Merger mania
Among the many ideas getting kicked around in Trenton by the special committees investigating ways to contain property taxes is the merging of school districts. Taking the widely supported, but scarcely implemented, concept of shared services to its logical extreme, legislators are weighing a proposal to consolidate the administrations of New Jersey's 611 school districts into 21 countywide districts.The appeal of such a plan is obvious. Reducing redundant infrastructure, centralizing purchasing decisions, and slashing bureaucracy are all sensible ways of reining in costs. While no reliable estimates are yet available for the potential statewide savings from implementing such a plan in New Jersey, the track record of such reforms is good. Other states have successfully pursued such intiatives in the recent past.
Assuming the legislators possess the will to move this from concept to reality, there are still a number of obstacles to surmount. One of the most formidable will be, as usual, opposition from special interest groups who stand to lose out from efforts to improve efficiency. In this case, those special interests groups may include the New Jersey Association of School Administrators, for obvious reasons, and the New Jersey School Boards Association, a natural foe of any plan that would impinge on local control of the education system. Those two organizations, and others with an interest in avoiding some of the more radical proposals under consideration, can be expected to attempt to rally opposition among the voters by appealing to the common tendency to support unification of school districts everywhere but their own hometowns.
Will that play in Teaneck? If anything, it seems that Teaneck should be a hotbed of support for school district unification. Teaneck voters have demonstrated their concern over the rapidly rising tax burden at the polls recently. They are also all too familiar with the excesses that sometimes take place in independent school districts, thanks to the brouhaha over extra perks and pay for former school superintendent Harold Morris this past spring. The fewer hands there are dipping into the cookie jar, the less room there is for these types of taxpayer-funded shenanigans.
The most important reason Teaneck should feel comfortable with the school district merger plan concerns one major, though not often discussed, source for the opposition to school district consolidation. One of the main reasons New Jersey has 566 municipalities and 611 school districts and not many fewer than that is the desire of certain communities to segregate themselves from less prosperous areas with a different socioeconomic or racial makeup and manage their own exclusive towns and schools. As a result, many small and inefficient groupings exist throughout New Jersey, driving up the total cost for all state residents, even if a significant proportion of the cost is borne by locals. Teaneck has no reason to stand up in defense of this status quo. As a school district with a long history of embracing diversity (the longest in the nation among majority white communities), Teaneck has nothing to fear from a blurring of the lines separating local school districts, and everything to gain from the potential cost savings.
posted by Teaneck Blog @ 12:33 PM
28 Comments:
Sounds like a WONDERFUL idea...
Wonder if anything will come of it though?!?!
While no reliable estimates are yet available for the potential statewide savings from implementing such a plan in New Jersey, the track record of such reforms is good. Other states have successfully pursued such intiatives in the recent past.
Do you have the data to support this? Which states had the successful iniatives?
Irrespective of the question of whether governments & school districts should be merged, I wouldn't assume that it is even possible. Some time ago I heard an interview on the Brian Lehr show (WNYC, weekdays at 10:00) with some NJ government expert from Rutgers (I think, its been a while). That person pointed out that the real obstacle to municipal consolidation is indebtedness. How do you combine, say, two school districts that have different levels of indebtedness? Keep in mind that bond holders have absolute and inviolable rights that may legally prevent the dissolution of governmental agencies who issued the bonds.
I'm not a lawyer -- perhaps someone who is can chime in -- but I think the problems are very serious.
A better route may be for the state to withould aid to districts/towns that fail to engage in some kind of service sharing with surrounding districts. For example, you might withold aid to districts or towns that have their own department of public works, or something like that.
Do you have the data to support this? Which states had the successful iniatives?
From what I have read, Nebraska has cut the number of school districts in half over the past five years, Illinois has trimmed over 300 school districts, and Arkansas has dropped about 60 of its smaller districts in the past few years. All have reported achieving economies of scale as a result. Not all results have been as good as these, the common explanation being that the benefit of combining smaller districts is greatest. Of course, New Jersey has plenty of those. On the strength of these, and other, results, Arizona is now in the process of implementing a similar policy. Of course, in many of these cases they are eliminating schools entirely, which is not necessarily what they are considering in Trenton. The idea under discussion there may actually be a better one, as it appears to minimize impact on the classroom and maximize savings in administration and other overhead.
From the cited Star-Ledger article Merged school districts gain steam
John Yinger, a professor at Syracuse University, addressed the committee via video connection and said a study he conducted of school consolidations in New York showed cost savings of 24 percent to 40 percent when districts of less than 900 students each are combined. But Yinger warned savings can fade to nothing when larger districts are involved and any initial savings can be wiped away within a few years.
While there may be many benefits to this proposal, it is not clear it would result in any financial benefit to the larger districts like Teaneck.
You are right, Tom -- Teaneck already operates a large system as compared with many other smaller communities in Bergen County alone. In the past, Teaneck officials tried to approach a couple of other neighboring communities about combining districts, but they found lots of reasons not to discuss this -- of course, the underlying reason is Teaneck's large minority population which they didn't want their kids to be exposed to.
Also pertinent to this discussion should be the fact that Teaneck schools have participated for years in several consortiums that purchase in bulk (as does the Council, by the way) to reduce costs for individual towns and school systems. The latest example of this is the school system's participation in a group insurance program.
While there may be many benefits to this proposal, it is not clear it would result in any financial benefit to the larger districts like Teaneck.
I would distinguish between the direct financial benefit that comes from trimming costs in Teaneck itself and the indirect benefit that would come from state education aid that would be freed up if it were no longer wasted on small, inefficient districts.
Furthermore, given that Teaneck's per pupil spending is higher than that of most neighboring districts, it is possible that Teaneck might experience a reversion to the mean if it combined more functions with others, which would in fact provide a direct financial benefit to the Teaneck schools and taxpayers.
Teaneck Blog's starry-eyed assertion about the moral "virtue" of centralization is, to put it nicely, naive. Who will get to appoint the county school board and superintendent who will award the mega-contracts for shared countywide services?
I can't think of a worse person to make such appoinments than Joe "Pay to Play" Ferriero's lap dog Dennis "No-Bid Contract" McNerney under the supervision of the Board of "Look the Other Way" Freeloaders.
I don't see how support for a policy change constitutes a declaration of faith in the incumbent political leadership.
Fair enough. But until that little detail about governance is worked out, this really is just polyanna. And I'll say again, centralization not only is no guarantee against taxpayer-funded shennanigans; because of the bigger dollars involved, it magnifies the potential for real political corruption.
Point taken. But by leaving things as they are, the State of New Jersey is taking a rather expensive precaution against potential corruption. Perhaps it would be better to put in a superior system and provide for tighter oversight. At the same time, county school board positions could be modeled after local ones- elected offices with direct accountability to the voters.
Considering the fact that Teaneck's municipal budget went up by 7% this past year and the school budget went up by 4.9%, why is everyone concentrating on school districts? While I do think some consolidation of smaller districts (esp those that share regional high schools) is a great idea, I also think some of these little towns don't need to cling to their own turf so much...
Anonymous said...
Considering the fact that Teaneck's municipal budget went up by 7% this past year and the school budget went up by 4.9%, why is everyone concentrating on school districts?
I believe the quoted numbers are early estimates of the tax rate increases rather than the budget increases. Prior to the council budget cut, the school budget increase was slated to be 4.2%. After the cut the budget increase was about 3.5%. The tax rate reflects only that part of the budget paid for out of property taxes. It does not reflect other funds received from federal and state sources. According to the 2005 vs. 2006 tax bills the school tax rate increased by 4.5%, the town (local municipal) tax rate increased by 9.0%, and the total tax rate increased by 6.0%.
The town tax went up by more this year on both a percentage and dollar basis than the school tax rate. An identical dollar reduction in the expenditures of either the town or the schools results in a identical tax savings. Nevertheless the school budget gets more attention. One reason is the annual school budget vote. It is the only time voters get to vote directly on a budget that affects their taxes. When overall taxes seem to be too high, it is harder for towns to pass school budgets. It is fortunate that overall there is such tremendous support for public schools and that budgets only fail every 8 to 10 years.
To Anonymous who stated: "The latest example of this is the school system's participation in a group insurance program."
This is probably not the example you wanted to give. Based on an interview I saw on Cable television with the assistant superintendent, Teaneck was forced to purchase insurance after years of self-insurance because it dipped into the self-insurance reserve to make up for shortfalls in the operating budget.
In other words, even the pretty impressive budgets approved in prior years were insufficient for the BoE to make ends meet. So yes, purchasing group insurance was fiscally prudent - but how did we get there?
This reminds me of the bond issue a few years ago for physical plant maintenance. Yes, the bond issue with state matching funds was fiscally prudent, but begged the question of why one of the highest per student spends in the state was insufficient to maintain the physical plant without borrowing.
Based on an interview I saw on Cable television with the assistant superintendent, Teaneck was forced to purchase insurance after years of self-insurance because it dipped into the self-insurance reserve to make up for shortfalls in the operating budget.
This is simply not true. I'm not sure what statements have been misinterpreted but this did not happen. Do you know who you saw interviewed and when?
This reminds me of the bond issue a few years ago for physical plant maintenance.
The bond issue was for construction and major capital improvements. If you believe this should have been covered by routine maintenance you might want to look more closely into the projects the bonds were issued for. You might also want to look into the legal issues that make it near impossible to finance such capital projects without incurring debt.
The interview was in the month before the election and the speaker was the assistant superintentendent - based on the website, that leaves one of 2 possibilities Donow and Leavitt. They were pretty clear on this point.
As to the renovations, please go to the following website. I believe that it covers the bond issue I referenced and most of the items listed do not fall into the major capital improvement category.
http://www.njsba.org/press_releases/all_counties_5-18-01.htm
The referenced page describes the 19.7 million dollar bond issue from 2000 as "HVAC work/ renovations at high school". While you may categorize renovations as "physical plant maintenance", I don't believe this would be the common view. I also believe that the size of the renovation would categorize it as major. I don't see where categorizing the other bond issues on the list as major or not is relevant. Assuming they fall within the state law as well as common definitions, they appear to be capital improvements. The kind not commonly paid for out of operating budgets.
While the current law on reserves might make it impossible to build reserves for larger capital projects, what legal restraints existed in 2000?
Also, what is the basis for your assertion that it is "no true" that self-insurance reserves were used to fund deficits in the operating budgets. Based on what was said on the cable program, this year the Board was for the first time required to purchase insurance after being self-insured. Based on your understanding, what happened to the self-insurance reserve?
On the subject of school insurance, I contacted Michael Donow as this seemed to merit more than a casual opinion. The subject appeared to fit under his title, Assistant Superintendent, Non-Instructional Operations. On the subject of the district being forced to purchase insurance, Mr. Donow said, "The district was not forced to purchase insurance - it was a choice recommended to the Board. After many years of being self-insured for
both workers compensation in addition to property and liability, the recommendation was made to apply for membership in a school district "joint insurance pool." I had been speaking about this issue since I
came to the district and the timing of the recommendation was made once
we had resolved many of the outstanding cases (both WC and Liability)."
While the current law on reserves might make it impossible to build reserves for larger capital projects, what legal restraints existed in 2000?
What that has to do with calling capital programs “physical plant maintenance” is beyond my understanding.
Also, what is the basis for your assertion that it is "no true" that self-insurance reserves were used to fund deficits in the operating budgets.
I did not assert that. I was responding to your entire statement which was inaccurate and I believe written to imply wrong doing. (The term "dipped into" is far different than "used to fund deficits".)
Based on what was said on the cable program, this year the Board was for the first time required to purchase insurance after being self-insured. Based on your understanding, what happened to the self-insurance reserve?
I don't know the answer to your question, but I would assume that having over a number of years planned to replace self-insurance and finally being in a position to do so, the fund would no longer be necessary. As the fund is part of the surplus in the operating budget it would be normal to transfer it to the operating budget. It would not surprise me in the least if it was used to offset deficits. It would also not surprise me if it helped pay the insurance premium.
It should also be noted that in July of 2004, S1701 was passed which limited the amount of surplus money that a school board could keep unallocated within its budget. Any addition had to be applied to operating expenses. I believe the insurance reserve fund was considered part of the surplus. Perhaps this required the reserve fund to be reduced to a point where the schools business office did not think it was prudent to stay self-insured. This may have been described as “forcing” the district to give up self-insurance. If the funds had to be moved to the operating budget this may also have sounded to you like "dipping" into the fund to offset deficits.
Did you ask Mr Donow about whether funds set aside for self insurance were in fact utilized for the operating budget and whether he had addressed this issue on the BoE Cable program?
Looking at 1701, I am pretty sure that a self-insurance reserve would not count as "surplus" since I believe it would be a GASB required "legal reserve."
"Did you ask Mr Donow about whether funds set aside for self insurance were in fact utilized for the operating budget and whether he had addressed this issue on the BoE Cable program?"
Before, discussing your next switch, I would like to give an analogy as to the nature of your arguments using the fable of Chicken Little and the sky is falling theory. Chicken Little says, "Something hit my on the head, therefore the sky in falling!" When told that's ridiculous the sky is not falling. he responds, "How dare you say I wasn't hit on the head!"
That being said, I did not ask the new version of your question. I quoted your statement, and asked him whether it was true. The first paragraph of his answer which refuted the idea that the district had been "forced" was all I quoted. He also said that it was likely the person you referred to was him, but was not "sure exactly what was said or how it came out." Note that at the time neither he nor I knew you were talking about a BofE produced cable TV show. You described it as an interview on cable TV.
Mr. Dunow's full reply was lengthy and I was trying to keep my post short and to the point. (Not an easy task for me.)
Here are two more paragraphs of his explanation, which might answer the revised question.
"WC coverage is controlled by the State of NJ, but our self-insured retention level (a deductible) for WC had risen to $350K per occurrence over the years. We paid for a reinsurance policy should that retention level was ever reached - something that was extremely unlikely. All payments, including required salary continuation, all medical treatment, case determinations/settlements out of WC court, legal fees and the required Third Party Administrator came from the district's operating budget each year. The retention level for the G/L policy and the coverage, including the umbrella or excess coverage on liability and our errors and omissions policies had been juggled over the previous years to keep premium increases at a minimum. The retention level had risen to $100K per occurrence with all legal bills for claims a part of this retention. Again, the cost of these bills and all case determinations/settlements would come out of the district's operating
budget."
"Going a number of years, the district maintained a fund balance that could act as "reserve" for large claims on these matters. However, with increasing contributions from fund balance to the operating budget each year, along with the passage of S1701 further reducing the allowable fund balance, the need for a more stabilized insurance program which also provided adequate coverage became more critical. Equally as important is the fact that it just made good sense. We now have first
dollar liability coverage."
The second paragraph is more pertinent but as the first refers to operating money being spent on claims and processing I thought it relevant. Mr. Dunow does refer to "contributions" from the fund balance to the operating budget, both before and as a result of limitations placed by S1701. However, he refers to a fund balance "could act as 'reserve'". I may have the numbers wrong and I don't remember the dates, but I believe there were previous limits placed on surplus funds of 5% and 3% before S1701 reduction to 2%. If indeed the "reserve" was part of the surplus fund, it would also be normal to use the fund for other expenses that exceeded budget estimates.
As to your statement, " ... reserve would not count as "surplus" since I believe it would be a GASB required 'legal reserve.'" It seems judging from the above that Mr. Dunow does not agree with your assessment. I couldn't say as I'm not sure what GASB stands for. Best I could come up with using Google is "Governmental Accounting Standards Board."
Yes, you are correct on GASB, which 1701 refers to.
Not sure I understand the Chicken Little story, but my questions were designed to draw out what I sensed was a partial report from you. Mr. Donow's second paragraph confirms that my assertion about the use of the reserve fund for the operating budget was TRUE. The BoE was not able to live within the operating budget the twon residents approved.
The only open issue is whether the town was forced to switch or whether the switch was driven by the cost of each option. On that point, I can only say that if Mr. Donow was on the BoE Cable program, he told a different story at that timee.
Mr. Donow's second paragraph confirms that my assertion about the use of the reserve fund for the operating budget was TRUE.
Mr. Dunow's statement suggests that there was no separate "reserve fund" but rather a general surplus fund.
When the state forced reduction of the surplus, the reduction was appropriately used to offset expenses in the operating budget. This type of reduction would have been included in the budget when it was voted on.
There may have been other reductions in the surplus fund that were purely used to offset operating expenses as you suggest, but the statement does not go into enough detail to support or deny your conclusion. If so such a decision would have been part of the budget process.
The surplus funds is part of the operating budget and is there to cover any budget overruns or unexpected expenses. There is still a surplus fund and it will no doubt be used again.
To say the "The BoE was not able to live within the operating budget the town residents approved," based on this is not logical. The surplus fund is part of the operating budget. Is your complaint simply that you think Teaneck spends to much on the public schools?
As you didn't understand my first analogy I'll try one more before leaving this subject. An town is hit by a the tail end of a hurricane one holiday weekend. All departments respond admirably to the emergency. While necessary and appropriate, this kind of response is not cheap and could not be anticipated in the town budget. Fortunately the town has a surplus fund which is set aside in its operating budget. Would you categorize this as dipping into the fund and state that the town council can not live within their budget?
I liked the Chicken better, but let's move on.
Try reading Mr. Donow's comment. "Going a number of years, the district maintained a fund balance that could act as "reserve" for large claims on these matters." This does not appear to be a general budget item and would not be part of the "surplus."
You can confirm with Mr. Donow, but I would be very surprised if in the past when the town was self-insured up to the re-insurance amount, the reserve for the self-insured component was not a distinct line item on the budget. Certainly this is the way such reserves are reflected in the financials of corporate entities and they can only be released if the evaluation of the underlying risk has changed. Further, the amount of the reserve is calculated based on probability analysis of the likelihood of claims and amounts.
The only circumstance in which funds should be returned to the general budget is if the underlying insurance risk changes. Otherwise the entire insure v. self-insure analysis goes out the window.
I read this differently. In that same paragraph the term fund balance is used three times. Including, "along with the passage of S1701 further reducing the allowable fund balance". This last use suggested to me that he was referring to what I have referred to as the surplus fund which I believe was the fund limited by S1701.
I don't know whether the reserve was a separate budget line, but I will say that my experience is that public entities budgetary and accounting practices can not be assumed from corporate practices. Your assessment as to how the reserves would be calculated certainly sounds accurate.
For the last time (hopefully), the thing that made your original statement untrue was the use of the term "forced". I wasn't even trying to say that that's not what you heard. I also felt your use of the term "dipped" was meant to be inflammatory. Only you know whether that opinion is true or not.
All the statements, I have made about how the funds were used were opinions based on the evidence I have presented. Clearly you seeing the exact same evidence have come to a different conclusion. I suspect if we actually had a conversation we might find areas of agreement.
I'll throw in one that started our off topic discussion. I agree that, the school system's participation in a group insurance program is not a good example of shared services. It may be sound fiscal policy as Mr. Dunow seems to believe, but calling it an example of shared services seems to be a stretch.
I hope that anonymous has stopped reading this thread and wont yell at me or ask me to explain myself further. I need to move on to rent control!
Fine with me -- you are all probably right about my example of shared services vis a vis the insurance pool. However, the school system has also long participated in a purchasing cooperative with a number of other Bergen County school districts, as well as an ongoing fiscally supported cooperation of the FORUM, the high school drop in and counseling center that was created in 1991.
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