “smooth” the data over a five year period. Without smoothing the unfunded liability approaches $53.9 BILLION (current year assets total $34.7 billion, down from $35.9 billion in 2010).

It gets worse. The fund makes some aggressive assumptions about its expected future earnings. The fund assumes it will earn 7% to 8% annually depending on the obligations. Actual performance over the last 5 years has been 2.3% annually, nearly 3.5 times below plan (and 5.1% annually over 10 years, nearly 1.6 times below plan). On a current basis, aggregate assets FELL between 2010 and 2011 by $1.2 BILLION (the second time this has happened in the last three years) making the true unfunded liability hole deeper.

The fund notes that it had a good year realizing returns of 6.6% That return sounds good but there are two problems: 1) 6.6% is far below the 8% required in the plan assumptions, and 2) Digging into the details much of the that performance was realized in segments of the portfolio classified as ALTERNATIVE INVESTMENTS and REAL ESTATE which saw returns of 29.9% and 16.9% respectively.

The ALTERNATIVE INVESTMENTS and REAL ESATE investment pool include limited partnerships and investments in the private equity market. Funds should have these types of assets in their portfolio, that’s not the issue. The problem is measuring returns; who values these investments? Are the assumptions used realistic? When were the values established? By nature these investments are private, so there is no traditional clearing market, there is no public venue to check prices. As such there is significant latitude in how any individual asset is valued; caution should be exercised when these asset class significantly boost total returns as they have in this case.

This problem has been brewing for years despite my repeated attempts to sound the alarm. It’s been allowed to fester and the price of the problem has exploded. It’s time to fix it.

2011 MEA Compensation Comparison

2011-12-05T16:55:00.000-05:00

Today marked the release of the annual LM2 report for the MEA. This report (required by the Department of Labor) details the compensation for all officers and employees of the Michigan Education Association; you can find the simple analysis of the report here, and the complete report here. As has been the case for years, compensation at the parent organization (the MEA is the state level organizing unit of the NEA) is consistently stronger than for the rank and file teachers. What sets this report apart is that for the first time ever median pay decreased by approximately 1.8%. The average increase continues to outpace the CPI at over 18% but this is influenced by timing issues (some individuals may have come onto the payroll mid year, etc.) and other adjustments. Perhaps the MEA leadership recognized the difficult economy school districts and school boards have been dealing with for years; better late than never. What hasn't changed? Life is very good at the top of the MEA ladder, in fact all top ten MEA officers earn more than Governor Snyder (he donates his annual $159,000 compensation). So where are the calls to limit MEA top compensation to no more than what the Governor makes?MEA Salaries 10-11

Here is the document which summarizes the top ten earners at the MEA. This data comes directly from the Department of Labor LM2 filings.MEA Top Ten Salaries 2011

A Super Failure?

2011-11-21T17:38:00.001-05:00

Sen. Patty Murray (D-Wash.), co-chair of the super committee.

The Goal: Agreeto $1.5 trillion in negotiated budget reductions over 10 years, or $1.2trillion in imposed cuts over the same decade. The Results: predictable.

Today(11/21/11 the day the super committee officially “failed”) and the Dow fell by 249points. As judges of “failure” traders can be decisive, but traders trade andthey look for an excuse to buy or sell as part of their existence – so from thatperspective “failure” is something to work with...

The cynical viewaside, the underlying truth is that some action is required, as the USgovernment debt has passed the $15 trillion. That debt level is equal to around99 percent of the size of the total US economy; under any analysis this is aserious level of debt.

But evencuts take time. Automatic spending cuts triggered by the failure of thesuper-committee will not come into force until January 2013 and there is no measureof history that supports a view that congressional action in 2011 (or inactionin this case) will survive to obligate spending levels in 2022.

Even with the“super-failure” the law provides Congress 13 months to more prudently implementthe automatic $492 billion in defense and $492 billion in non-defense cuts (links take you to budget document - see pages 465-466). Youmay notice that does not add up to $1.2 trillion; the difference is that 18% ofthe $1.2 trillion of “cuts” are mandated as a “stipulated reduction for debtservice.” In layman’s terms that mean Congress must set aside some income topay the interest on our debts.

Barring futureaction the automatic cuts will impact federally funded education programs, and theimpact will accelerate Washington’s tradition of underfunding the IDEA promiseto special education.

But is itgoing to be the “disaster” some members of Congress have predicted? Considerthis before you answer – the yearly “cuts” represent about 7.3% of defense/homelandsecurity 2010 expenditures and 7.6% of other discretionary program expenditures.Is that a disaster? Not in my book – it’s painful to be sure but given the sizeof those two expense buckets ($689B defense, $660 discretionary), it seems likea workable problem.

Election Thank You!

2011-11-10T16:32:00.000-05:00

Thank you to everyone that came out and supported my bid for a third term on the Birmingham School Board (yes, I prevailed thanks to your support).

More importantly, thank you to everyone that helped to pass the millage renewal -- it passed with a resounding +83% margin in favor. The committee that ran the campaign and all the volunteers who lent their time and energy to this important issue cannot be thanked enough. And to everyone that voted to renew the millage - thank you. As a board member I am committed to achieving the highest level of student achievement and fiduciary responsibility.

Rethinking Education

2011-04-13T14:42:00.013-04:00

An interesting analysis that highlights a new way of thinking about how we educate kids. Some of the ideas presented are at the heart of many practices we are adopting in the Birmingham School District. Some ideas are radical compared to how we operate today. Of particular interest is a point which begins at 7:40 of the video about Divergent Thinking; if you watch anything please watch that segment. You may miss the additional percentages cited in the data so here they are: 32%, 10% (it will make sense once you watch - source here.) It would take remarkable systemic courage to move in the direction of Sir Ken Robinson's vision, but his thought provoking talk is a worthy conversation starter. Video is courtesy of Royal Society for the encouragement of Arts, Manufactures and Commerce or theRSA.org.

MPSERS Pension in Trouble - Part II (Why The Noise Is NOT About What We Pay Teachers)

2011-02-28T14:20:00.023-05:00

In this post I'll attempt to highlight why addressing the problems with Michigan's Public School Employee's Retirement Plan (MPSERS -- or the Pension Plan) is important, why waiting will cost everyone more, and why much of the national agitation about teacher compensation is NOT about base pay.

When rhetoric turns to public employee pay the focus turns to benefits; typically heath care and pension benefits. These two benefit costs have escalated so far, and so fast, that they essentially crowd out the ability to provide nominal salary increases for employees (not counting the 6% per year "step" embedded in many contracts for newer teachers). So while total compensation costs increase dramatically (salary plus benefits), the long term public employee (employed for more than 10 years) does not see the impact of these large compensation increases in their own checking account.

The data below illustrates our own experience. Retirements and the privatization of custodial and transportation operations restrained aggregate salary cost as a budget item. But benefit costs continue to escalate dramatically (expand browser window to see full chart).

Six years ago total benefit costs represented 41% of total salary costs; today benefit costs represent 51% of salary costs. In four years total benefit costs will equal 61% of salary costs. For illustrative purposes the only salary increase projected is the "built in" step and level increase (an average of 3% per year; this is driven by a 6% annual "step" increase for approximately 50% of the employee population) -- the projections do not assume any additional increase in salary.

Our district has been proactive in managing all operating costs. We have privatized custodial and transportation operations; reflected in the years with decreases in total salary costs. We have a cost sharing agreement with staff on health care premiums which is just now slowing the increase in total health care costs. We implemented a one-time-only early retirement program four years ago and we had 50 individuals take advantage of the states early retirement program last year (note: the retirements had the ironic effect of accelerating the pension problem, something I've pointed out in the past). Even with these savings, the unrelenting growth in pension costs will overwhelm these cost savings within the next two years.

A massive demographic shift has occurred that kicks the legs out from under the traditional pension model. There are more and more retirees and fewer and fewer workers to support those retirees. In Michigan, that trend is projected to continue as our population ages.

The pension costs are crippling school operating budgets because they are forced on districts without any corresponding increase to school funding. As school funding is cut the increased pension costs force cuts in programs and staffing. As fewer and fewer students enter the K12 system, the burden of these costs will only escalate. Today's $60 billion unfunded pension liability represents $38,740 for each of Michigan's 1,548,800 K-12 students. That's a hole not even the most ardent tax advocate could hope to plug. Benefits must be adjusted, and the only component open for adjustment is the health care benefit currently attached to the pension plan. Continuing to hope the problem "goes away" will only increase the cost. More money will be allocated to that liability as it grows and there will be less money flowing to the students, teachers, and programs of Michigan's schools.

MPSERS - School Pension In Trouble (Part 1 of a Series)

2011-02-03T14:55:00.014-05:00

Economic and demographic reality is colliding with the pension and healthcare promises made decades ago in Michigan’s Public School Employees Retirement System (MPSERS). As I’ve discussed, and now Governor Snyder has pointed out, the reality of a $36.9 billion unfunded pension liability (another way of saying the pension is short $36.9 billion) creates a crushing burden on all Michigan taxpayers; this includes the very people that participate in the pension fund. The chart above reveals a simple truth as to why the pension fund is struggling. It shows both the declining active (employed) membership in MPSERS, and the growing number of retired members. The two lines are going to converge and cross if trends continue. The chart below projects a continued fall off in Michigan's student population through 2020, it is a trend that started years ago. Source data here and here.

That measure (total students) is highly correlated to public school employment. Together the charts show how employment has responded to the decline in total students, and how that trend is likely to continue. The implication is simple: the future holds fewer students, fewer public school employees, accelerating payouts from pension funds, and higher percentages of school operating budgets directed to support the pension fund. In fact, the projected contribution rate for next year is expected to increase from 20.66% to nearly 28% That means for each dollar an employee earns, districts will have to divert an additional 28 cents on top of that dollar to support the pension fund. That additional contribution gets larger in future years (source data here). The state does not increase school funding to match this mandate -- it is the ultimate in unfunded mandates. The pension payments are made out of operating funds available for the classroom, for teacher salaries, for equipment and supplies, and for program support.

MPSERS has attempted to address the issue, but the current measures represent bandaids. Some initiatives designed to save the system have been met with legal challenges which, if successful, will have the ironic effect of further crippling the pension system.

Conversations about honest assessments and major reforms are happening, the key to crafting lasting solutions is clarity regarding the nature and scope of the problems -- topics to be explored in future posts.

MEA Salaries 2010 and Associated Pay Increases

2010-12-04T23:44:00.006-05:00

The following table is a direct analysis from the LM-2 report which the Michigan Education Association is required to file with the Department of Labor. You can download this document, or view it at Scribd. I will post links to this and prior years on the scroll to the right side of the blog later.
MEA Salaries 09-10

MPSERS, The Pension Problems Grow

2010-09-29T15:02:00.005-04:00

Announced today, the employer contribution required to bail out the Michigan Public School Employees’ Retirement System will jump from an already astronomical 19.41% to 20.66% beginning in October 1, 2010. That’s a 6.4% increase levied to schools that are dealing with funding cuts of 2% to 4% The 20.66% rate is charged to districts on every dollar of employee compensation and has displaced $4.8 billion from school operating budgets from 2007 to 2009.

The 20.66% rate is 3% higher than it would otherwise be because of the MEA’s legal action objecting to an employee contribution of 3% to help fund retirement health care costs. If the MEA succeeds in it’s legal action, it may have the perverse effect of killing this part of the pension plan. If the MEA fails in its legal action, the health care benefit may be preserved for retirees and contribution rates from the schools will fall correspondingly (which will have the positive effect of keeping more teachers employed).

The health care benefit embedded in the pension system represents the fastest growing cost and largest unfunded liability; this benefit is not constitutionally guaranteed.

A Full Year Algebra Course With iPad App

2010-09-16T11:21:00.009-04:00

This article is from David Winograd, he has a doctorate in Instructional Technology and follows new developments for the tech blog TUAW (The Unofficial Apple Weblog). The point of the video, and the iPad application (and this could be any "tablet" device) is the ability to tap into the variety of learning styles (visual, auditory, tactile, etc.) across a spectrum of student needs. What I find exciting is how these types of applications might allow teachers to leverage their skills to tap into these different learning styles.

Houghton Mifflin Harcourt, a major textbook company, has launched a year long pilot project with the HMH Fuse: Holt McDougal Algebra 1 full year algebra course on an iPad. The course mirrors all the content of the Holt McDougal Larson Algebra 1 2011 textbook currently being used in many schools.

The pilot project includes 400 eighth grade students in the San Francisco, Long Beach, Riverside, and Fresno, California school districts. One group is using the HMH Fuse app, and a control group is using the standard text. As far as we know, this is the first time a full year subject matter course has been rolled out as an app. The study will be conducted by Empirical Educations Inc. an independent testing group, and it will measure differences and similarities in areas of achievement and attitudes about learning. They also want to learn about how and if the students use the app the way it was intended.

Each teacher in the pilot project will teach one random class section using the app and another using the book, which may help account for differences in teaching style and his or her influence over the class. According to the testing agency, the study will eventually roll-out to 1200 students, with test reports due in the Fall of 2011. The hope is that it will be available to all California school districts in January, 2011.

The app itself, at least as seen in the video, seems quite fully featured including:

"Three-dimensional" functionality that combines instruction, ongoing support and intervention, allowing teachers and students to customize learning and meet individual needs
Tests students' prerequisite skills before introducing them to a new set of concepts
Every single lesson concept and example has an embedded instructional video - students can access videos at any time and can return to them to revisit difficult concepts
Students can animate and scroll through the steps involved in solving complex algebraic solutions
A built-in graphing application, math glossary and scientific calculator
The application will provide functionality for the student to add notes in handwriting, text and audio format, and to bookmark sections
Content is available anywhere. The students will have access to lessons, tools and intervention materials at all times – great use of the platform -- and all student content is archived and retrievable in the event a device is lost
An online Algebra Tile application to model a range of expressions
An in-app scratchpad since you always need some paper to test out equations

On the testimonial page of their site I can already see a dichotomy of teacher responses to the initiative. Angie Bustos of the Sequoia Middle school in Long Beach, CA, says that "It won't change the way I instruct, but it will change the way kids learn". James Mills of Hudson Valley K-8, also in Long Beach, states that "This could alleviate the need of a teacher in the room. A teacher can now become a coach". As an educator, this sends up a bright red flag. Over the years there have been a massive number of articles and arguments over whether computer-based-training will replace teachers. I don't think the teacher's unions look kindly at this concept. If a teacher becomes a coach rather than a teacher the obvious thought is that one teacher can handle more classes resulting in lowered costs to the school districts. In these times of state budgetary cuts, this can seem mighty attractive to administrators.

These sort of questions are above the pay-level of this post and have been kicked around since before I started a doctorate in Instructional Technology in 1995, but as it relates to HMH Fuse, the proof will be in the data. I would think that if any subject could be rolled into a computer program, it would be in the realm of math which is far more linear and objective-oriented than something like literature. Regardless, it will be quite revealing to see what the results provide.

I showed the video at the top of this post to a high school teacher who had two comments. The first was that the actress was far older than the eighth grade level and the second was that no school she knows of offers coffee to eighth graders. So I think we're going to need a critical eye when it comes to separating the hype from the data.

I'm trying to get a copy of HMH Fuse so I can write about it from an Instructional Design perspective and I'm waiting to hear back from Houghton Mifflin Harcourt on that.

How Greek’s Debt Crisis Can Inform Michigan’s Pension Debate

2010-05-07T09:24:00.006-04:00

Michigan’s teacher pension fund (MPSERS) is underfunded by nearly $61 billion. This massive debt is split between an unfunded pension liability of $35 billion (supported by Manhattan Institute study) and an unfunded health care promise, known as OPEB, of $26 billion (from MPSERS financial statement). Michigan's total budget is $43 billion (see here, slide 19). MPSERS unfunded liability equals 142% of Michigan's total budget.

The Greek debt crisis is fueled by debt levels that will exceed 120% of Greek’s gross domestic product. While not an apples to apples comparison the message is clear, spending more than you make is not sustainable.

The debate regarding proposals to mandate new MPSERS entitlements for health care is irresponsible. MPSERS funding requirements are crippling school budgets with a tax on districts approaching nearly 20% on every salary dollar. The proposed amendment to enshrine health care in SB 1227 will add to that burden for generations. Greece, along with the rest of Europe, is paying for its history of financial malfeasance. Unless legislators wake up, Michigan faces a similar fate. Making good on the pension promise will be challenging enough, adding to that burden with a guaranteed health care mandate will make it impossible.

SB 1227, Winners and Losers

2010-04-26T12:34:00.005-04:00

Currently the Michigan House is contemplating language which will increase the retirement multiplier from 1.5 to 1.7. This will, without offsetting cuts, add to a pension fund which has seen it’s funded status fall from the high 80% mark to an abysmal 51% (after pulling back the curtain of “smoothing” and the application of realistic investment assumptions). A $60 billion dollar unfunded pension liability is bad, enacting legislation to increase the size of this unfunded burden by $4.3 billion is very bad.

How would this change have an impact on the interested constituents? Here are just a few possibilities.

The Winners:

All teachers that choose to retire this year (assuming they were already considering retirement).
The MEA which will claim this a “victory” for its members.
Legislators that will claim a “cost savings” for schools.
Short term school budgets that will see lower cost teachers replace higher cost teachers.

The Losers:

All teachers that do not chose the retirement option this year.
The MEA because rapidly escalating legacy costs will consume an even higher percentage of operating budgets.
New teachers which will be the first to lose jobs as accelerated pension contributions force future teacher layoffs.
School operating budgets which will face pension costs approaching 30% per salary dollar.
Legislators that will have to unscramble the mess created by adding more burdens to an already overburdened pension fund.
Michigan students which will eventually pay for short sighted budget decisions.
Taxpayers (which includes working teachers) that will be forced to pay for these unfunded promises.

The House should reject an increase on the pension multiplier from 1.5 to 1.7. While the impact may be a short term “savings” the long term costs will add to the fiscal pain of Michigan’s schools, teachers, tax payers, and students. We cannot afford the pension plan we have, and an unfunded increase to the multiplier will magnify the problem. Call your Michigan House Representative and urge them to NOT INCREASE THE PENSION MULTIPLIER in SB 1227. Click here to get your Representatives phone number.

Manhattan Institute Confirms Michigan's $60 Billion Pension Nightmare

2010-04-21T10:34:00.013-04:00

The true scope of Michigan’s unfunded teacher pension (MPSERS) disaster has been verified by Josh Barro and Stuart Buck. The two researchers examined fifty-nine state run teacher pension plans and have quantified the massive underreporting of pension liabilities.

While recent losses in market values contribute to the problem, the authors focus on the aggressive assumptions buried deep in the financial footnotes. The authors conclude that the assumptions employed by pension funds conceal the magnitude of the funding problem. It is a problem which falls squarely on the shoulders of taxpayers, students, and teachers.

Their analysis highlights the deeply flawed and misleading pension reporting of the MPSERS Audit. The numbers for Michigan are sobering, but are consistent with what I have been writing about for years.

From their report (page 16 of Civic Report No. 61), Michigan discloses an unfunded pension liability of $8.9 billion. The realistic* unfunded pension liability is nearly $35 billion.

Adding the unfunded pension liability of $35 billion to the $26 billion in unfunded OPEB liabilities (the health care component of the pension fund) totals $61 billion in unfunded pension liabilities for MPSERS. Unless the system is reformed, these unfunded promises will be paid for with money that comes out of school operating budgets. In context, this is an ADDITIONAL $1,362 per student, per year, for 28 years! That is money which squeezes out teachers, programs, and student support. It represents a total that is equal to 148% of Michigan's ENTIRE ANNUAL budget. In a word, it is unsustainable.

This is very bad news for teachers, for students, and for tax payers. It will require honest disclosure and aggressive solutions that call for shared sacrifices from all stakeholders. The MEA cannot run and hide from this problem, the legislature cannot continue to kick the can down the road, tax payers cannot wish it away, teachers cannot count on unrealistic (and unfunded) promises made decades ago, and the Pension Board cannot continue to manipulate their financial statements to obscure the problem.

Here are links to specific articles:

Executive summary of report is here.

Full report In PDF format is here.

Josh Barro’s Forbes.com story is here.

Stuart Buck's blog post is here.

* What’s realistic? Use of a 6% investment return (instead of the MPSERS assumed rate of 8% - note: the 5 year actual rate is only 4.2%), and the elimination of the accounting trick called "smoothing" to start with actual current investable assets.

Senate Bill 1227 (SB 1227) Is A Fix Worth Implementing

2010-04-16T20:53:00.005-04:00

The reforms proposed by SB 1227 are sensible and fair. The changes envisioned by SB 1227 address fundamental structural problems which, if left unchanged, threaten the viability of the Michigan Public School Employees Retirement System (MPSERS). The Senate Fiscal Agency shows that SB 1227 will save over $3.5 billion over the first 10 years. Longer term savings will continue to grow and will help to erode the $35 billion to $60 billion of unfunded liabilities currently embedded in the system.

The MEA is fighting this reform with the statement SB 1277 will not solve Michigan's budget crisis. The MEA misses the point; SB 1277 is just one of MANY changes that MUST be made to ensure we address current and future budgetary problems. Encourage our state representatives to support SB 1277, it will be good for MPSERS, and good for our state.

Without sensible reforms like SB 1227, MPSERS will drag Michigan’s economy down a fiscal black hole taking tax payers, school districts, and teachers along for the ride.

Michigan's Pension -- Who Will Pay The Bill?

2010-04-08T11:19:00.005-04:00

The following is from my article in The Center for Michigan's Newsletter -- this version contains the supporting links to pension documents:

The Michigan Public School Employees Retirement System (MPSERS) is on a doomsday course to fiscal ruin, while continuing to assert its own financial health as “good.” Using aggressive accounting and market assumptions, the appointed board of MPSERS is growing the funding deficit by billions each year beyond the funds reported deficit. This hidden and unreported underfunding amounts to as much as $12 billion and is in addition to the reported loss of over $17.9 billion in assets for the last two years. Warren Buffett has said, “pension accounting encourages cheating,” and MPSERS engages in aggressive pension accounting.

To clarify, MPSERS manages two programs for all public school and university employees and retirees; a pension fund and an “Other Post Employment Benefits” (OPEB) fund which pays for health, dental, and vision benefits for retirees. Both funds are currently underfunded with significant ongoing liabilities. In forecasting the future funding requirements and current shortfalls for both funds, MPSERS uses three significant accounting and assumption manipulations which lead to significant distortions of the total underfunding.

The first issue is called “smoothing,” a reporting technique designed to minimize the impact of short term adjustments or market fluctuations. Smoothing works for short periods, but it results in understating pension funding needs during a downturn. With the use of smoothing MPSERS currently reports it has unfunded liabilities of only $34.9 billion. While a $35 billion deficit is very severe, the actual picture is much worse.

By removing smoothing the unfunded liability balloons to between $45 to $47 billion or more. This unfunded liability represents an obligation of nearly $30,000 per student for every child in Michigan’s K-12 system as of today.

For context, the funding required to meet MPSERS obligations (pension and OPEB) is over $4.0 billion annually, with a recent annual growth rate of over 5.8% However, contributions to the MPSERS system totaled only $2.1 billion representing an increase of 0.6% over the prior year. So while payouts are growing at nearly 6%, contributions have been growing at less than 1%. This creates an accelerating financial death spiral where assets are continuously withdrawn faster than they are being replaced.

This highlights the second issue -- the ability for MPSERS to continually defer the necessary contributory requirements. MPSERS’ 2009 fiscal year financial statement shows that total contributions for OPEB should have been nearly $1.8 billion higher than they were. So while schools transferred $1.5 billion out of operating budgets and shifted it to MPSERS, the contribution should have been $3.3 billion. Viewed on a per student basis the actual contribution was over $1,015/student. Yet MPSERS footnotes that it should have been over $2,184/student, or nearly 26% of the net foundation allowance of $8,324 (after the $165 proration). Left unchecked, the full cost of OPEB benefits will break school operating budgets.

The third issue is MPSERS use of aggressive assumptions for annual investment returns. Over the past 5 years, MPSERS investment return has been 4.2% The 2009 FY MPSERS projection model used an investment rate of return of 8.0%, nearly double the return of the past 5 years. Reducing the projected investment performance to 6% (closer to the 6.5% Warren Buffett employes for his pensions), the unfunded liability increases an additional $13 billion to nearly $60 billion. By using unduly optimistic projections, MPSERS disguises the size of the reported unfunded liability.

This leads to one final point. The actuarial firm charged with developing and validating the assumptions used in MPSERS’ model states that the data is audited annually. However, the Auditor states in its annual letter to the fund that, “The introductory, investment, actuarial [emphasis added], and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statement and, accordingly, we express no opinion on them.” In essence, no one is checking the underlying assumptions thus allowing MPSERS’ board to determine its own financial health while smoothing massive losses, underfunding contributions, and employing aggressive assumptions for forecasted returns. Stripped of manipulations, it’s clear that MPSERS has mortgaged the future of Michigan’s taxpayers and children with a debt we cannot afford.

Ruth Beier's Testimony on HB 5963

2010-03-19T13:58:00.006-04:00

Ruth Beier, the MEA’s Economist, testified March 18 on House Bill 5963 (HB 5963). The full transcript is here: (Testimony on HB 5963). She states that Michigan is in financial crisis. She notes there will not be sufficient funds to cover the basic foundation allowance this and next year. Then she states that taxpayer money is used to provide education, not build up a bank account -- and this is where she goes off the rails. She states that, “20% of [taxpayer] education tax dollars get put in a bank,” this is a complete fabrication. Ms. Beier did not highlight a single school district to support her claim because no district in last 15 years has diverted anything close 20% (or 10%, or 5%...) of their foundation allowance to a bank account!

Districts with fund equity balances have them because of pre Proposition A funding which relied on local taxes for operations and capital requirements. Ms. Beier ignores that the operating balances at school districts across the state have been dramatically diminished to the point where state wide fund equity represents less than 30 days of operating cash. Worse yet, the number of districts operating in deficit (i.e., with zero fund balance) is at historic levels.

Ms. Beier says school aid does not cover funding for technology requirements, lap tops in classrooms, building repairs, or health and safety maintenance issues. Her solution is to call for sinking funds to pay for these items. Many districts have tried, and failed, to pass sinking funds. In these districts fund equity is the only source of capital for these critical items. Michigan’s citizens continue to say that they are taxed enough, especially at a time when they struggle with 20% salary cuts, benefit reductions, and economic uncertainty.

Ms. Beire further asserts it’s acceptable to allow districts to borrow cash to pay for operations. In fact, she thinks it’s fine for districts to “borrow as much as they need” while paying only 1.24% interest. In what world is it OK to throw away 1.24% of your foundation allowance on top of current and future funding cuts? Her assertion is appallingly short sighted.

Ms. Beier ignores how districts struggle to pay for accelerating employee insurance and pension costs. Perhaps she is unaware that the state mandated contribution to MPSERS (the pension fund) consumes over $1,015 per student annually, and that the unfunded liability of the pension fund is approaching $30,000 per student. Perhaps she fails to understand that employee costs are accelerating at over double the rate of inflation. Then again I’m sure she does, given she earns over $160,000 a year and got nearly an 8% raise last year. I wonder how MEA membership feels about that?

Districts are spending fund equity. Districts with vision are using fund equity with the strategic objective of eliminating structural deficits caused by labor contracts and tax codes crafted in a bygone era. Adopting Ms. Beier’s deficit spending binge will lead schools down a death spiral of teacher job cuts, program eliminations, and crumbling facilities. Schools will prosper again by making structural cost and revenue changes. Focusing only on revenues, while ignoring costs, is unproductive and will fail our children.

What Books Will Look Like Soon...

2010-03-03T21:19:00.005-05:00

As tablet computing becomes more affordable, publishing to electronic media will become the norm. Reading will become something different than what we experience today. Penguin publishing has a very good demonstration for some upcoming books that will be ported to the iPad. You will see, these books are exactly like, and nothing like, the books we are used to reading. (PS: the paid content is to YouTube, not this site.)

Oakland Press: Budget Cuts Loom For Schools

2010-03-01T08:49:00.003-05:00

The Oakland Press has done a very nice job in presenting a summary of what Oakland County schools face regarding budget issues. I won't repeat the whole article (which you can read here) but a quote by Vickie Markavitch sums it up:

“What has happened is the economy has fallen out from under us,” said Vickie Markavitch, superintendent of Oakland Schools. “If nothing is done, you will eventually have schools probably with shortened days and a very reduced curriculum."

The challenge is multifaceted but one thing is clear, costs must be cut because revenue (regardless of the source mix) will remain down for the foreseeable future.

$17.9 Billion Loss Motivates a Call for Change

2010-02-02T14:36:00.008-05:00

The recent proposal by Governor Granholm which includes changes to MPSERS, the Michigan Public School Employees' Retirement Plan is motivated by one simple fact, the plan is in trouble.

The current MPSERS 2009 Audit shows that the pension fund has lost over $17.9 billion over the last three years. What's worse is the funds audit hides just how bad the situation is by employing a "smoothing" technique which mitigates the impact of losses. Utilizing the current asset base against the total unfunded liabilities the funded ratio drops from 83% to 63% Other dynamics are working against the system. 1) The rate of retirees is growing, while the rate of new employees is declining, 2) the assumptions underlying the "health" of the system are barely hitting 1/2 of the projected rate (4.2% return over 5 years versus projected rates of 8%), 3) the required rate of contribution needed to amortize the unfunded liability of obligations is billions lower than the actual rate, 4) the pool of money dedicated to funding the pension obligations (the school aid fund) has shown dramatic decreases which will negatively impact total employment in the system. Read the full audit here if you'd like to download directly.
MPSERS 2009 Audit

A Very Broken Pension Get Granholm's Attention

2010-02-01T21:44:00.010-05:00

Governor Granholm made the following recommendations that target the escalating cost of the MPSERS retirement system:

Employee contributions to the plan will increase by 3 percent for all employees except those in the MIP Plus program, whose contribution was increased in 2008. MIP Plus members’ contribution will increase by 0.9 percent.
Elimination of subsidized retiree vision and dental coverage for school employees retiring with an effective date after October 1, 2010. Retirees will be able to purchase this coverage for a monthly fee through the plan.
The retirement multiplier will be increased from 1.5 percent to 1.6 percent for employees who retire with an effective date between July 1 and September 1, 2010, which will be paid by the applicable school districts.
A new, more cost-effective retirement plan for new employees hired on or after October 1, 2010 will be created. New employees will participate in both a base defined benefit plan and a defined contribution plan.
Phased-in retirement will be allowed for up to three years for retiring employees, age 60 or older. They will be able to collect their DB plan retirement with a workload of no more than 20 hours per week for a previously full-time employee. This option is available to the employee at the discretion of the school districts.
A limited number of state employees will be hired to replace those who choose to retire under this plan. The replacement of public school employees will be at the discretion of the local district.

None of this is happy news to MPSERS participants. These recommendations highlight a 3 year net loss of $17.9 billion in MPSERS and an unfunded liability which has grown to nearly $46 billion (using ‘09 assets, not '08 as presented in financial statements) . What surprises me is that the actuaries work letter is focused on September 30, 2008. Why not 2009? Between ‘08 and ‘09 the system lost $5.3 billion (on top of the $12.6 billion loss the prior year), why no mention of this their letter. I suppose it’s because of the “5 year smoothing” which sought to mitigate the impact of the revaluation undertaken in 2006. Unfortunately that was the high point and it’s been down hill from there. I cannot imagine how the actuaries could have expressed confidence in the system given the billions in investment losses, the shrinking base of new employees, the expanding base of retirees, and the increasingly unsustainable tax imposed on school districts across the state. But then that’s always been the bailout position — that the system could withstand anything because it had an unlimited ability to extract funds out of the school aid fund. But a shrinking school aid fund, coupled with $17.9 billion in investment losses will challenge those assumptions. Next year the MPSERS contribution rate is expected to exceed 18% per payroll dollar, that is a tax which is taken out of local school operating budgets, that rate should be higher because "smoothing" hides an funded ratio that is closer to 63% (not the 83.6% reported). That added pressure is on top of the $165 per student cut, the additional $122 per student 20j cut in Birmingham, and the projected $268 per student cut in 2010/2011 which is actually a $555 per student cut ($165+$122+$268) for that year.

The Governors proposal reflects a new reality which has imposed itself on Michigan’s education system. Without the systemic changes reflected in the Governors proposal the long term pain would only compound, and more promises would be broken. What no one has quantified is whether the changes will be enough to stabilize a very troubled system.

"We’ve gone from being a relatively wealthy state to a non-wealthy state."

2010-01-12T10:24:00.013-05:00

“We’ve gone from being a relatively wealthy state to a non-wealthy state,” said Senate Fiscal Agency Executive Director Gary Olson. “This is the issue now and into the future. The state needs to face the reality of that economic decline.”

This new reality requires adjustments from nearly every sector. The response to this reality does not need to define a LONG term future for Michigan. What Gary Olson points to is the immediate horizon which dictates activity and expectations over the next two to five years. How we collectively respond (the state and business) will help dictate the long term wealth of Michigan.

The article goes on: "Given the stark news, which has been the norm for Michigan for 10 years, a comprehensive restructuring of the state’s budget process is needed to avoid policymakers making “changes on the margin” year after year, advised George Fulton, director of the University of Michigan’s Research Seminar in Quantitative Economics."

A major takeaway -- STRUCTURAL change is the key focus given the facts surrounding sustained revenue trends. The Senate and House fiscal agencies both show that the impact of radical changes to the auto industry is permanent. This is not a cycle we will see pass. From the Federal Reserve Bank of New York:

Cyclical adjustments are reversible responses to lulls in demand, while structural adjustments transform a firm or industry by relocating workers and capital. The job losses associated with cyclical shocks are temporary: at the end of the recession, industries rebound and laid-off workers are recalled to their old firms or readily find comparable employment with another firm. Job losses that stem from structural changes, however, are permanent: as industries decline, jobs are eliminated, compelling workers to switch industries, sectors, locations, or skills in order to find a new job.

While the 4% pay cut taken by the Administrators of the Birmingham School District may be confused as a cyclical response to a structural change, the structural (long term) affect will be how this cut slows future cost growth. It is why agreements that assume annual revenue increases of 3% to 4% are unsustainable when revenues fall, or are projected to grow by only 1%. It is why contracting and consolation of support services will be the norm, not the exception. Adjusting structures to the reflect the downside will allow us to adapt again as the “upside” appears. It is why everyone needs to be at the table to rethink how we execute our missions given the new reality articulated by Gary Olson and George Fulton.

About the race to the top..

2010-01-08T14:58:00.005-05:00

There was precious little in the RTTT grant directed to Birmingham, or to the other school districts that chose not to sign the RTTT grant request. For Birmingham, the grant may have cost the district more than the award.

So why would this district, and others, choose to not sign a memorandum of understanding related to the Federal RTTT (Race to the Top) program?

First some facts:

Birmingham would only be eligible for up to $60,000 in federal funds under RTTT,
Federal program dollars come with compliance requirements, in this case compliance costs would probably outweigh the monetary benefit,
For districts like Pontiac, which stands to gain $3 Million, the benefits far exceed the costs,
The agreement we were asked to sign states the plan has YET TO BE PROMULGATED; in other words the memo asks the district to sign up for something that is not complete, has not been published, and will affect the district in unknown ways (in requirements and costs).
The program required the signature of a board president, superintendent, and local union representative -- until it didn’t...it is and has been a very disjointed process.

Some more facts:

The intent of the RTTT program is to lift struggling school districts, improve teacher effectiveness, promote rigorous college and career ready standards and assessments, and implement pre-K through college data systems,
We are not a struggling school district,
We have strong programs to support teacher effectiveness,
We are a data driven board and continue to expand that scope.

Birmingham Schools, and other similar school districts in Michigan, know how to achieve excellent results (our district has been in the top ten, out of 541 public districts, for years). The measurement can be seen in the number of AP scholars, the depth and breath of AP offerings, performance on standardized tests, the high level of acceptance to outstanding Universities, the ongoing achievement of graduates...the list goes on and on.

Still we embrace the desire to advance, to challenge, and to recognize that anything can be made better. This philosophy is embedded in the strategic plan and process that guides the vision of the district.

Mike Flanagan was given a nearly impossible task, with no time to accomplish the task. While Michigan has enacted significant legislative changes to promote the laudable goals of RTTT, those changes will affect schools regardless of their position on the RTTT request.

Something Fun

2010-01-07T17:08:00.006-05:00

A very creative response to a high school challenge. Something to remind me that although we do serious business, fun is always fun...

This production was done at Shorewood High School in Shoreline, WA. Apparently a rival High School threw down a challenge and this was the response. The full story is here.

MEA Director Pay Increases: 9.5% is the Median

2009-12-02T11:49:00.011-05:00

It’s time for the annual update on MEA compensation increases. From the Department of Labor web site the annual report from the MEA on financial activity reveals that life is very good for those at the top of the MEA. This year the average increase in total pay (NOT including health care, pension, and other non-pay benefits) was over 19% For statisticians, the more interesting number is the increase in median pay of 9.5%

These numbers are facts and reported as delivered by the MEA to the federal government. The document is "searchable" and you can also download the full report (choose "NEA" as Union Name, "Michigan" as State, and "LM - 2" as Report Type and click Submit to get the full report. Here is a site that walks you through the process.

The increases come in an environment where tax payers are seeing 10% to 20% reductions in pay and benefits, where job losses continue to mount, where tax revenues are falling billions short of projections, and where everyone is calling for shared sacrifices to balance budgets and save jobs.

MEA Salaries 2008 to 2009 height="500" width="600" > value="http://d1.scribdassets.com/ScribdViewer.swf?document_id=23507557&access_key=key-5yd7krqihr2ctw6dtd3&page=1&version=1&viewMode=list">

Birmingham Public Schools - Character Education Matters: Part Two

2009-11-30T15:48:00.004-05:00

In June of 2007 I wrote about Birmingham’s Character Education program and how one of our schools, Birmingham Covington was recognized as a National School of Character winner by the Character Education Partnership. I noted that character education was and is a part of our strategic plan, a plan that is reviewed every year and is renewed every five years.

Now, adding to the list of national winners is Greenfield Elementary school, one of 10 national winners recognized as a 2009 National School of Character. To quote from the press release: “The winning schools demonstrate that school transformation is possible through low-cost, high-quality character education initiatives. They have closed the achievement gap and raised academic expectations for all students, built strong relationships and partnerships between parents, teachers, and students, and given their students opportunities to serve their communities.” There were over 185 schools from 26 States represented.

Congratulations to Greenfield, and congratulations to all the other Birmingham Schools that were also recognized as National Finalists, Promising Practices, and Honorable Mention award winners: Beverly Elementary (a national finalist for 2009), Bingham Farms Elementary, Harlan Elementary, Pembroke Elementary, Pierce Elementary (an Honorable Mention winner), West Maple Elementary (an Honorable Mention Winner), and Wylie E. Groves High School.

No other school district in Michigan, or across the 26 participating states had more schools recognized than the Birmingham School district. After our community enunciated the important traits of Positive Attitude, Honesty & Integrity, Respect & Kindness, and Responsibility & Accountability a system wide effort mobilized to integrate these ideals into the core work of our schools. It is an ongoing process, and it is just one example of the great things that happen in our schools.

Bringing Jobs To Michigan

2009-11-02T09:18:00.023-05:00

MiSN Homeland Security Market Leadership Conference information:

The Michigan Security Network (MiSN, www.michigansecuritynetwork.com), a non-profit organization, announced a Joint Venture between MiSN, Wayne State University (WSU) and the Kauffman Foundation. In support of its mission to accelerate homeland security technology development, investment and jobs in Michigan, the joint venture will provide training, "FREE", for aspiring entrepreneurs as well as mature businesses interested in this growing market.

The training will be offered through WSU’s TechTown in the form of FastTrac™ programs designed with homeland security content provided by Michigan Security Network. FastTrac is a practical, hands-on business development program designed to help entrepreneurs hone their skills needed to create, manage and grow a successful business. FastTrac is a globally renowned program created by the Kansas City-based Marion Ewing Kauffman Foundation, a TechTown partner organization and America’s leading expert on entrepreneurship education, research and growth.

Event Name: MiSN Homeland Security Market Leadership Conference

Date: Wednesday, November 4, 2009

Time: 8:00 a.m. Registration and Continental Breakfast

8:30 a.m. to 6:00 p.m. Conference

Location: Hyatt Regency - Dearborn, MI

Where to ask

question: (248) 353-0735

Cost: $199 -- Includes continental breakfast and lunch

By attending the MiSN conference, business executives will:

1.) Learn about the Homeland Security Market and business opportunities in Biodefense, Cybersecurity & Bordersecurity

2.) Meet with decision makers from key federal agencies, and exhibitors of value added solutions

3.) Curbside consulting - 15 minute consult with TechTown advisor. Learn about the FastTrac™ Entrepreneurial programs, and register for one of our 4 programs onsite.

The Michigan Security Network (MiSN) Market Leadership Conference will be held on November 4, 2009, at the Hyatt Regency Hotel in Dearborn, Michigan. Attendees will be able to listen to experts in the fields of security and defense, meet leaders and decision makers from major corporations, federal agencies, and Universities, and listen to presentations on the opportunities available in cyber security, biodefense, and border security.

MiSN Market Leadership Conference Speakers include:

(JUST ADDED) - Dave Thomas, Associate Director for Intelligent Ground Systems at TARDEC
(JUST ADDED) - Jim Jaeger, Director, Cyber Defense & Forensics, General Dynamics Advanced Information Systems (GD-AIS)
(JUST ADDED) - Rick Harris, Acting Deputy Director U.S. CERT DHS
(JUST ADDED) - Rene Kelly, MiSN Joint Venture with Wayne State University (WSU) and the Kauffman Foundation for FastTrac programs

Michael J. Bouchard, Oakland County Sheriff

Bruce B. Davidson, Director of the Office of SAFETY Act Implementation, Science and Technology Directorate, Department of Homeland Security
Dr. Farnam Jahanian, Founder and Chairman of the Board, Arbor Networks, Inc.
Parney Albright, President and Vice Chairman, Civitas Group llc
Randal Charlton, Executive Director, TechTown, Entrepreneur in Residence and Special Assistant to the President for Economic Development, Wayne State University
Scott R. Dratch, Director of Strategic Cyber Initiative, General Dynamics—Advanced Information Systems
Ken Theis, Chief Information Officer, State of Michigan, Director for the Michigan Department of Information Technology
Captain Larry K. Atteberry, Manager - Protective Services, BioDefense Operations, Emergent BioSolutions
Peter Tchoryk, Jr. Chief Executive Officer, of Michigan Aerospace Corporation
Dennis Grimaud, Chairman and Chief Executive Officer of DIATHERIX Laboratories, Inc.
Jian Han, M.D., Ph.D., Laboratory Director of DIATHERIX Laboratories, Inc.
Dr. Carole Bolin, Director - Diagnostic Center for Population & Animal Health at MSU

MiSN SPONSORS:

Platinum Sponsors

* DTE Energy

* General Dynamics Land Systems (GDLS)

Gold Sponsors

* BCU

* VisitDetroit.com

* Engineering Society of Detroit

* Howard & Howard

* Precisionwerx

* PVS Chemicals, Inc.

* Strobl & Sharp

* University of Michigan

* Wayne State University

Silver Sponsors

* Dewpoint

* Patriot Services

* University of Detroit Mercy

* Walsh College

* Warner Norcross & Judd

MiSN Market Leadership Conference Investment:

Attendees: $199 — includes continental breakfast and lunch.

Exhibitors: $350 — 8ft Table Top Display

MiSN Market Leadership Conference Sponsorship opportunities are still available:

For more information, please contact Leslie Smith at 248-353-0735, ext. 152 or lsmith@esd.org

Please use the following link to review and register to attend the MiSN Homeland Security Market Leadership Conference:
- http://www.michigansecuritynetwork.com/conferences.html

- For more details phone: 248-353-0735

Thank you for your interest, support and consideration. Please contact me if you have any questions or if I may be of further assistance. We look forward to meeting you at the conference.

Lori Soifer - Best Choice for Birmingham School Board

2009-10-30T10:26:00.010-04:00

In times of crisis, experience counts. Lori’s experience as an expert in the development of policies and programs which promote innovative and cost effective learning strategies is vital to our school board. Her commitment to achievement for all students is critical as we embrace the broader fiscal challenges confronting public education in Michigan, and how those challenges impact Birmingham. Lori has made the hard choices that board members from other districts have avoided (like privatizing transportation and custodial services). Those decisions have saved tens of millions of dollars that now remain in the classroom where they belong, all while maintaing a balanced budget.

There is no person better qualified to help us meet the task ahead. Lori's commitment to academic excellence ensures that Birmingham's students will continue to lead the state.

If you would like to learn more, visit Lori Soifer's site here. I trust that you'll see an unmatched commitment as a volunteer to not only our schools, but to the broader community that reaches far beyond our classrooms.

20j Districts Violated By Governor, More Pain Added

2009-10-22T20:12:00.006-04:00

The first blow was the $165 per student cut in state aid, it was tempered by understanding the cut was to be applied equally to all districts. Then the Governor made a conscious choice to unjustly punish the districts covered by the corrective 20j stipulation embedded in Proposal A. That took an average cut of $165 per student and amped it up an average cut of $242 in those 20j districts. Now to compound that exercise of monumentally poor judgement, those 20j district have been impaled by the addition of a new $127 per student cut. The average cut to 20j districts: $533.42 per student, for non-20j districts the cut is is $292. The data is shown below:

State Aid 20j Impact 2009-10 Updated

So what did the 20j districts do to deserve a punishment of nearly TWICE that imposed on all other districts? Some, like Livonia, East Lansing, and Northville are looking at cuts of over $600 per student. I think that the Governor has eviscerated the legislative intent of Proposal A, that should make some lawyers happy (remember Durant?).

Governor Granholm Honored as National Education Policy Leader of the Year

2009-10-22T10:24:00.010-04:00

Is this a cruel joke? The press release is here: Governor Granholm Honored as National Education Policy Leader of the Year. Why the National Association of State Boards of Education did this, at this time, is at the least bitterly ironic. I would suggest they contact members of the boards of education that just had their budgets deliberately targeted and slashed by this Governor if she is really a leader worth celebrating. Yes, she adopted more rigorous standards for high school graduation, but she just made it much harder for teachers in 40 districts to help their students reach those standards, while breaking the promise at the heart of Proposal A's funding legislation.

It seems to me there is no reason why the NASBE can't change course. They certainly have not highlighted the choice on their web site (I can't find anything). Contact the Executive Director, Brenda Welburn via email here: brendaw@nasbe.org, you can also contact her at 703-684-4000 or fax at 703-836-2313. While you're at it, make sure to let Governor Granholm know how you feel about the unfair manner she has treated the 214,323 students impacted by the 20j veto (link to Governor comment page is here).

Proposal A and a Broken 20j Promise

2009-10-20T13:26:00.003-04:00

Last night the Governor broke the Promise of 20j; a promise that Proposal A would lift the floor of School funding, not drag down the top.

The right thing to do is treat every district fairly, what the Governor did was single out 40 districts that operated under the 20j provision. That provision was a CORRECTION to a FORMULA ERROR embedded in Proposal A. For these 40 districts, the Governor has made a bad situation dramatically worse, while providing NO PRACTICAL HELP for the other 511 public districts and 233 public academies.

Specifically, there are 214,323 students in the forty 20j districts, the Governor has taken an average of $241/student away from these kids (ON TOP OF THE $165/student cut) while maintaining the net $165/cut per child over the rest of the state. She didn’t even attempt to mitigate the $165 cut with the 20j funds, she just singled out these districts for extra pain.

The impact on these students reflects the math problem that 20j corrected. While Birmingham is harmed, other districts that spend just sightly above the foundation allowance are devastated by this move. The current data is below (data pulled from the October 2009 State Aid Report):
State Aid 20j Impact 2009-10

There is NOTHING fair, equitable, or just about this politically motivated attack by the Governor.

An Now for Something Completely Different

2009-10-16T21:27:00.008-04:00

I've been working with a very talented team of people for the last six months putting together a new non-profit initiative call the Michigan Security Network. This effort, initiated by CEO Leslie Touma, is designed to bring new jobs to Michigan that focus on opportunities in the Cyber Security, Bio-Defense, and Boarder Defense areas of the Homeland Defense Network. We’ve created a partnership of Universities and corporations that links schools like Wayne State University, U of M, Michigan State, and Lawrence Tech, with firms like General Dynamics, DTE, Roush and Dow to support virtual incubators for promising research applications and spin out opportunities from existing corporations.

Additional support is provided by the Kauffman Foundation and Wayne State through "FastTrac Training" to facilitate technology startups. The objective of this work is to retain and recruit new jobs for Michigan's technologically advanced work force. The inaugural event is November 4th; a conference at the Hyatt Regency Dearborn featuring Bruce Davidson the Director of Department of Homeland Security, Reandal Charlton, the executive director of TechTown, Parney Albright President and Vice Chairman of Civitas Group, Dr. Farnam Jahanian Chairman/Founder of Arbor Networks, Ken Theis, Chief Information Officer for the State of Michigan, Oakland County Sheriff Mike Bouchard, and others. This kickoff event will help show case the massive amount of talent and energy Michigan can bring to bear in this $113 billion a year industry.

The conference (register here) also represents a small step towards a new future for Michigan's students. The skills required for the innovative work in this industry aline with the goals of Birmingham's 21st Century Learning objectives.

The Cliff

2009-10-16T12:58:00.005-04:00

A new report from the Nelson A. Rockefeller Institute of Government highlights the funding cliff we’ve been hearing about. The Politics K-12 blog summarizes this report in an article: Stimulus Funding Cliff Is a Reality The Rockefeller report (full report can be found here, caution opens a .pdf file) reveals how difficult the challenge for our state is, and will be, in the future. Individual state statistics highlight Michigan’s plight. We are consistently leading the decline or are number 1 or 2 in states that have lost income, tax revenues, and jobs.

The data shows the depth and breath of the impact of this recession, and Michigan is far from alone. In the total measure of declining economic activity, Michigan leads the list having fallen 23.7 points from January 2007 compared to the US average of a 3.4 point decline (page 13).

An interesting anomaly is the increase in sales tax collections from 6/08 to 6/09; that component jumped 12.1% as personal income tax and corporate income tax fell 23.5% and 38.2% respectively (page 16).

Another chart shows Michigan’s change in Per-Capita tax revenue from the most recent 4 quarter peak to the 4 quarter total ending 6/09 (page 20). Here Michigan went from a peak of per capita tax revenue of $2,618 to $2,434, a drop of only 7.0% This suggests a “slow bleed” as opposed to the dramatic fall that a state like New York is experiencing. However, when coupled with the decline in economic activity the fall off is likely to accelerate behind unemployment growth. Not factored in is the continued fall in property tax revenues, a major source of school funding in Michigan. Taken together, it may be bad now but the worst is yet to come. In the ironically named Highlights section, the report shows "total state tax collections declined by $63 billion or 8.2 percent from the previous year. That loss is also a record, and is roughly twice the amount states gained during the year in fiscal relief from the federal stimulus package."

So, now more that ever we need leadership from Lansing in the form of structural change and reform. That cannot happen in isolation. The Governor has the power to pull all parties together and produce a collective vision for reform. This is were the charge must come from, but this is where the leadership is lacking.

An Apology To the MEA

2009-10-15T16:28:00.007-04:00

I'm sorry. That's to the MEA. Apparently some feel that I've attacked them which is not my intent. I consider the MEA to be an integral part of fashioning a solution to the mess we face in funding schools today. Schools stand to lose nearly 10 years of funding increases over the next 24 months, this fact is only debated as to how much larger the shortfall will become. There is no single solution to the problem, there is no single bad actor. Whether it's a combination of tax changes (e.g., why has the beer and wine tax stayed the same since the ice age), adjustments to total compensation (which can include benefits), or an overhaul of the whole system, we need all players at the table soon. So again MEA, I'm sorry. I'm just looking for help from you, the Legislature, the Governor, and the thousands of other players involved in this undertaking. I may be alone in this but I don't think we have any time to waste.

School Funding Cuts

2009-10-15T11:10:00.008-04:00

Tax revenues for Michigan schools are not coming back; schools will see deeper midyear cuts on top of the $165/student cut already announced. Next year will be much worse as schools stand to lose over $500/student. It is time for the MEA to come to the table just as the UAW did and readjust their reality. Teachers are not the bad guys here but nearly 90% of operating budgets are dedicated to salaries and benefits. Existing contracts and agreements were crafted in a dramatically different economic climate. Very small changes to compensation and benefit agreements shared over thousands of public teacher and administrator contracts will have a dramatic impact on local operating budgets that can help alleviate the impact of Michigan's recession. Now is the time to push our state legislators to force the MEA to the table and solicit suggestions from them. For the 800 pound gorilla of the UAW to move it took a 1,000 pound gorilla of bankruptcy. Michigan's recession is the 1,000 pound gorilla and the MEA must wake up to its existence.

The union talks about "family," every family I know (including mine) has seen wage and benefit cuts, some as much as 20% to 30% as a response to the recession. If we are indeed family, how is the MEA helping? How is a 1% to 4% adjustment equivalent to "slashing" pay (quoting from AFT Union leader David Hecker) when the tax paying parents of students have endured much worse? Why is a proposed plan to save on health care costs equivalent to a declaration of war? The traditional MEA response of throwing the youngest teachers off the bus will not work; it will only make things worse.

I love my teachers, and I want to keep them employed at schools with reasonable class sizes -- to achieve this we need the MEA's help. Every parent of every child should contact their elected representative and demand hearings involving the MEA, get them to the table before it's too late. Urge the MEA to allow local units to open existing contracts for structural adjustments. Find the legislative will power to adjust revenue streams. A real family responses to a crisis with hope crafted from shared sacrifice, not with a cry of WAR!

Where's the MEA?

2009-09-30T13:33:00.019-04:00

As GM, Ford, and Chrysler melted down their unions recognized the crisis and engaged in the unpleasant task of dealing with economic reality. To save their industry, and their own member’s jobs, union leaders renegotiated salaries, benefits, and work rules. Members then voted to approve these changes. None of this was easy or particularly pleasant, but it was necessary. Marking this effort was the realistic engagement by UAW leadership; precisely the type of realistic engagement missing from the MEA.

So where is the MEA? Apparently in denial of the facts driving Michigan’s economic depression. Tax revenues are dramatically and permanently down, unemployment has jumped to over 15%, the highest in the nation. We continue to hemorrhage jobs. Any turn around will be a long time in arriving. Recognizing this, Oakland County has frozen salaries and cut pay to deal with declining revenues. This creates STRUCTURAL CHANGE that will save jobs, preserve services, and balance the budget in the face of long term revenue loss. To quote Deputy County Executive Bob Daddow “the county won't recover to 2009 financial levels until the year 2020 or 2025.” That’s from the most economically affluent county in the State!

Eighty-five to ninety percent (85% -- 90%) of a typical school operating budget is consumed by salaries and benefits; there is NO OTHER line item which exerts a bigger push on budgets. Michigan’s education budget exceeds $13 billion annually, it is the single largest budget item. While not 90%, a majority of that budget is dedicated to salaries and benefits. Very small changes to existing contracts (perhaps as little as 1%), adjustments to steps and lanes, and minor changes to benefit programs could reap hundreds of millions in cost savings. Small structural change would stabilize operating budgets for years.

Is the MEA living in an alternate reality which exempts them from this financial crisis? Unbridled support of the MEA’s money pot, MESSA, seems to support that notion. The advertised claim is that MESSA has saved Michigan money. Here is the inconvenient truth: MESSA is the single most EXPENSIVE health care option forced on Michigan schools, a fact supported by the Hay (see chart from report here). The MEA’s claim is akin to saying Governor Granholm is “saving” taxpayer money by buying a Bentley instead of a Rolls Royce to chauffeur her to and from work. The claim may be “true” but the statement, in context, is absurd.

The MEA needs to take a page from the UAW and support their local units in opening contracts for job saving adjustments. The MEA can accept that revenues are permanently down and will not rebound for years. The MEA can act to save member jobs and preserve programs for school children. Of course, the MEA can opt to demand a larger share of an ever shrinking pie. My hope is that the MEA chooses the path of economic reality as the UAW did; if they do, we will all be better off in the long run.

Funding Michigan Schools 2009 and Beyond

2009-09-28T10:18:00.010-04:00

I’ve been very quite over the last few months. With the continued drum beat of bad economic data filtering in there was only one, ONE, proposal that targeted cost savings for Michigan school districts -- Andy Dillion’s idea for a comprehensive reform of the health benefit for Michigan’s teachers. I applaud Representative Dillion on his proposal and subsequent plan. The essence of the plan is supportable, achievable, the savings are measurable, and substantial. I don’t feel this program should be managed by the state (any INSURANCE company can run such a plan - and that would disqualify MESSA because it is NOT an insurance company); there is clear evidence to support the savings realized from standardized programs and expanded participant pools. It’s a good start and deserves to move forward in the face of self interested and deceitful lobbying from MESSA.

What legislators, MESSA, and voters cannot hide from is the massive funding shortfall Michigan is facing over the course of the next few years. Any response must be

structural and long term. The picture is clearly presented by the House Fiscal Agency (direct link here -- THIS OPENS A PDF FILE):

(All $’s in Millions)

FY 2009-2010

FY 2010-2011

Revenue

$12,156.6

$12,476.3

Baseline Expenditures

$13,163.6

$13,143.2

Balance

-$1,007.0

-$666.9

Federal Stimulus Dollars

$805.1

$0.0

Balance Shortfall

-$201.9

-$666.9

It’s time for school boards to grow a spine and start doing the right thing, not the easy thing. In Birmingham we carefully considered, and then thoughtfully implemented, the contracting of custodial and transportation functions. That has saved our district nearly $8 million over two years! If other districts followed our lead the savings would preserve hundreds of teacher jobs and vital programing. Since 2002 Birmingham has pair over $22 million from our operating budget. More work lies ahead of us and we need legislative help from Lansing to achieve lasting structural changes (health insurance costs, pension costs) -- but if we all accept the truth that our economy has fundamentally changed, we can act in unison to right this ship without compromising the core mission of Michigan Schools.

Public Employee Relations Act KILLS JOBS!

2009-06-25T10:26:00.005-04:00

Contact your state representative and urge them to eliminate job killing provisions inserted into House Bill 4788 (HB 4788). The bill would mandate that the privatization of support staff would be subject to collective bargaining. Whoever (Rep. Bert Johnson and Tim Melton) slipped this garbage into this legislation should be subject to mandatory drug screening. That may seem harsh but consider this, in Birmingham we contracted our transportation and custodial services. This was not an easy decision, but we SAVED over $3.5 MILLION annually by doing this. Where did that money go? It went to KEEP TEACHERS EMPLOYED. Out of all the school districts in Oakland county we are the only one that did not announce massive teacher layoffs for the coming school year. This is why districts contract non-classroom services, to save money for programs and teachers. Why in the world would these two legislators insert job killing language in the face of the worst economic crisis Michigan has ever faced? As I speculated, maybe a test is in order.

Contact your representative and urge them to eliminate the changes to PERA from HB 4788, or ask them to remove the "tie bar" to the other education bills. The "tie bar" is a tactic to gain approval of multiple bills together. This bill has been tie barred to House Bills 4787 and 4789.

An Even Harsher Reality

2009-06-17T12:09:00.011-04:00

The following is an edited letter to my state legislative representatives:

School boards across the state requested a change to the sinking fund legislation to support technology and infrastructure needs. In exchange we got a sharp finger in the eye and rhetoric about taxes. These are not partisan issues, they are issues of survival. State aid will cut $370 per student at the very end of our school year. Stimulus dollars are supposed to fill the gap but many districts will have to borrow to get reimbursement. Next year is worse with a $590 per student shortfall, and not enough stimulus dollars to fill the gap. In 2010/11 the prospects are gruesome with projected shortfalls of nearly $1,000 per student and NO stimulus offset. For Birmingham, that wipes out ALL foundation allowance increases since 1994.

Voter approved sinking funds could offset some of this disaster while limited to an amount equal to the depreciation proxy of their physical asset base. But stronger state wide action is needed to save public education.

Birmingham has cut over $22 million from our budget over the last 7 years. We took the controversial (but correct) step of contracting our transportation and custodial providers. We trimmed administrative costs. We consolidated buildings years ago. We’re happy to share our insights.

Justifiably or not the House, the Senate, and the Governor are all perceived as contributing to a culture of "no" when presented with alternatives to the status quo.

For my State Representatives, here’s some ideas:
1. Get a statewide healthcare plan for teachers AND public employees. Set us on equal footing with the union monopoly and take advantage of scale.
2. Adopt the changes in sinking fund language, voters are grownups and they can decide.
3. Reform the pension funds -- under traditional accounting the state of Michigan would be functionally bankrupt when allocating the need to fund the actuarially accrued liabilities of the system (a shortfall of over $30 BILLION for teachers alone).
4. Mandate minimum district sizes - nothing under 4,000 students.
5. Mandate publicly disclosed negotiating positions for collective bargaining of public unions; this is my money I deserve to know how it is being bargained.
6. Mandate MESSA refund its cash holdings to districts and teachers - that is quick way to get $350 MILLION back to schools.

The savings are out there, but political will is required. Call your legislators and demand action today, tomorrow is too late.

Harsh Realities: School Funding

2009-05-20T11:36:00.006-04:00

From Oakland Schools and Judith Allen, the Director of Government and Community Services: the estimated short fall in the school aid fund for the current year (2008-09) will be $420 to $450 million (or about $258 to $277 per student). Next year (2009-10) things get worse with a shortfall of $800 million to $1 billion (or about $492 to $615 per student). To put that in perspective, over the next TWO YEARS school aid funding will be short between $750 to $892 per student measured against the baseline of projected 2008-2009 funding. That range equates to approximately 8 years of foundation allowance increases.

Typical of Lansing the funding gap will reportedly be filled with the $1.3 billion State Fiscal Stabilization funds (ARRA - a/k/a American Recovery and Reinvestment Act) while very little or no consideration is given to necessary reorganizations required of systemic costs and revenues. What Judith’s memo highlights is the need for districts to “apply” through MEGS (Michigan Electronic Grants System) for the ARRA State Fiscal Stabilization dollars” to get the funding. So while the state funds will not be there to fund the current foundation allowance, districts will have to apply to the grant making bureaucracy to request money to just make up the difference -- any bets on how that process get manipulated?

What happens when the “stimulus money” is gone? School budgets will be faced with massive funding gaps; remember nearly 90% of school funding goes to salary and benefit costs so much of that funding gap will negatively affect staffing. Think of it this way, if funding vaporizes after the “stimulus money” trick, school aid allowances will revert to a level equal to a ZERO percent (0.00%) increase since 2001-02. Dramatic cuts will be required in the 2010-11 school years.

Compounding matters is a loss in special education funding that will happen at the local ISD level. Projections show that funds available will fall by 12% in 2010 and by a total of nearly 20% by 2011.

For Birmingham that equates to a funding gap equal to $6.1 to $7.3 million, and up to $8 million or more with the ISD PA 18 cuts. Any school district can do the same basic analysis, take the expected per student shortfall of $750 to $892 per student, and multiply by projected enrollment in the year 2010-2011. It’s an ugly picture but it is the reality all districts must plan for going forward.

21st Century Skills -- From an Unexpected Source

2009-04-29T08:28:00.008-04:00

Educators and politicians have been touting twenty-first century skills since the late twentieth century. On occasion the descriptions resonate with the audience, at other times they fall flat and leave listeners confused. I encountered an example of how these skills can intersect in a wonderful video.

The producers of the video have a simple mission: spread world understanding and peace through music. On the surface it can be dismissed as a “very nice thing to do” without a passing thought. On a deeper level it opens the door to multiple avenues of learning for students. Watch the video and think about these things:

Where are the performers located geographically?
What are the political situations in those locations?
What are the economic and social conditions?
What do these people have in common?
What do you think about the mission behind the message?
How will the internet facilitate the communication of the organization’s goals?
What tools were used to create this collaboration?
Would the “cause” have been as interesting if it were presented in simple written form?

It is the last questions, in my mind, that highlight the reason behind incorporation of “21st Century” skills into curriculum. Reason and understanding cannot come without mastery of fundamental skills learned by all students (reading, writing, arithmetic, etc.), but the conveyance of what is learned and created with these skills is the focus. The “new” skills and tools enhance the message; they also enhance the process of learning and understanding.

"Stand by Me" performed by musicians around the world from SKAT on Vimeo.

Birmingham Schools - Science Olympiad

2009-04-21T12:21:00.002-04:00

Among the many great things that happen outside of the classroom in the Birmingham School district is support for and participation in the Science Olympiad. To capture how much fun the students had, and how much they learned, I've posted a short video of this years event. When you click on the video it should play in HD, if not, choose that option in the lower right and make sure to keep it wide screen so it will fit.

The teachers, administrators, support staff and parents that attended this years event on a beautiful Saturday morning clearly had a great time.

The Fleecing of Michigan’s Teachers and Public Employees

2009-04-20T20:09:00.002-04:00

The MEA, through it’s subsidiary the Michigan Education Special Services Association (MESSA), is diverting over $367 million in badly needed funds from classrooms. It does this through its practice of reselling Blue Cross Blue Shield insurance products under it’s own banner. The Hay Group Report shows that on average MESSA is the most expensive program of all other choices. It's simple math, Blue Cross makes a markup, then MESSA makes it mark up and the cost goes up.

MESSA's balance sheet (show below) quantifies the true cost of this manipulation. As of the most recent audit (full 2008 report here) MESSA has earned and holds over $365 million; it would be $394 million if MESSA was not forced to disclose $28 million in pension liabilities for MESSA staff. MESSA claims a portion of the reserves are for rate stabilization. This is a marketing claim because MESSA is not required to hold reserves. The truth is that Blue Cross Blue Shield is required to hold these reserves because they are the actual insurance provider, not MESSA.

From MESSA’s own 2007 financial statement (page 11 of MESSA financial statement), the reserves belong to “our members and their school districts.” REALLY? OK, I want MESSA to return our share of these “reserves” back to my district -- or failing that, return it to my employees because it is part of their negotiated compensation. Of course I will not hold my breath, MESSA will not even comply with state law which requires disclosure of experiential data (Public Act 106), the law is over a year old and MESSA has not complied (MESSA has no excuse for this, their systems are fully capable of producing this data).

About that $28 million in MESSA pension liabilities: a part of this is attributable to a nonconforming, and underfunded pension plan. Why is it nonconforming? The main reason is to cover extra pension contributions for executives earning over $225,000 per year. Is this really in the best interest of the public employees “covered” by this organization? These are employees that are at significant risk because of massive funding shortfalls at the state level. We ALL need to aggressively cut costs to save the jobs of the people that matter the most -- the teachers in the classrooms.

MESSA is redundant organization (Blue Cross Blue Shield already provides the same administrative functions) that marks up its product (which is buys from Blue Cross Blue Shield), and withholds the rebates it earns through the good health of its members (rebates given by Blue Cross Blue Shield to reflect cost savings) so it can fatten its executive ranks and manipulate its own political objectives (by deciding when and where to change the rate it charges for its Blue Cross Blue Shield insurance). The MEA is selling its members short, it should live up to its own words and recognize that these funds belong to “our members and their school districts.”

MESSA 2008 Balance Sheet MESSA 2008 Balance Sheet R1Lawrence From MESSA's 2008 financial statement (page 4 or document, page 2 of statement) is the true magnitude of how much money MESSA holds on it's balance sheet. This money belongs to it's members (teachers, public service employees, and school districts that contribute their payroll to MESSA under collective bargaining agreements). It's time to send the money back to the members.

Did You Know

2009-03-31T21:52:00.004-04:00

A refined presentation of a brilliant idea from Karl Fisch from his web site The Fischbowl. It's a compelling remix of an inspired presentation which attempts to present just how much our world is changing, how quickly we are adapting, and how far we have to go. The quiet question is what should, could, or need we do to embrace the future; not only as Americans but as a world community.

As the presentation is designed to provoke conversations I'd like to start a thread: a data point in the video reveals that the average learner will have 10 to 14 jobs by the time they are 38. How can teachers, locked into a system that does not promote professional flexibility, relate to or comprehensively prepare today's learners for this reality? Is there a way to provide more professional flexibility for teachers today? What would have to change to allow for such a departure from the norm?

Detroit City Council -- No Common Sense

2009-03-11T16:50:00.006-04:00

I've lived in this area for most of my life and for decades I've worked for, waited for, wished for, and even prayed for the impending "revival" of Detroit. As a commercial loan officer for what was the National Bank of Detroit I participated in many initiatives which targeted redevelopment of the city. I saw many good people achieve nominal, but typically small, levels of success toward that goal. I was always struck by the hope and vision of these well meaning and resourceful individuals. A common thread tying these personalities together was a wish for the emergence of transformative political leadership. I shared that wish, I remain disappointed.

The Detroit City Council's rejection of a regionally cooperative renovation of Cobo Arena is a potentially crippling setback for a city and a region that cannot stand anymore set backs. I hope the Mayor's veto of this ill advised rejection stands, and I hope that we all continue the work of moving forward, because the price of falling backward is unimaginable.

One vision of a backward path for Detroit can be seen below - It is a small pre-production film which paints a sometimes sad, yet accurate and eye opening tale of our town. A person in the film talking about the People Mover informs us that when it was built there "were hopes of going farther, but they were never realized...." So, where do we go from here?

Detroit Wildlife from florent tillon on Vimeo.

Financial Crisis Explained

2009-03-07T10:47:00.002-05:00

A short video painting a very simple, yet accurate, picture of the complexities of the current financial crisis. The total video runs just over 11 minutes.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Irresponsible Rumors

2009-03-06T13:42:00.005-05:00

Now, before I attempt to squash the rumor du jour in Birmingham, let me reiterate the disclaimer on these pages:

This is a personal blog. None of the opinions expressed here should be construed to represent the opinions of other board members, the Birmingham Public Schools, or any other group with which I am affiliated.

With that handled let's cut to the chase. I have never heard any person affiliated with the Schools even raise the possibility of privatizing the para-professionals. This rumor is a fabrication.

20j Again Into the Breach

2009-02-26T01:11:00.001-05:00

The annual attack on 20j funds represent either ignorance, arrogance, or willful misrepresentation. Section 20j “funds” represent nothing more than the correction of a language flaw embedded in the original Proposal A legislation (imagine that, a mistake in legislation) that surfaced in the 1999-2000 school year.

The correction (added as section 20j) ensures that hold harmless districts (like Birmingham), get at least the same MINIMUM increase in the foundation allowance as all other districts. The original language created an unintended penalty that negatively affected the 40 districts covered by 20j. The idea of “minimum” is key because many non-20j districts receive TWICE the minimum foundation increase. The 20j adjustment was designed to protect the integrity of Proposal A - a letter from Michael J. Bouchard (now Oakland County Sheriff), who was floor leader of the Michigan Senate reminds legislators of this fact.

To review some myths and facts:

MYTH: 20j is welfare to “rich” districts.

FACT: As discussed above, 20j ensures all districts get only the same minimum increase as all other districts; many non-20j districts get twice the minimum.

MYTH: 20j funds are why “rich” districts are “rich.”

FACT: The major funding differential between hold harmless districts and other districts is 100% attributable to LOCAL property taxes that have been in effect since Proposal A was passed. For Birmingham that difference is represented by $3,188 per student (an amount that has been constant since 1994 -- the amount has not increased and is fixed by Proposal A). Since 1999 total 20j adjustments for Birmingham aggregate $122.23 per student (less than $1 million).

MYTH: Taking 20j away from “rich” districts will solve the funding problems of other districts.

FACT: Collectively, 20j represents about $32 per student (1,620,531 K12 Students in Michigan).

Rather than punishing 20j districts, we should all work together to address our biggest costs: healthcare and pension costs. Current pension costs are nearly $1,000 per student per year. If fully funded the burden would approach $24,744 per student (or an additional $853/student per year for 29 years).

Attacking 20j just “re-breaks” the Proposal A model. The Governor and the Legislature keep running away from the real problems at the expense of every citizen and child in the State of Michigan.

Early Retirement Proposal Gets Reality Check

2009-02-25T11:42:00.006-05:00

The recent MEA proposal to encourage teachers to retire early has been analyzed by the House Fiscal Agency. The report's conclusion shows the net ANNUAL cost to be between $501.7 million and $657.9 million - these costs are driven by the need to fund the added pension benefits AND amortize the unfunded accrued actuarial liabilities (UAAL).

The only flaw in the report is the understatement of the true cost given the impact of the reported $9.2 BILLION pension fund investment loss. The pension report "hides" this data by utilizing a "smoothing" analysis to mitigate market fluctuations - the fact is that the market has deteriorated since the pension audit and the "smoothing" is only hiding the magnitude of the actual problem. You can get the report here (caution, this will open the .pdf file).

Michigan Teachers' Pension Fund Lost $9.2 Billion in 2008

2009-02-02T09:11:00.005-05:00

MPSERS (Michigan Public School Employees' Retirement System) details a $9.2 BILLION loss in asset value on page 19 of the Comprehensive Annual Financial Report (image below), it is in the second line of the third paragraph.
MPSERS - Michigan Teachers' Pension Fund Lost $9.2 Billion in 2008

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The contribution rate schools will be forced to pay will be expanding significantly to pay for this loss, and to pay for the actuarial deficit the program has accumulated. That deficit, using the old asset value, exceeds $30 billion. Add the current loss to the amount and we approach a $40 billion deficit. Even amortized over 20 years that adds nearly $2 billion in year in extra payments - that equals an added cost (and additional funding requirement) of $1,234/student. Together with the current per student pension contribution of $981 and you have a cost of $2,215 per student or 30% of the $7,316/student foundation allowance. That's simply not sustainable.

The deceptive "funded ratio" is seen on page 18 of the document:

MPSERS - Teacher's Pension Audit Hiding the Real Facts

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The page which details the use of old asset values. The current report simply ignores the current loss of $9.2 billion. How is this different that what Bernard Madoff did to his clients? He hid behind the guise of GAAP compliance for years. Get the full report here, the detail is in the footnotes and related disclosures.
MPSERS - Michigan Teachers Pension Fund Deceptive on its Financial Performance

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MEA Retirement Plan Sure to Kill Michigan Schools

2009-01-29T15:05:00.005-05:00

The MEA’s proposed early retirement plan (which boosts the pension payouts for eligible teachers by an average of $500 per month) is such a monumentally bad idea it defies reasonable logic. The MEA must be using magical hedge fund math, or attempting to replicate a Bernard Madoff ponzi scheme. Here are some “inconvenient truths” about the condition of the Teacher’s Pension Plan (a/k/a Michigan Public School Employees Retirement System):

The plan (MPSERS) admits having an actuarial deficit of $30 Billion,
The plan LOST $9.2 Billion in asset value for the year ending September 2008,
State mandated pension contributions are consuming a higher percentage of school budgets than ever before (the projected contribution is expected to increase to 17.5% per salary dollar, then escalate to over 30% in the following five years). These are numbers from the Citizens Research Council.

The pension is in such bad shape that the current audit report is using asset valuations that are nearly 2 years old to calculate its health (the funded ratio). So while the pension claims to be 88.7% funded the number is more likely closer to 70% or less (taking into account the $9.2 Billion loss noted above). It’s possible that the actuarial deficit is approaching $45 billion. That deficit ($45 Billion) will come out of local school budgets; that kills local budgets even if it’s amortized over twenty years. The MEA proposal not only adds to the current burden ($981/student), it accelerates the need for contribution increases significantly (just amortizing the accrued unfunded liabilities of the system over 20 years will add $1,234/student per year ). That would consume 30% of the current foundation allowance. See a review of the issue here.

If the MEA is serious about helping local budgets here’s an idea; refund some of the nearly $350 million in overcharges levied to schools by MESSA (the health care administrator owned by the MEA). That money is sitting in MESSA accounts and rightfully belongs to Michigan tax payers; it also represents the projected shortfall in next years school aid funding.

MEA Director Earning Report for 2008

2009-01-21T13:21:00.006-05:00

From the Department of Labor LM2 report, the top earners in the MEA do far better than average with aggregate net compensation increase approaching 13% for those earning over $100,000 per year. The report shows an average increase of 3.6% for all employees. Of the total reported employee base, those taking home over $100,000 grew to 36% of the reported payroll (158 of 438 employees). The raw data can be found at this link (search under Union Name: NEA-National Education Asn Ind, State: Michigan, Check Box: Audit, Report Type: LM2), the report shown below can be seen at this link if not visible in Scribd viewer.

MEA Director Raises from 2007 to 2008

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Lion’s Jim Schwartz - Come Live in Birmingham

2009-01-16T10:31:00.006-05:00

Coach Schwartz, from everything I hear you’re a numbers guy. I share that passion so I’ll cut to the chase, come live in the Birmingham community. I can give you many reasons why you’d want do this, but here are a few I think you’ll appreciate:

Birmingham schools are consistently among the best in the state - ACT test scores (only one measure) have exceeded state and national averages by over 25%.
Our schools continue to win national recognition and awards for our Character Education Initiatives.
We’re at the forefront of ensuring 21 Century learning skills with our Ignite (!gnite) program.
We have unique choice opportunities like our 3-8 Covington schoo l (a technology focused leader).
We’ve proactively managed our budgets to ensure stability of programs and enrichment.
We’ve spent nearly $140 million to upgrade our facilities to ensure the best possible learning environment.
We offer unmatched co-curricular opportunities and over 30 outstanding athletic programs.
Our high school graduates are accepted into the nations best universities (including Georgetown).

So come find a home in the Birmingham community (an area that includes Birmingham, Franklin, Bingham Farms, Beverly Hills, and parts of Bloomfield Township, West Bloomfield Township, Southfield, and Troy) , your children will thank you!

Michigan's Budget and K12 Funding in 6 1/2 Minutes or Less

2008-12-11T21:42:00.010-05:00

Less than 6 1/2 minutes - that's all I ask to help you understand Michigan's budget, and how K12 funding is impacted by the big picture. The video below is a high definition walk through of a document I created: Michigan Funding All Sources. It looks complex - but it's very simple once you've absorbed the flow of information.

You can download the document to follow along; I recommend just viewing the video in full screen mode - the resolution should be very good. My hope is that you'll get a better understanding of Michigan's budget. At the same time you'll grasp some of the long term challenges facing local school boards. In a small way I think this video is representative of what our district is doing in creating 21st Century Learners. The video is best viewed in HD - you'll be redirected to the HD version by pressing the HD button once the video starts. The other option is YouTube (choose to view in HD). Thanks, Rob.

Michigan Funding in Under 6 1/2 Minutes from Robert Lawrence on Vimeo.

Option on YouTube:

View video on YouTube - Choose Watch in HD

Senator Toyota and Senator Nissan

2008-12-05T09:20:00.006-05:00

The loudest voices against the auto loan: Senator Toyota (a/k/a Dick Shelby), and Senator Nissan (a/k/a Bob Corker) represent the some of the biggest recipients of Federal Pork Barrel spending in the United States. Since 1981 Michigan has sent nearly $200 Billion more in Federal Taxes to Washington D.C. than it gets back; during that time Alabama and Tennessee have won the federal tax lottery to the tune of $166 Billion and $96 Billion respectively. That's Federal Welfare for their states, and Michigan has been a big contributor to that payout. What have Alabama and Tennessee done with Michigan's tax contributions? They have subsidized the operations of foreign automakers (through tax incentives) giving them a competitive advantage over our home grown enterprises. These two Senators should be hiding in the corner worried that someone is going to pull the covers off of their duplicitous and hypocritical behavior. Then again, that type of behavior seems to be the norm in Washington D.C.

Senator Toyota and Senator Nissan

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No Bailout? Washington Bites The Hand That Feeds It.

2008-11-20T22:22:00.005-05:00

Washington fiddles as Michigan and the domestic automobile industry burn. It’s not surprising given that Michigan (via its industrial base) has contributed over $200 Billion to federal coffer s from 1981 to 2005 according to the non-partisan Tax Foundation (during that time 21 states benefited to the tune of $2.7 TRILLION). Michigan is a perennial donor state; the $200 Billion represents the difference between what Michiganders pay in federal taxes versus what the federal government returns to Michigan. Michigan ranks as the 5th most generous net contributor of federal tax dollars and the 47th worst at getting federal funds back from Washington.

Now Michigan’s industrial giants stand with hat-in-hand requesting a $50 billion bridge loan. Political luminaries and representatives joyfully pour gas onto the flames by encouraging bankruptcy - thank you Mitt Romney. All of this while ignoring decades of positive federal tax payments, taxes that were then handed to states which used our money to attract foreign auto makers with tax abatements, development grants, job training support, and other economic incentives - it would be funny if the stakes weren’t so painfully high.

Ironically, those same politicians have committed $700 Billion for the balance sheets of hundreds of financial firms, but I don’t see Congress demanding 10 year business plans from AIG, JP Morgan, PNC, or Goldman Sachs.

Perhaps our mistake was in manufacturing cars rather than toxic mortgage securities or unintelligible debt securitizations. The makers of those products (and their CEO’s) are seemingly worthy of rescue - despite unanimous agreement that they lit the fuse on this global economic bomb.

The Center for Automotive Research has estimated the cost of failure to the US Government at over $156 Billion in forgone tax receipts and transfer payments (i.e., welfare and unemployment). There is little doubt - at least for those willing to connect the dots - that failure of the US auto industry will accelerate this recession into a full scale depression. Will this be the lasting legacy of the 110th Congress?

Action tied to the reforms already implemented by the Big 3 (which were admittedly late in coming) can turn the tide, inaction will drown us. Congress should provide Michigan and the Big 3 the bridge loan. Put reasonable and achievable restrictions on the loan. It’s an acceptable risk with far greater upside than the alternative. We’ve been dutifully sending our federal tax dollars to others for decades, now it’s time to do the right thing and help our state and industry get through this crisis.

For those willing to make your voice heard - click on this link to send a message to congress.

Tax Donor or Contrib States

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Hey Congress: Stop the bashing.

2008-11-19T15:41:00.001-05:00

It’s time to stop bashing the UAW, the management, and the workers of the American automotive manufacturing and sales sector. It’s time to own up to your own culpability by admitting to being co-conspirators in engineering the poor economic and energy policies which have contributed to our economic problems.

GM and the UAW have taken steps to correct long standing structural problems; but the nature of the beast dictates it will take time for these changes to bloom. Yet it is clear during congressional hearings is how desperate Lawmakers are to find someone, anyone, with lower approval ratings than themselves and use them to make themselves look competent. I guess that’s easy to do when facing an industry in need.

It’s time to engage and make something happen. Call it a loan, a bailout, or a pre-packaged bankruptcy. Put conditions on the package to ensure productivity, change laws so dealer networks can be consolidated, make every other Friday congress appreciation day for all I care. And choose to do nothing - and say so - if you have the spine to stand back and watch the carnage as unemployment claims spike, municipal failures mushroom, and the housing market moves from decline to devastation. Maybe the world would be better off with far less automotive manufacturing capacity. I just cannot believe my elected officials would encourage that rightsizing to happen at the expense of so many American jobs and families.

The $25 billion in assistance for the development of alternative fuel vehicles was a step in the right direction - it puts American manufactures on an even footing with foreign competitors that get their own subsidies. Is it really that much of a stretch to extend $25 billion to bridge the Big 3 through the credit crunch so they can bear the fruits of the new union contracts negotiated last year? Whatever your decision, please stop bashing everyone in sight and do something - even if you choose to do nothing. At least then we’ll know what to expect.

Big Three Bailout - A Better Bet for Everyone.

2008-11-15T18:31:00.004-05:00

What’s better:

1. A 50% chance of recovering a $50 billion bet in 5 years?
2. A 0% chance of recovering $156 billion over three years?

That’s the questions legislators should be asking themselves when debating the relative merits of extending loans to the domestic auto manufacturers. In choice number 1, the $50 billion represents the aggregate loan amounts being considered for the 3 American automotive manufacturers. In choice number 2, the $156 billion represents the cost (in LOST TAX REVENUES and increased TRANSFER payments) of allowing one or more of the American automotive manufactures to fail (according to the Center for Automotive Research Research Memorandum dated November 4, 2008). The potential impact is actually worse because the CAR report ignored the impact of the big 3 and supplier pensions being off-loaded to the Pension Benefit Guarantee Corporation - Delphi’s unfunded liabilities alone total more than $3.3 billion.

Simple math says extending the loan makes sense, but only if it favorably alters the course of the industry. That’s were the hard work comes in because it requires the federal government to change mentality regarding automotive regulation (which has served as a poor proxy for an energy policy via CAFE). It also requires intelligent and long range investment decisions by the manufacturers.

We are at a tipping point as a nation; we’re here because of poor regulation, over regulation, lax national energy policies, and crushing legacy costs caused by union overreach (jobs bank) and management hubris (assuming the jobs bank would never be used). We’re dealing with an unprecedented global financial crisis requiring difficult decisions.

Set ideologies aside and look and the numbers - betting on Detroit gives us a strong chance of preserving an national manufacturing base while making an investment with an expected return. Accepting failure costs the government 3 times as much, and that’s only the financial costs; the human toll will extend for many more years.

Some Lessons of the Financial Crisis

2008-11-05T11:54:00.003-05:00

Stephen Schwarzman, the co-founder and CEO of the Blackstone Group wrote an excellent editorial in the November 4, 2008 edition of the Wall Street Journal. Although I don't 100% agree with each of his seven principles, he makes a strong case for changes designed to mitigate a future financial crisis. The seven principles encompass the following recommendations:

Finalize a common set of accounting principles across borders.
Global financial regulatory regimes should be structured similarly. Each country needs a finance minister at the political level, a central bank and one single financial services regulator with a very broad mandate.
Full transparency for financial statements - eliminate "off balance sheet" items (can you say Enron).
Full disclosure of all financial instruments to the regulator - this includes esoteric creations like the $60 trillion market in credit default swaps (currently unregulated).
A regulator should have oversight over all financial institutions that participate in the markets, regardless of their charter, location or legal status, i.e., hedge funds.
Abolish mark-to-market accounting for hard-to-value assets (e.g., if your house does not sell after 120 days on the market are you forced to mark its value to $0?).
Move to a principles-based regulatory system rather than a rules-based system.

That last point may be the most complex and compelling. The urge of young MBA's and talented financial engineers is to circumvent the rules in order to gain an edge. Regardless of how well a policy rule may be crafted, you can bet there will be someone that finds a "loop-hole" in the rule.

There is plenty of "blame" to go around for the mess we're dealing with; I want to communicate to our legislators that it will take some talent and CAREFUL consideration to move our system to where we will be safer in the future.

A system of rules and regulations is utterly incapable of dealing with the speed and complexity of the modern financial system. Current SEC and bank regulation was unable to stem the current crisis.

Michigan School Funding - Part IV

2008-10-30T13:25:00.004-04:00

Michigan's total state budget is comprised of 34.6% federal tax revenues, and 65.4% state tax revenues (of which 31.6% is "discretionary" in the General Fund, and 68.4% is "targeted" for specific uses like the 6 mill state education tax on primary residences, or net lottery proceeds).

How much money gets to Michigan schools? That's mostly a function of very complex language embedded in laws like Proposal A and the Headlee amendment. It is also governed by court decisions like Durant vs. State of Michigan.

For the next school year ('08/'09) the budget total is $13. 31 Billion. This does not count money spent from prior year savings (projected to be $ 68.7 million). This also does not count local funds that supplement (i.e., lower) state aid payments. The most significant "supplement" is local tax revenue generated from the 18 mill's raised on "non-homestead" properties (these are typically business properties or second homes). The state formula mandates a dollar for dollar reduction in the state foundation allowance for every dollar raised from the 18 mill allocation on non-homestead properties (even if a municipality collects less than the 18 mills - something that can happen through Headlee rollbacks).

Clear as mud? It's more complex, but for now you can look at the chart below to see how the large blocks of money flow into the system (if you click on the chart name below the graphic it will take you to the full sized version).

Michigan School Funding/Major Sources - Upload a Document to Scribd

Michigan School Funding - Waiting for the shoe to drop!

2008-10-28T10:32:00.005-04:00

While I've been ready to post the next in this series - a detailed look at how funds flow from the biggest sources (state restricted funding sources, federal funding, and the state legislature controlled funding) - economic turmoil has me hesitant to publish any dollar figures.

The reason is simple; the 2008/2009 state budget was based on figures from the May 2008 Revenue Estimating Conference. Those numbers (a total state budget estimated at $42.95 Billion) are guaranteed to be wrong - the numbers will be lower. The question is how much lower. For schools the question is simple, will it be bad enough for the dreaded "PRORATION". Simply put, will the state take back the $56 to $112 per student increase we were promised (and budgeted for)? It would not be the first time (it was done in 2003/2004 to the tune of $74/student ) and some cut seems inevitable. Here are the facts straight from the Senate Fiscal Agency update October 21, 2008 (not yet published).

Some basics:

Michigan's economy has improved little from the 2001 recession.
Employment has declined by 494,900 jobs (10.5%) since June 2000.
From August 2007 to August 2008 employment FELL an additional 69,500 jobs.
Payroll employment is projected to DECLINE 1.8% in 2008 and 1.5% in 2009.
That makes 9 consecutive years of job losses in Michigan.

Add these facts to the recent events in the national economy, the potential to lose a major company entirely (Chrysler) and it all points to a very large shoe dropping, in fact it may be a boot.

Michigan School Funding - Part III

2008-10-09T11:24:00.011-04:00

To make sense of how school funding operates in Michigan, the first step is to gain an understanding of the basics of where and how much money the state deals with annually. The image below illustrates the estimated (not yet approved) $42.95 Billion state budget for the 2008-2009 fiscal year (majority of data from the House and Senate Fiscal agencies). Fundamentally there are only two major sources of funds; state revenues and federal revenues. Within each of these categories there are multiple sources (income taxes, federal taxes, sales and uses taxes, and fees). I'll detail these sources (and uses) when looking at the largest budget programs controlled by the state - of which K-12 funding is the biggest.

State Fund 2008-2009 - Upload a Document to Scribd

How The Failure in Congress Will Hurt Michigan Schools

2008-09-30T21:50:00.008-04:00

The law of unintended consequences. It's when something completely unexpected happens in a way seemingly unrelated to an action. In this case it's the consequence of inaction by Congress that will negatively impact K-16 school budgets in Michigan.

In the name of "saving our taxpayers" money - congress foolishly cost taxpayers nearly $1.2 TRILLION dollars Monday as equity markets melted down (and credit markets remained seized); not the "save" our congress was hoping for I'm guessing. The loss of wealth touches every taxpayer that owns a 401k, a 403b, a Michigan Education Savings Plan (MESP), stock in a public company, or any claim to a PENSION PLAN. That last item is now going to be a very big problem for Michigan schools.

Why?

Because Michigan's pension plans set their valuations as of September 30 every year. And even with today's rally, the loss of equity values between Monday and Tuesday is nearly $700 BILLION. That loss is piled on top of a market that was beaten down from an ongoing slump (recession might be a better word). Year to year performance in the Dow Jones Industrial Average is down over 22% I'm not saying that the pension asset values will fall that far; in fact I expect the pension should outperform the market while adding assets (contributions from teachers and schools should add about $1.5 billion to the fund). BUT, outperforming the market is still substantially negative - and the negative performance could be significant because pension assets were "marked to market" last September, creating an artificial jump in performance for the 2007 reporting period. In fact this years school district contribution rates are based on those artificially inflated September 30, 2007 numbers. Last year's Pension fund statements also revealed the full extent of the unfunded promises made to plan participants; a staggering $31 BILLION of pension payouts and health care promises which cannot be covered by MPSERS assets. As of September 30, 2008 that unfunded liability just got bigger.

The contribution rate paid by schools will have to be adjusted up next February or March; I'll wager the required increase in pension funding will be a significant blow to school budgets. What could make matters worse for schools is if MPSERS held any Lehman Brothers bonds in their portfolio. Lehman did significant work for MPSERS and with Lehman's collapse any Lehman Brothers bonds have a value of $0. Because MPSERS is not required to disclose their financial condition until January '09 school districts won't know the full extent of the damage - by then our budgets are set. I suggest that districts start planning now for what will certainly be bad news from MPSERS in January - and don't count on being "saved" by Congress or Lansing.

Hypocrisy 101 – or “Ignore what I said, listen to what I’m saying…”

2008-09-30T09:26:00.003-04:00

Though there is enough “blame” to go around for both parties and private sector CEO’s, but the award of Hypocrite of the Year goes to Nancy Pelosi for her rant that Republican deregulation is the root of all evils.
Loose standards and poor controls at Fannie Mae and Freddie Mac are at the root of the “toxic mortgage” crisis – a crisis that is at the base of today’s credit market meltdown. During 2004 Nancy Pelosi’s Democrats skewered the regulator (Almando Falcon) who was sounding warnings about problems at Fannie Mae and Freddie Mac. Hey Nancy, what about these facts on comments from you party members:

“…I’m just pissed off at FHEO (Federal Housing Enterprise Oversight), because if it wasn’t for you, don’t think we’d be here today.” Rep. Gregory Meeks (D-NY) 2004 Congressional hearing  to Almando Falcon, FHEO director who presented the report of widespread accounting irregularities in Fannie Mae and Freddie Mac

“I don’t see anything in the report that raises safety and soundness problems.” –Rep. Barney Frank (D-MA) 2004 on Fannie Mae and Freddie Mac irregularities

“I get the feeling that the markets are not worried about the safety and soundness of Fannie Mae…” –Rep. Lacy Clay (D-MO) 2004 hearing

“Under the outstanding leadership of Frank Raines, everything in the 1992 Act has worked just fine.” –Rep. Maxine Waters (D-CA) 2004 hearing

What we need now is to support the markets in “unclogging” the credit arteries in our financial system (THIS IS NOT A BAILOUT). Failures at this stage will not only harm the national economy – it will land a potentially fatal blow to Michigan’s anemic economic performance.

A Failure of Leadership

2008-09-29T15:20:00.004-04:00

Moving away from an analysis of the state of Michigan's economic picture I have watched in amazement as our Federal Government fails to effectively take responsible action on an economic package designed to stabilize the financial system.

Clearly there are too many legislators that have law backgrounds as opposed to economic backgrounds. The rhetoric that we're "bailing out" Wall Street fails to note the following:

the value of our,

401-k,
College savings,
Pensions (for those that have them)
Need for credit (both mortgage, credit card, and business),
Our homes,

is all interconnected.

Wall Street is Main Street. The value of my investments is without question tied to what happens on Wall Street and somehow people have failed to understand, accept, or process this basic fact. I can only hope common sense prevails (but that's a very rare commodity in Washington D.C.).

Michigan School Funding - Part II Revisted

2008-07-03T17:11:00.004-04:00

I've been asked to re-post the school funding map in a slightly different form. The basic buckets are the same but the "map" is much clearer.

MI School Funding 0809 - Upload a Document to Scribd

The next series of "maps" will show where our state funds come from, and how those funds are spent by our legislature.

Michigan School Funding - Part 2, Where's It Come From?

2008-05-19T12:07:00.006-04:00

Michigan will spend $13.4 billion on School Funding in 2008-2009 if, and this is a big if, the state foundation allowance is increased by the promised $71/$142 per student.

That funding allocation represents the biggest component of Michigan's budget followed closely by Community Health (which sees it funding growing at nearly 5 times the rate of school funding).

Many people, and more than a few elected officials, don't have a clue as to where the money comes from; to help shed some light please take a look at the following "mind map" of the School Aid money flows (NOTE: you can click on the "+" or "-" to move within the image, and the "iPaper" arrow allows you to print the image file).

School Funding Map MI - Upload a doc

The graphic shows where the money originates (which tax), how much of the aggregate total and how much of a percentage of the total each line item represents. Dedicated Michigan taxes represent 87.7% of the School Aid total ($11.733 Billion), General Fund contributions (which are funds controlled by the Legislature) represent 0.3% of the total and a modest contribution from the School Aid Stabilization fund represents 0.3% of the total. Rounding out the the total are targeted funds from the Federal Government aggregating 11.7% or $1.562 Billion.

A few highlights: Lottery contributes only 6.4% ($853 million) of School Aid, Legislators only contribute 0.3% ($43 million) to School Aid. Federal funds for IDEA represent only 2.6% ($351 million) of School Aid which falls woefully short of the Federal Promise made to states for Special Education - in fact it's less than 1/2 of what was promised to schools and children for help with special education needs.

The Truth about the MEA, Privatization and Contracting

2008-05-12T09:48:00.003-04:00

Maureen S. Martin, a Birmingham Teacher and MEA representative, misses the point of the Southfield School’s decision to contract support services (see her editorial in the Detroit News here). For years Southfield schools have seen its state funding fall short of simple inflation.

Add the burden of supporting a broken teacher’s pension fund (its own audit shows that it is $31 billion under-funded), crushing health care costs, and rapidly increasing utility expenses, then Southfield’s decision to contract services is completely clear. Southfield, like Birmingham, made a choice that placed a high value on keeping teachers employed and acted accordingly.

MEA representatives are uncomfortable admitting the truth; other union jobs are being restructured and/or eliminated to protect MEA members, specifically teachers. That has the potential of making the MEA an enemy of every other unionized school employee group. Of course that’s not fair, just as it is unfair to cast local school boards and administrative staffs as the enemy. Simply put, teachers are rightfully at the top of the food chain because they represent the heart of what schools do - educate children.

The school funding crisis is real. The Southfield board should be applauded for making extraordinarily hard decisions and the MEA should recognize just whose jobs are being protected because of those decisions. The old paradigm of us versus them does not hold water in today’s environment. Maybe that doesn’t serve the interests of the union brass; they have their own positions to protect - positions which are predicated on conflict. The new reality is that we are all on the same team attempting to preserve classroom integrity in the face of rapidly diminishing resources.

Michigan School Funding - Part 1, The 20j Myth

2008-05-02T16:02:00.007-04:00

School funding in Michigan is complex and composed of many parts, but without understanding the bigger picture of where our money comes from and what "buckets" it gets poured into at the state level, honest debate degrades into minor distractions. A perfect example is the current argument over 20j funds. The common misconception about section 20j is that it represents "welfare" for rich districts. That argument is completely false. People making that argument are either ignorant of the facts or guilty of manipulation, neither position is constructive. As my prior editorial shows, 20j corrected a funding error in the original Proposal A legislation that penalized over 50 school districts. The 20j language simply fixed the law to ensure those 50 districts achieved the same level of year to year funding allowances as everyone else.

Even allowing for 20j, most districts foundation allowance increases have outpaced Birmingham's increase since 1994, a few examples (all data from the state):

As the FACTS show, districts like Traverse City, Alpena, Crawford, and Oscoda have received foundation increases that far outstrip Birmingham's (which includes the 20j adjustment). Find the information yourself at this LINK. All the school funding reports are there to review (as is a large single file for all Michigan Districts). The Alpena, Crawford and Oscoda schools are in Representative Gillard's district and he is the person that wants to take 20j funds away from districts like Birmingham - there is nothing fair or right about his proposal.

We all need to work together in addressing the bigger issues facing school funding - 20j is not what we should spend our energy on. Part 2 of this series will focus on the bigger picture of state funding and the threats that diverted health care funds and a broken pension system pose to our schools. Those are the issues we should all be talking about!

20j Argument Misses the Facts and the Bigger Picture

2008-04-24T16:18:00.004-04:00

A recent Traverse City Record-Eagle editorial incorrectly states that Birmingham Schools get $12,303 per student in state funding. That statement is so blatantly incorrect that it’s either an exhibition of astonishing ignorance or purposeful manipulation. The actual amount is $12,188 per student - but that’s not the error. Our funding includes extra LOCAL “hold harmless” property tax revenue (in place prior to Prop. A) which equals $3,877 per student, and other LOCAL revenue (facility rentals, user fees, pay to play, 18 mills of non-homestead tax, and federal sources, etc.) of $2,663. The net remainder of $5,648 is the actual foundation grant per student. Since 1994 Birmingham’s foundation grant has risen by $1,743 (including 20j), the increase for Traverse City has been $2,229 per student; that’s 28% more than Birmingham got - what’s equitable about that?

Payments under 20j represent the a correction of a mistake in the Proposal A legislation to ensure any foundation increases were proportionally equal. From a memo by the Michigan House Fiscal Agency: “Section 20j payments do not increase the gap between the lowest and the highest foundation allowance; it instead ensured that all districts receive the same foundation allowance increase. In fact, during this same period they were initiated, an equity payment of $200 was made to the basic foundation allowance to decrease the gap between the basic and state maximum foundations from $1,500 to $1,300.”

The greater travesty is that we’re all reduced to arguing over table scraps. The proposed $71-$142 foundation allowance increase will not cover the state mandated increase in payments to a teacher pension fund that is $31 BILLION UNDER-FUNDED. That amount represents a tax of nearly $18,780 on every K-12 student in Michigan - a tax levied on the operating budget of every school district in Michigan. Compounding this is an environment which enables the MEA’s insurance subsidiary (MESSA) to earn nearly $350 million over the last three years, or $213 per K-12 student. These are the real issues devastating K-12 funding, not 20j.

Governor Granholm and the whole of the Michigan legislature is happy to see our districts argue over “equity” and 20j because it distracts from the bigger picture, a picture they refuse to confront. We are all cutting back, engaging outside contractors, and desperately trying to preserve innovative educational programs. The Governor, the State Legislators, and the Fat Cats running the MEA have abdicated their responsibility to confront these issues. It’s time we all address the big picture and stop arguing over table scraps. If Michigan doesn’t begin to control mandated costs and and make K-12 funding a true priority we are all doomed to fail in the collective mission of educating our children and ensuring our future.

Lies and Damn Lies About 20J

2008-04-22T15:44:00.006-04:00

The mechanics of school funding can give anyone a headache. But that headache becomes a migraine when people who should know better (Representative Matthew Gillard) start telling half truths and lies about how things work. First some facts supported by a memo by the House Fiscal Agency regarding 20j funding (full memo is here - downloads as .pdf file):

Section 20j payments do not increase the gap between the lowest and the highest foundation allowance; it instead ensured that all districts receive the same foundation allowance increase. In fact, during this same period they were initiated, an equity payment of $200 was made to the basic foundation allowance to decrease the gap between the basic and state maximum foundations from $1,500 to $1,300.

Maybe Representative Matthew Gillard is just confused about what 20j represents. It represents work by prior state legislators that FIXED a problem with proposal A; it ensures that all districts receive equal increases in the basic foundation allowance. Representative Gillard now wants to break things that were previously fixed. Contact him at mattewgillard@house.mi.gov and Speaker Andy Dillion at andydillon@house.mi.gov and ask them to read their own Fiscal Agency Memos.

This link (20j Impact) shows how 40 districts will be robbed by Representative Gillard if his plan is passed. The only reason these districts realize higher spending than others is because the residents of these district TAX THEMSELVES AT THE LOCAL LEVEL to support public education. Representative Gillard’s move will effectively steal money from these districts without doing anything to address the basic flaws in Michigan’s school funding mechanism. If he really cared about education, he’d do the hard work of addressing that headache first instead of further smashing a broken system.

Why Contracting, and Why Now?

2008-04-04T10:35:00.013-04:00

Why is the Board of the Birmingham School District turning to contracting, and why are they doing it now? As a member of that board I can only share my thoughts on this question, other board members have their own reasons so don't take my comments for those of other members.

The short and honest answer is public education funding in Michigan is now a ZERO SUM exercise. Find that phrase in Wikipedia and you'll understand what our district (and every other district in the state) faces. There is no money in any budget to sustain the continued growth in outside pension, health care, and teacher "step and lane" salary obligations. To preserve and fund classroom operations, we have to find money someplace else in the budget because we're getting ZERO new money from the state.

Costs are increasing by over 3% annually, and the state is proposing (not promising or guaranteeing) an increase of 1/2 of 1%; that increase will not cover the mandated increase in contributions to the state pension fund. The district is now hitting a large financial brick wall. Birmingham has cut nearly $16 million of costs over the last 5 years. Now we are left to face the prospect of cutting enrichment programs, media support, and eventually non-core programs like music, art, language, and sports. Faced with these choices I prioritize EVERYTHING in the budget, and have been doing so for years. My foremost priority is, and always will be, keeping programs and teachers in the classroom because that is the heart of our mission.

Contracting custodial and transportation services will save this district nearly $3 million dollars a year, each and every year. Yes, these are good people that work hard, but we can no longer carry the rich pension and health care plans provided to them. The $3 million saved (mostly associated with health care and pension costs) will help push off the draconian class room cuts and service reductions by preserving nearly 30 teaching positions. These are the choices I face when funding does not even come close to keeping pace with simple inflation, or with state mandated payments to a structurally bankrupt pension system - payments which are killing the budget of every school district in the state.

In a state that places public education funding below funding for prisons, local school boards are left to make the hard choices, because our "leaders" in Lansing have abdicated that responsibility. So we make the choices necessary to preserve the primary mission of our schools and keep excellence in education. Lansing is making that mission harder every year.

State Teacher Tenure Commission Fails in its Mission to Protect Students

2008-04-01T14:46:00.003-04:00

The Birmingham School Board is forced to take back into full time employment a teacher (Michael Zangkas) that has, 1) plead guilty to contributing to the delinquency of minors (multiple students 13 years of age), 2) plead guilty to assault and battery against a student (13 years of age), and 3) in the course of the above events said to the student that he assaulted that “Next time I’ll drown you.” Not to put a fine point on it, but that sounds a threat against someones life.

In light of these facts the Teacher Tenure Commission has set a new bar for teacher misconduct - apparently a teacher actually has to kill a student before the tenure commission heads the recommendations of a school board (the board unanimously had voted 7-0 to terminate Mr. Zangkas for his actions).

So please feel free to thank the following individuals for their complete lack of common sense:
James M. Petire
Gerald D. Dawkins
Dirk F. Zuschlag
Sharon C. Peters
Karen K. Leslie

Write to them at:
P.O. Box 30008
Lansing, MI 48909
Or call at 517-373-8369.

Of course, if history is any lesson, they won’t listen to anything you say...

Write a Letter to Your Representatives

2008-03-19T19:55:00.005-04:00

The link here will provide you with a sample letter urging either your house representative, senator, or even the Governor to take specific actions to help all public schools. Please use this as a starting point, and feel free to modify as you see fit. Ask others to do the same via emial, US Post, or telephone contacts. Unless we make our collective voice heard, things will continue to get worse for public education. We've hit the wall on cutting outside the classroom, unless things change the next round of cuts have direct, and negative, implications for our children. Thanks for taking the time to act.

MESSA Not Complying With the Law

2008-03-14T18:08:00.004-04:00

I recently published an editorial in the Detroit News regarding MESSA's continued non-compliance with Public Act 106. That act requires MESSA to share it's claims history data with school districts so that school districts can seek competitive bids on health care options. Obviously this is a lucrative line of business which MESSA would like to protect. MESSA has software which can clearly provide the required data - they say as much in the promotional literature provided by the vendor. Click on this link and select the case study to read it yourself - but to paraphrase MESSA's Sharon Kelly: by "entering a participant's Social Security number, clicking a button, ... the documents are retrieved instantly." Seems to me with such outstanding technology MESSA should be a simple "click of a button" away from complying with the law.

Warrent Buffett's Pension Comments

2008-02-29T22:40:00.004-05:00

Arguably the one of the worlds smartest investors and a devout practitioner of common sense, Mr. Buffett expressed strong sentiments in his annual shareholder letter regarding the folly being practiced in the world of public pension funds. To quote: “Public pension promises are huge and, in many cases, funding is woefully inadequate. Because the fuse on this time bomb is long, politicians flinch from inflicting tax pain, given that problems will only become apparent long after these officials have departed. Promises involving very early retirement — sometimes to those in their low 40s — and generous cost-of-living adjustments are easy for these officials to make. In a world where people are living longer and inflation is certain, those promises will be anything but easy to keep.”

I'm no Warrent Buffett, but I'm smart enough to know that MPSERS (the Michigan Public School Employees' Retirement System) will not be able to keep all of the promises it has made. Our legislative leaders need to fix funds $31 Billion deficit; that's almost $19,000 per student in Michigan. It's $6 Billion worse than last years deficit - and that's after Lansing "fixed" the "problem" by adjusting the value of the funds investments. When Lansing "fixes" something and the problem gets worse by $6 Billion we're in bad shape. How much worse does it need to get before someone takes real action?

The Rich Get Richer in the MEA

2008-02-11T15:09:00.002-05:00

After spending some time with the MEA’s required Department of Labor report (LM2) it is apparent that when you’re involved with the MEA, life is really good at the top (click on highlighted text for details). In fact, it’s about 6 to 7 TIMES better than it is for the average teacher. I’m not saying that strong personal performance shouldn’t be rewarded, but when you don’t exactly understand what performance is being measured, then the rewards should be subject to question. In the case of MEA Directors with compensation over $100,000 a year (there are 156 of them for 2007) I’m not sure what they did to merit an average pay raise of 14% (click here to see the report analysis). Maybe it’s for negotiating 1.5% to 2.5% “raises” for teachers? Perhaps it’s for standing-by while the State Teachers Pension Fund quickly goes bankrupt to the tune of a $31 Billion Dollar deficit? Could it be for watching the UAW confront cold, hard economic realities while staunchly defending the MEA’s own version of an alternate universe? No, I don’t think that an average 14% increase in total compensation could be for these reasons.

I think it’s for the strong profit performance of the MEA’s insurance subsidiary MESSA. In 2006 MESSA earned over $130 million in excess proceeds (in the real world these proceeds are called “profits”); the earnings brought MESSA’s total assets to $269 million (according the the current filing that asset base is now $342 million - summary on this link and represents an additional $72 million of earnings). One thing’s for sure, teachers aren’t seeing any of those funds, but it sure looks like the MEA directors are.

Governor Granholm and the Big $31 Billion Pension Problem

2008-02-07T00:59:00.002-05:00

The state Teachers Pension fund (MPSERS) is millstone around Michigan’s neck. Any promised funding, programs or “initiatives” promoted by the Governor will be driven into the ground by a pension system destined to bankrupt the State of Michigan unless legislators and the Governor take action now. That is a bold statement but there is no other way to characterize a $31 BILLION deficit (click on highlighted text for details). That number represents nearly $18,780 per child in the state of Michigan.

The rapidly growing platinum plated promises embedded in the Michigan Public School Teachers Pension Plan threaten to choke off funding for every school district in the state, and potentially accelerate the downward financial spiral of Michigan’s already shaky standing in the credit markets.

Lest you say that I’m chicken little crying about the falling sky spend some time with the following data (for those that want to check, the full report is here: Pension Reports)

The chart above represents the growth in UNFUNDED pension promises made to the good men and women teachers in our state. The total unfunded liability stands at nearly $31 Billion. I’ve written about this before, and the problem keeps getting worse with no end in sight. The 77% jump in unfunded health care costs between 2005 and 2006 (from $14 to $24.8 Billion) is the result of long overdue accounting changes that forced pension plans to FULLY disclose their costly unfunded promises. The pension’s unfunded health care costs have grown over 125% since 1999. Guess who pays for this - it comes out of the budget of every school district in Michigan without any reimbursement from the State. This disaster is costing jobs, it is costing programs, and it is threatening the very foundation of public education. This is exactly the same issue that brought GM, Ford, Chrysler and the UAW together in crafting transformational contract and pension agreements. School districts do not have the same opportunity - Lansing controls the pension (even as we have the costs forced on us) and must take the lead on fixing the problem.

Please forward this post to everyone you know. Have them forward the post to their representatives in Lansing. Demand action on reforming the system now and stop lying to tax payers, teachers, and school children about promises that we cannot keep. The crisis is growing and it threatens public education in exactly the same manner the unfunded liabilities of the domestic auto makers threatened that industry.

Birmingham High Schools Among Best In Nation

2007-12-05T19:09:00.001-05:00

Both Groves and Seaholm have been named to the U. S. News & World Repor t’s list of America’s Best High Schools, a list of 1,591 schools that were selected from 18,790 public schools nationwide. Seaholm High School and Groves High Scho ol are both acknowledged as Silver Medal Schools in this evaluation developed by School Evaluation Services, a K-12 education data research division of Standard & Poor’s. To make the list, schools must meet the parameters of a three step process. The first two steps measure success through benchmarks based on state proficiency standards while the third step determines the level of college readiness that students exhibit. This final step focuses primarily on the degree of success the school has at providing college-level curriculum. Although there are various debates regarding school rankings, we consistently find our district represented in these lists and extend, with pride, congratulations to our students and staff on this national recognition.

Congratulations are also in order for Groves speech and theater teacher John Rutherford who was selected as the state winner of the prestigious 2007 ArtServe Michigan Governor's Award for Arts & Culture in the Arts Educator category. John received the award from Governor Granholm in a ceremony held last week at the DIA.

Open Letter to Gary Fralick - MESSA Director of Communications and Government Relations

2007-11-27T16:47:00.000-05:00

I respect and appreciate your response to my little blog post. But in reading your comments I’m compelled to highlight some concerns regarding your interpretation of the Hay Group Report.

Included in the Hay report are tables 2.1 and 2.2 which I have reproduced below. Notice that in both tables MESSA programs are the most expensive; they are the first, second, third, and sixth most expensive program options.

You point out that pooling is a very advantageous mechanism for generating savings. However, MESSA has not passed those saving to either it’s members (teachers) or to the schools that pay the premiums. In fact, any savings that may have been generated rest on your balance sheet in the form of $268 million in cash, investments and other assets.

The Hay report also revealed that Blue Cross Blue Shield has the best provider discounts in the state, not MESSA. In fact, they Hay Report makes NO mention as to whether MESSA is “well run” or “impressive” so you must be attempting to read between the lines (not withstanding your creative editing on YouTube). You’ve also spun the truth about providing “the best health care at the best price.” In fact, the Hay report notes that MESSA is the “high cost” option among the comparative providers; a fact supported by the charts shown above.

I’ll give you this, anyone that earns over $88 million a year must be doing something right (per your IRS filing for year ending 2005), but in this case that “well run” performance comes at the expense of students, teachers, and tax payers.

Considering your comment that MESSA is not a “closed system,” I must disagree. MESSA does not share experience data with the schools that pay for the insurance, MESSA does not share it’s $268 million in assets, and MESSA restricts plan choices which drives up costs to schools. In my view, these factors make MESSA is a closed system. I’d more inclined to feel that you “have nothing to hide” if you’d openly publish the documents required by the state and the IRS on your web site (you don't); for now I’ll just get the data directly from the reporting agencies.

Michigan and its schools are in crisis, we need substantial change immediately or we risk massive cuts and reductions in service. MESSA could be the catalyst for change, but I sense too much defensive posturing and resistance to constructive dialogue. Start proposing programs and options that save schools (and teachers) real money. Heck, maybe you could shake free some of that $268 million you're holding, it wouldn’t hurt!

Pay No Attention to the MESSA Behind the Curtain!

2007-11-17T15:39:00.000-05:00

Like the Wizard in the Wizard of Oz, there are vested interests working to keep students, parents, tax payers, and teachers in the dark about how things really work in the land of Oz, especially as it relates to health care costs. There is no other way to characterize a new push to gut recently enacted legislation designed to bring transparency and COMPETITION to health care costs. This assault on freedom of information and restriction of competition comes via the effort of
House Speaker Pro Tempore Michael G. Sak.

Representative Sak introduced HB5454 which looks to repeal the competitive bid requirement for health care - and this from a guy that professes support a priority of “fighting the skyrocketing cost of health care.” I suppose that it’s ok to have skyrocketing costs if you contributed to Representative Sak’s campaign fund; over $7,500 in campaign contributions from MEA and Blue Cross Blue Shield related contributors. In case you don’t know - the MEA via their conduit, MESSA, is the third largest customer of Blue Cross Blue Shield. How does this all work? MESSA buys insurance from Blue Cross Blue Shield, marks it up, and resells the insurance to it's own members - it's simply a middle man. The problem for school districts is that MESSA does not disclose what a districts actual costs are, does not share program savings with school districts, and has in the past not provided the critical information required of ALL OTHER INSURANCE PROVIDERS that operate in Michigan. To be fair MESSA could be a great vehicle to facilitate pooling efficiencies, but those efficiencies should be shared amongst all districts not just those that MESSA decides, and not at the cost of driving up administrative expenses to feed the role of middle man.

It’s easy to see why Representative Sak would like to gut competitive bidding - even if it means being cast as a hypocrite (see link above). And make no mistake about what Representative Sak is trying to protect - a closed system called MESSA.

The bottom line in this fight is teacher jobs and students performance. The inability to get the best health care at the best price is killing teacher jobs. Combine that with the crushing burden of an under funded and over promised teacher pension plan you have some of the worst economic circumstances conspiring against kids, teachers, and tax payers. Send Representative Sak a message (link here) that you think what he's doing with HB5454 is wrong! Our kids, our teachers, and every tax payer in Michigan deserves better.

Michigan Needs to Help Schools With Pensions

2007-10-25T13:01:00.000-04:00

Although the state has provided a welcome break to schools in the form of a temporary retreat on the pension contribution rate (this year is 16.72% versus last years requirement of 17.74% as the result of "revaluing" the pension investment portfolio - click here to see letter), the problem is, and will continue to overwhelm school budgets - next year the requirement is projected to be over 20%, for Birmingham that's about $2.1 million (or $266/student) ADDITIONAL pension cost.

The following chart illustrates the burden that the unfunded pension and health care liabilities are placing on all school budgets. Note the striking increase in the unfunded burden. These costs are simply given to schools with no corresponding increase in funding.
Proposed and actual changes in state law may help alleviate the problem in the longer term; new legislation includes increased employee contributions to the pension plan and extended vesting periods prior to the ability to collect full benefits. These changes, difficult to make but beneficial to the health of the pension system, still do not address the current crisis relative to the increased burden placed on the state and local school budgets due to simple demographic shifts. Simply put, teachers are retiring faster than new teachers are being hired.

That trend is not going to change. The state is projected (by The Citizens Research Council) to lose more school age children over the next ten years. Lansing has to find a way to contain the burden of the pension fund; one innovative idea is to pre-fund these costs through a bond mechanism. The idea is similar to what is currently happening in the auto industry. Tax payers will still have to foot the bill for this solution, but the cost would be a known quantity, it would not increase every year, it would bring security to pension participants, and schools would be spared the annual agony of guessing the how much the pension contribution would take away from their operating budget. I suspect that some people have explored the idea, but as of yet I have not seen any progress along these lines. Legislators, how about some action?

Technology in the Birmingham School District

2007-10-08T16:32:00.000-04:00

I've taken some time to put this post together and it shows just a small overview of a report given to the board last May. Everyone was very impressed with how some of our teachers are using the technology resources to expand learning opportunities for our kids. If you have about 8 1/2 minutes to spare - I've packaged some of the highlights (but not all, the presentation was about 45 minutes).

I am convinced that what we are seeing is only tip of the creative iceberg, teachers will continue to expand the utilization of "21st Century" learning tools. These are types of initiatives we are supporting at BPS with board policy that will have a positive impact on students, teachers, and the wider community. The enthusiasm exhibited by these teachers reflects how effective application of new technology raises everyones energy for learning. Enjoy the video and please leave a comment.

The Budget Shell Game

2007-10-08T09:15:00.000-04:00

I've resisted posts about the state budget because local school districts still don't know what our funding is going to look like. In Birmingham we budgeted for lower total funding in this school year. That is a reflection of past experience, projections of slightly lower enrollment, and a complete lack of confidence that Lansing will actually fix it global budgetary issues.

Even after the so called budget compromise, it continues to look like a shell game for school funding. There seems to be calls for yet another attack on districts like Birmingham, known as hold harmless districts, as a way to provide funding for other districts. I've posted how we are funded and the attack on 20J funds reflects a basic ignorance of the complex mechanics of school finance. Regardless, please write your representatives (contact list here) and encourage them to protect our district from unwarranted attacks on our budgets - ask them to protect 20J funds.

Birmingham Schools - A Message Revisited

2007-10-06T22:37:00.000-04:00

Why am I running again for the Birmingham Board of Education?

It's a question my friends ask because they mistakenly assume that service on the board is a thankless job. It is a hard job that takes a significant amount of time and dedication (for no pay) but it's far from thankless. The energy and passion of this district's professional staff is contagious, and I see the results every day in my children. I believe my education and professional background in finance is a meaningful addition to a talented board, especially at this time of economic turmoil.

So the simple answer is this: by serving on the board I'm making a meaningful contribution to something that really matters to my family and me - keeping our school system great.

It was true then, it's true now.

2007-10-01T21:47:00.000-04:00

Last year I submitted the following commentary in support of our millage renewal, it was less a request and more a reminder of what we all want from our schools. Voters passed the renewal with a 74% margin. Once again, voters will be looking to the bottom of the ballot, and in the case of Terri McCardell for a pen to write in her name, for two seats on the Birmingham school board. It's an important choice and worth the effort to learn where the candidates stand. I hope you'll find my views as expressed in this blog worth supporting with one of your two votes.

Amidst sometimes hostile criticism of public education, Birmingham Public Schools enjoys an abundance of extraordinary accomplishments and benchmark performances. Our district demonstrates just how well public education can be done. Our goals are clear and our children’s accomplishments are great. The continued stewardship of the district mission rests in the hands of local voters and taxpayers who support BPS schools. The benefits of continued financial support reach beyond the obvious impact on the families who send their children to our schools. Those benefits include strong property values, vibrant community education, senior programs and much more. My two children attend what I consider to be one of the best school systems in the nation, public or private. Every day my children expand their knowledge of the world and add to my appreciation of how a community can support and nurture every child’s future through visionary leadership. The depth and breadth of programs at BPS help ensure that our children have the foundation to positively influence their future, rather than passively accept what others may impart as their “vision.” A school millage proposal, which is placed as the last item on the November ballot, may just be the single most important vote you make in this election - cast your vote with a clear vision of what you want the future to look like. It affects us all.

Lansing and Pensions: Waking Up To Reality

2007-09-21T15:16:00.000-04:00

An editorial today in the Detroit Free Press by State Representative Lorence Wenke talks about the "Surpise?" that the state pension funds (PSERS and SERS) are in the hole to the tune of $20 - $40 BILLION dollars. What rock have these people been hiding under? I'm just a reasonable person who got elected to a local school board; about 3 months after my election in 2003 the state teachers pension time bomb was obvious to me. I've been harping on the issue for some time and by my research shows that PSERS (Michigan's teacher pension fund) is underwater by a total $24 billion (that's counting the retirement AND health care benefits). That pension deficit has cost local school budgets nearly $1 billion a year because the state has pushed that funding problem onto the backs of Michigan's children. How? By consistently increasing the mandated school district contribution to PSERS without increasing the per-student funding to cover the cost. It's a classic shell game.

Now the legislature wakes up to the fact their own employee's pension fund (SERS) is bleeding red ink in the promised retiree health care benefits - great. Add that to the cost of bailing out the teachers pension fund and you can see the need for the extra $2 billion in annual funding - and that number may be much larger.

Here's what Representative Wenke is not telling you: the unfunded liability for just the retirement portion of the pensions (excluding the health care component) is at least $10 billion for PSERS and $2.5 billion for SERS. Understand that the retirement benefit is not optional - workers and teachers have been promised these benefits and they should be able to collect on those promises. So that gets added to the additional funding he is worried about. Somewhere things have to change or be adjusted and Representative Wenke is focused on the health care promise - and those benefits are NOT like the retirement promise (which is legally locked in for states, a big difference between a state and a corporation). It's time for everyone to face the magnitude of the crisis. Keeping the status quo will only ensure the financial failure of this state, and a potentially deeper failure of a promise made to state employees and teachers.

Thank you Representative Wenke for shinning a light on the "surprise", but the problem you're looking at has been around for years and it's much bigger than you indicate - what's not a surprise is the continued inaction by Lansing.

The Public Employee Pension Mess

2007-08-05T14:06:00.000-04:00

I've been watching this drama unfold over the last 5 years. I've posted about the issue in this blog and I've seen countless stories about it in many national publications. Now the New York Times has published a very good story by Mary Williams Walsh on how bad the problem is - and it's much worse than many have thought.

Follow this link to a short commentary from Andrew Samwick, a Dartmouth professor who has written on pension problems and social security. A short comment from Mary Williams Walsh:

It is hard to know the extent of the problems, because there is no central regulator to gather data on public plans. Nor is the accounting for government pension plans uniform, so comparing one with another can be unreliable.
But by one estimate, state and local governments owe their current and future retirees roughly $375 billion more than they have committed to their pension funds.
And that may well understate the gap: Barclays Global Investments has calculated that if America’s state pension plans were required to use the same methods as corporations, the total value of the benefits they have promised would grow 22 percent, to $2.5 trillion. Only $1.7 trillion has been set aside to pay those benefits.

It looks as if years of short sighted politics will be landing in everyone's laps soon!

Leadership in Birmingham Public Schools

2007-06-20T10:11:00.000-04:00

When seeking input as to what qualities were valued in a new leader for the Birmingham public schools one person suggested that the person should be able to walk on water and squeeze blood from a turnip. As impressive as those skills would be, others suggested the leader should be: collaborative, committed, a strong communicator, decisive, team-oriented, visible, community focused, innovative, and politically savvy.

Much of the feedback has been shaped by what people have seen in Dr. John Hoeffler, who after 17 years as superintendent of the Birmingham School District is retiring. It is no coincidence that BPS is consistently one of the top performing districts in Michigan year after year – results like this don’t happen by accident – they happen because a committed and passionate team finds ways to keep improving on what works. Dr. Hoeffler has guided a team that sustains its passion and vision for the benefit of our students. He will be missed.

So here are some thoughts on leadership for the district, as guided by community wide feedback solicited through our search consultant (Hazard, Young, Attea & Associates).

One, a leader must be of strong character and integrity. This was cited by nearly everyone person interviewed. For a leader, character traits will shape an individual leadership style but integrity becomes the defining characteristic. Without strong character and integrity, leadership will not last.

Two, have the ability to build, adjust, and delegate to teams and key team members.

Three, have a passion for growth. I’m not talking about growing “revenue” or some other business metric, I’m talking about intellectual growth as a person and finding joy in seeing the growth in students and staff.

Four, share the vision of educational excellence that this community treasures. This is our districts vision: Our Birmingham Public Schools, in partnership with the community, will provide an engaging, responsive educational environment that develops knowledgeable, caring, adaptable, lifelong learners who will use their skills to influence positively a diverse and rapidly changing world. This statement incorporates some key concepts, most important is the community focus on excellence in active, adaptive, life long learning. We expect our kids will make a positive difference and we focus our efforts on providing them with the tools to make that expectation a reality.

Five, be engaged. Strong leaders are visible in the buildings and wider community. It may be simplistic but management by walking around can produce impressive results. Great ideas, practices, and growth opportunities don’t hide in offices; they flourish in classrooms, PTA meetings, community forums, and anyplace where learning happens.

Six, set expectations and manage towards them. Our core expectation is high student achievement. Everything flows towards that expectation and performance goals are built to support that expectation. Great leaders will set those goals and be strong in ensuring those goals are met through consistent and constant performance reviews. That really gets back to number five – it’s easy to have quick performance reviews when you’re out asking how is it going? Problems are corrected early and performance is easy to see.

These are my personal “takeaways” as we move through our selection process. Birmingham has a special educational community and it will take a special leader to guide it into a dynamic and exciting future. But come to think of it, maybe the ability to spin gold from straw would be a nice characteristic to have...

Birmingham Public Schools - Character Education Matters

2007-06-04T17:50:00.000-04:00

The Birmingham Public School District (BPS) has many over 8,200 reasons to be proud, and now there is another accomplishment to add to the list. Out of 110 schools recognized nationally, EIGHT Birmingham Schools have been granted the 2007 Promising Practices Award from the Character Education Partnership (CEP). The schools are: Berkshire, Beverly, Bingham Farms, Derby, Greenfield, Pembroke, and West Maple. This recognition is remarkable, and is enhanced by the addition of Birmingham Covington School’s recognition as a National School of Character winner – one of only ten such winners in the nation. This award carries a $20,000 grant which will be awarded at CEP’s 14th National Forum on Character Education. The theme for the event is “Investing in America’s Future.”

Character education is part of the BPS strategic plan and every school in the district has embraced the plan goals. We can all be proud of the recognition while celebrating the dedication of our staff, teachers, administration, parents, and most importantly our students. Public education works and when it functions in harmony with a student centered strategic plan the accomplishments are extraordinary.

Why Real Reform Never Happens

2007-05-30T00:23:00.000-04:00

Seems as if politicians everywhere are running away from responsibility; they just hand problems to their kids. As highlighted by Andrew Samwick from the pages of the Wall Street Journal:

Pension Crash Landing
May 29, 2007; Page A14
When Congress passed a broad pension reform last year prodding companies to get their retirement programs in order, it seemed too good to be true. Now we know it was.
That's the lesson of an amazing bit of corporate welfare the Senate tucked into the Iraq war supplemental last week. Last year's bill included a hard-fought political compromise: Carriers that agreed to a "hard freeze" of their pension plans would be allowed to use a higher interest rate in calculating their plans -- which would reduce their net liabilities. The idea was to discourage airlines from buying union peace by running up their pension tabs, which they might later dump on taxpayers. A few airlines, such as Northwest and Delta, took this medicine.
Their competitors, namely American and Continental, headed back to the Beltway and last week their lobbying blew apart last year's compromise. Under the Senate's backroom fix, the airlines can use a higher interest rate even if they promise higher pension benefits. The airlines claim this is about "leveling the playing field," which makes little sense because American and Continental could have accepted the same rules all along. This is about giving those two a competitive advantage over other airlines that have already agreed to play by the reform rules.
The taxpayer-backed Pension Benefit Guaranty Corp. is obliged to bail out any company that can't meet its pension obligations, so there is once again little reason for these airlines to practice any pension restraint. The PBGC conservatively estimates that this airline fixeroo [sic] will result in an additional $2 billion in underfunded pension obligations over the next 10 years.

The drafters of this ornament were nothing if not clever; by including this in a war supplemental, they made it veto proof. At the state level – ignoring the pension problem seems to be the order of the day. Current efforts at addressing the $24 Billion unfunded liability consist of deferring the problem to future years. A recent article in the Detroit News illustrates the problem I've been harping on for years - but the News missed the opportunity to highlight the $14 Billion unfunded liability associated with the healthcare promises made in the pension plan. Maybe they're waiting for parts 2 and 3.

(All $’s in Millions)	FY 2009-2010	FY 2010-2011
Revenue	$12,156.6	$12,476.3
Baseline Expenditures	$13,163.6	$13,143.2
Balance	-$1,007.0	-$666.9
Federal Stimulus Dollars	$805.1	$0.0
Balance Shortfall	-$201.9	-$666.9