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FREQUENTLY ASKED
QUESTIONS: (click on question)
1. Each year our district is
faced with significant budget cuts because of something called a
‘structural deficit’. What is that and why is our district
affected?
2.
I am confused by all
of these terms-QEO, Revenue caps, State Aid. What do
they all mean?
3. If our district is in a period
of declining enrollment, with fewer students, aren’t our
expenses going down as well?
4. Our teachers have an
incredible health insurance package. If they would just accept
a more economical benefit plan, wouldn’t that solve many of our
funding problems?
5. What role does private fundraising
play in school funding?
1.
Each year our district is faced with significant budget
cuts because of something called a ‘structural
deficit’. What is that and why is our district
affected?
A structural deficit exists when the district expenses
exceed the district revenues due to incompatible and
outdated legislation. While the entire school funding
formula is about as complex as the IRS tax codes, there
are two basic laws that are not functioning as intended.
First, there are revenue caps. Back in 1993
there were legitimate concerns that property taxes were
spiraling out of control and that increases needed to be
curtailed. Revenue caps were introduced to limit the
amount that property taxes could be raised each year for
funding school districts.
The revenue cap formula calculates the maximum amount
that taxes may be increased in a year – in our case this
has been steadily declining over the past 4 years:
2004-05 2.44%
2005-06 1.79%
2006-07 1.38%
2007-08 1.0% (estimated)
The other law that controls school funding is something
called the Qualified Economic Offer. By law, the
school district is required to increase salaries and
benefits by 3.8% per year, or risk going to arbitration
which could lead to a higher settlement. Salaries and
benefits make up 83% of the district’s budget. In turn,
by law, the district is limited as to the amount of
funds it can raise as revenue. The revenue limits have
risen slightly less than 2 % the past two years. When you
cannot raise revenue at the same rate that you raise
expenses, you have a structural deficit.
With 83% of the district budget allocated to salaries and benefits,
it is easy to see the impact. A simplified visual is:
1.38% - 3.8% = - (2.42%).
Essentially, revenue caps along with the QEO create a
mandated structural deficit year after year.
2.
I am confused by all of these terms-QEO, Revenue
caps, State Aid. What do they all mean?
The Qualified
Economic Offer (QEO) came into law as a part of the
1993-1995 budget bill under then Governor Tommy Thompson
as a means by which to control expenditures on teachers’
salaries and benefits, the largest part of a district’s
budget. According to the Wisconsin Association of
School Boards, average annual raises for teachers
dropped from 6.5% for salaries and fringe benefits in
1991-1992 to 3.6% for 1996-1997. The Wisconsin
Education Council claims that since the QEO was first
applied in 1993, salary increases have averaged just
1.6% per year.
In negotiating
teacher’s contracts a local school board can avoid
binding arbitration on salaries and fringe benefits if
it makes a QEO offer of 3.8%. In binding arbitration
each side presents their offers and the arbitrator
chooses one. There is no negotiation at this point. To
meet the QEO requirements a district must first maintain
the teacher’s fringe benefits and continue to pay its
percentage of these costs. Changes in the cost of
fringe benefits determine the amount of money available
for wage increases. The law assumes a minimum annual
salary increase of at least 2.1% of the existing salary
and benefit package and a benefit increase of 1.7%.
However, the QEO requirement is met if the combination
of increases in both salary and fringe benefits equals
3.8%.
If the cost of existing
fringe benefits grows by more than 1.7%, that cost can
be counted against any salary increase. If fringe
benefit costs increase by more than 3.8%, the QEO may
impose a salary decrease for any 12 month period. By
law, any savings in fringe benefit costs MUST be added
back into the 2.1% salary minimum for a total of a 3.8%
increase.
Revenue Limits
were passed by the Wisconsin legislature in the 1993-1995 budget. This
law limited the revenue that school districts are
entitled to receive from state aid and local property
taxes. This was essentially a tax freeze. During the
1980s the decrease in the corporate property tax rate
increased the burden on homeowner’s property taxes.
This was especially hard on property poor school
districts. In 1993 the Legislature froze revenue and
spending in all school districts. While revenue caps
have held local property taxes down, they have had
serious unintended consequences for local schools.
Revenue limits increases
have been too low to cover the increases in salaries and
benefits, utilities, books, and technology that schools
have experienced.
Revenue limits are based
on a district’s enrollment but over 50% of the districts
in the State have declining enrollment and revenues are
falling faster than districts can reduce costs. In
order to cut costs, districts have had to reduce staff,
defer maintenance, cut programs, slow curriculum
development, and reduce technology investments.
The revenue limit
calculation is based on the district’s previous year’s
revenue divided by the previous three year’s rolling
average of enrollment to find the revenue per pupil. To
this number is added the allowable “per pupil increase”,
which is mandated by the state, to find the allowable
revenue per student. After the state determines the
next year’s aid number based on its budget, the local
property tax levy, or percentage rate of tax per $1,000
of value is set. This usually occurs in October.
Adding further pressure
to the budgets is the simple fact that the state and
federal governments have failed miserably in their
promises to fund the expenses of mandated programs for
students with disabilities, students with limited
English, students from low income homes and the
requirement for increased testing for the “No Child Left
Behind” program. These unfunded mandates put a further
burden on school districts.
State Aid
is received by all
districts in varying amounts and is designed to equalize
the spending capacity between property rich and property
poor districts. Schools with higher property values
receive less state aid than districts with low property
values. In property rich districts the majority of
school revenue comes from local taxpayers.
3. If
our district is in a period of declining enrollment,
with fewer students, aren’t our expenses going down as
well?
Currently, over 50% of
the districts in Wisconsin are experiencing declining
enrollment. District enrollments are used in the
calculation of the revenue limit. The revenue limit
uses a 3-year rolling membership count. This rolling
average is multiplied by the base rate per student and
then adjusted for the declining enrollment provision to
help partially offset the loss in revenue. However, the
rate of revenue loss continues to exceed the capacity of
school districts to reduce costs without having an
impact on the services provided.
There is not a dollar
for dollar correlation between a drop in enrollment and
a reduction in expenses. When student enrollments drop,
the decline is spread across thirteen grades and six
schools. Not until there is a significant accumulation
of reductions in enrollment does it make it feasible to
reduce staff. Additionally there is not a reduction in
overhead costs, such as, heating costs, electrical
usage, maintenance, and busing.
The
Special Committee on Review of
State School Aid Formula
is looking at alternatives to the revenue calculation.
4. Our
teachers have an incredible health insurance package.
If they would just accept a more economical benefit
plan, wouldn’t that solve many of our funding problems?
Unfortunately, it’s not
that simple, and changes to the health insurance package
would not net any savings for the district. The
Qualified Economic Offer (QEO), which was established in
1993, states that if a district and the teachers union
cannot come to an agreed contract the district can then
impose the QEO and avoid arbitration. Under the QEO law
the teachers receive a 3.8% increase for salary and
benefits combined each year. Currently increases in
health insurance are using up the majority of the 3.8%
increase resulting in very low increases in salary and
in some cases a reduction in salary.
Due to the design of the
QEO if the cost of the health insurance is decreased the
savings are passed on in the form of salaries. For
example if the cost of a family plan is decreased by
$5,000 per year the savings will be distributed back to
the teachers in the form of salary increases. The
teachers union determines how those savings are
distributed among the teachers. Savings in health
insurance under current law does not reduce the
structural deficit. The savings is not passed on to
the district to be used to balance the budget; it is
used for increased salaries to reach the 3.8% QEO or the
negotiated increase in salary and benefits. Under the
current funding formula reducing the structural deficit
can only be accomplished by staff reduction, program
cuts, or settling a contract below the current QEO
level.
5. What role does private fundraising
play in school funding?
Increasingly
our district depends more and more on private
fundraising to maintain and sustain programs and
services that are at risk for being cut because of the
ongoing structural deficit. The major fundraising
entities include the Mequon-Thiensville Education
Foundation (MTEF), the Parent Teacher Organizations (PTOs)
representing each school, and a variety of athletic and
co-curricular booster clubs. There are no legislative
limits to the amount of money a district can receive
through private funds.
The
Mequon-Thiensville Education Foundation (MTEF), the
largest private funder for the district, was formed in
1997 to “invest in the advancement
of excellence” in the Mequon-Thiensville school
district. As a result of the recent declining enrollment
coupled with the unfavorable state funding formula, MTEF
is working to find ways to preserve the educational
excellence that makes this community a desirable place
to live, raise a family and retire.
Since 1999, the Foundation has funded projects totaling
more than $900,000, benefiting all six schools in the
district. Funds are raised through the Tartan Ball (an
annual auction and dinner gala), an Annual Direct Mail
Campaign, and the KILT (Keep Improving Learning
Together) Fund, which offers families an opportunity to
contribute funds to a specific project sponsored by
MTEF. In the spring of 2007 a collaborative grassroots
fundraising effort was launched with “Many Hands” with
the goal of expanding community involvement.
The
MTEF goals include the following:
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To achieve a
distinct, beneficial and clearly understood role in
the community.
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To seek creative
ways to maintain the educational excellence our
children deserve.
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To collaborate with
school district personnel and other school support
groups to identify ways to maintain programs and
projects at risk with the current budget concerns.
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To design a
fundraising strategy, in cooperation with other
organizations, to address the gaps that may exist if
funding for schools is not changed by the State.
The objective of the
MTEF is to maintain and sustain important programs and
projects by leveraging the power of private funds and by
supporting efficient and innovative teaching and
management methods within the school district.
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