A $30 Million Headache!!
Why does MMSD have a $30 million problem? Actually the problem is more precisely $29.8 million (small consolation)! Most of this problem ($28.6 million) is attributable to revenue loss, not to spending.
Why is there a revenue shortfall?
Because State of Wisconsin revenues are significantly lower due to the economic downturn, less state aid is available for school districts. And because of the funding formula, Madison was hit particularly hard. While the average state school district lost 3% of their state aid, Madison lost 15% - both for this year and next year.
So, the $28.6 million shortfall is caused by:
1) a cumulative loss of $17 million in state aid for the 2010-11 school year budget,
• loss of $9.2 million in state funding for the 2009-10 budget,
• projected loss of an additional $7.8 million in state funding for the 2010-11 budget
2) additional revenue (spending and taxing) authority of $4.0 million for 2010-11as a result of the successful referendum that passed in November 2008 by more than a 2-1 margin.
3) the normal annual growth of revenue (spending) for the school district under the revenue cap*
- additional revenue growth of $7.6 million (an increase of about 2.2% as explained in the footnote below) allowed under the revenue cap for 2010-11.
Because MMSD is losing $17 million in state aid and is authorized to spend an additional $11.6 million because of the referendum and annual revenue cap increase, the district will need an additional $28.6 million. This money can only come from the property tax; there is no other source of revenue.
In addition, MMSD will have to cut $1.2 million due to the revenue cap (spending) limits. Again, this gap is the result of the disparity between the allowed increase in spending (2.2%-2.5%) and the increase in salary and benefits of about 3.8%. (see the detailed explanation of this phenomenon as it was explained for the referendum).
As the Board (and the community) considers how to handle this problem, it needs to keep in mind the following:
- Since 1993, when revenue caps were first instituted, the district has cut more than $60 million from its budget – and eliminated over 750 positions. Further cuts would strike at the quality and depth of the district’s education.
- The referendum in November 2008 increased taxes to maintain the district’s educational programming. It passed with 69% of the vote. This reflected the public’s commitment to quality education in Madison, and the understanding that, as Mayor Cieslewicz said: “good schools are vital ingredients in healthy neighborhoods.”
- A failure to tax up to the permitted amount (i.e., to the revenue cap) has negative consequences over the long term.
The explanation of this is complicated, but worth understanding, so the ‘budget cut’ debate can be an informed discussion. When the 1993 legislation was passed, a spending floor was established. What districts spent that year was the base upon which further increases, about 2.2% per year, were figured. If spending fell below the allowed limit, the base was reset to the lower level and districts essentially lost the opportunity to spend at the higher limit.
So, if Madison decreases spending it risks losing the ability to return to the higher allowed spending limit. The 2008 referendum, by a greater than 2-1 margin, indicated that voters understood the need to exceed the revenue (spending) limit. To now risk losing that spending authority by cutting spending goes against the direction of the community and against the best interests of Madison students. The need for a high quality education is more apparent than ever!
The discussion of the $30 million problem requires an understanding of the nature of the problem – that it is primarily a revenue problem, not a spending problem. The district is only spending what it is authorized to spend. And, if it spends less than its authorized limit, it risks having that spending authority reset at a lower level not only for next year, but for the future.
*In the 1993, the state legislature, in an attempt to limit the growth in property taxes, passed Revenue Caps (designed to hold down school district spending) and the Qualified Economic Offer (QEO), which was intended to help districts control spending by limiting compensation packages for teachers to 3.8% annual increases unless the School Board agreed to a higher increase. The Revenue Caps prescribe how much revenue a district can raise to support its operating budget. The average revenue increase allowed by the state has been 2.2%-2.5% per year (about the rate of inflation). The two major sources of revenue for school districts are property taxes and state aid, so a revenue cap (a limit on how much revenue can be collected) is, in effect, a spending limit. Many people do not understand that a “revenue cap” really is a “spending cap.”
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