A Predestined Emergency

School district budget deficits and calls for emergency funding shouldn’t be surprising.  The question is, when will we tackle the core reason why they exist?

In a session already marked by uncertainty and unpredictability, Governor Dayton has offered an 8th inning twist potentially further complicating the path to a successful conclusion.  Based on recent news reports of school districts around the state facing very large budget cuts, the governor is proposing new emergency school spending of $138 million this year – increasing the per pupil basic aid formula by 2%.

District superintendents have conveyed a grim tale of looming staff layoffs and program cuts attributable to escalating costs and insufficient state support.  The governor and others highlight a decade-long failure to have public school aids keep up with inflation.  Actions taken over the past several years have reversed this trend but school spending in inflation-adjusted dollars is reported to still be less than it was 15 years ago.  While this finding has received a lot of attention; the reasons and causes for inflation in school spending, not so much.

In our 2015 report “How Much is Enough -  The Implications of School District Labor Cost Trends for State Education Aid,” we took a closer look at the relationship between school aid and education inflation.  Our focus was specifically on labor costs for the simple reason that they are by far the primary cost driver – and therefore the primary source of cost inflation – in school district budgets.  Labor compensation of all types accounts for nearly 80% of total school district general fund spending.  Even high-profile issues like special education costs boil down to labor:  in 2013-14, 88.5% of all school district special education spending was on salaries, wages, and benefits.  Answering the question “how much is enough” is very difficult for a fundamental reason: the state may have considerable influence over school district revenues, but it has little influence over the human resource requirements and choices in over 300 independent school districts and how those districts manage their largest expense.

In our report, we studied the relationship between basic education formula aid and the results of collective bargaining agreements.  We examined the relationship between district-level employment changes (which drive costs) and district level enrollment changes (which drive revenue).  And we investigated how the purchasing power of the new basic education aid the state provided back in 2015 compared to trends in each district’s employment costs.

Putting all this together suggests a big challenge with the status quo which might be summed up with this finding.  Assuming 1) no changes in current compensation designs, 2) multi-year historical trends in district compensation costs per employee would continue in the future, 3) student to employee ratios remain unchanged, and 4) demographer projections about future student counts are accurate, we estimated that if the state wanted to finance 100% of labor cost growth through the basic aid formula and hold property taxes harmless, it would require a 4.1% annual growth in the basic aid education allowance through 2029.

That’s a tall (let’s just call it impossible) order in light of competing general fund demands.  But the reality of these trends can now be seen in the budget challenges which are materializing today.

The message arising from this investigation is that the total amount of school aid being provided is only part of the issue – how that aid distributed amongst districts and used is no less important.  One avenue to pursue is to more closely base the designs and levels of supplemental aids used to compensate districts with more costly environments for education delivery on a rigorous understanding of how those factors influence district labor costs through staffing needs, prices paid for staff, or both.

But the biggest returns would come from rethinking the compensation system itself – the repurposing of compensation dollars for greater effect and educational benefit.  This calls into question the continued viability of the uniform salary schedule – the staple of education compensation for decades.  It’s used because it’s simple, understandable, and easy to administer.  It’s also extraordinarily inflexible and ill suited to the demographics and budget realities of today.

Many are quick to dismiss proposals to move away from the unified salary schedule as nothing more than a thinly-disguised assault on teachers and teacher unions.  In fact, support for this idea can be found within the educational profession, progressive interests, and even union membership.  Twenty years ago, the National Commission for Teaching and America’s Future – a teacher advocacy organization – recommended “developing alternative career continuum and compensation systems that reward knowledge and skill.”  The progressive Economic Policy Institute has stated, “it is increasingly clear that the single-salary schedule must be redesigned for a new generation of teachers.”

Alternative compensation approaches can be challenging to design without creating other unintended consequences.  Nevertheless, today’s calls for emergency school funding suggest alternative compensation design is rapidly evolving from a debatable policy discussion to an unquestionable fiscal necessity.