School funding piece – former district CFO Mike Masch responds

    Here’s another take on the roots of the Philadelphia school district funding crisis and potential solutions.

    On Monday I wrote a piece about the proposed funding solution, and how aspects of it reminded me of the deal that resolved the city’s financial crisis in the early 90’s. I got the following reply from Michael Masch, who was formerly the school district’s chief financial officer, and before that budget director for Gov. Ed Rendell in Harrisburg, and Mayor Rendell in Philadelphia in the 90’s. You can read my original piece here. Here’s Masch’s take:

     Read your piece today and I have to say – having lived through both crisis – that I strongly disagree with your premise that the SDP budget crisis of 2013 and the proposed Corbett funding solution of today are analogous to the City budget crisis and funding solution of 1991.

    Here are my reasons:

    1. The 1991 City crisis was largely self-made – it resulted from unaffordable and uncompetitive wage, benefit and pension deals that were negotiated by a succession of Philadelphia mayors to garner union support, coupled in Goode’s case in 1990/91 with a strict (indeed, unprecedented) “no layoff/no attrition” clause he negotiated which prevented the City in 1990/91 from reducing the City workforce to offset the higher mandated cost per employee called for in Goode’s labor contracts.2. The main cause of the SDP 2013 budget crisis is a 15% cut in state aid in 2011-12, followed by two years of essentially frozen state aid. And, very important, while the Commonwealth cut all school aid in 2011-12, the state’s cut to PHILLY aid was disproportionate – the SDP educates 10% of PA public school students, but took over 30% of the 2011-12 state funding cuts, largely because the cuts were targeted quite specifically to cut deepest in Pennsylvania’s poorest school districts. Before these cuts took place, the SDP’s spending level was moderate (per pupil spending was lower than the state average for all 500 PA school districts), Operating Budget spending growth was likewise moderate (averaging 3% or less per year), and the District had ended each of the prior three fiscal years with small surpluses.3. A secondary pressure on the SDP budget is fast rising pension costs. But unlike City pensions, where decisions are made locally as to how generous pensions will be and how much funding will annually be set aside to fund them, all pension decisions affecting SDP staff are made in Harrisburg, because SDP employees all participate in a single state-run pension plan. Current dramatic rises in pension costs affect not only the SDP but EVERY PA school district, and result from state-made decisions to (a) escalate pension benefits dramatically from 2001 through 2010, when a Rendell-Evans reform bill reversed the 2001 pension giveaway; and (b) state statutory decisions to underfund the state pension funds over the years. (And note that because school district contribution levels are set forth in statute, school districts cannot change them even if they want to.)4. In many major city job classes – sanitation worker, secretary, etc. – the City in 1991 was providing its workers with pay and benefits far in excess of what they could get elsewhere. But unlike City workers in 1991 Philly teachers in 2013 are not paid more than their counterparts/competitors elsewhere in the SEPA regional labor market. According to the PA School Boards Association the average Philly teacher salary is 5% lower than in Delaware and Chester Counties and 19% lower than the average salary in Montgomery and Bucks Counties. (It is also 8% lower than the average teacher salary in Pittsburgh, where the state gives the Pittsburgh school district $1,800 more per student than in Philadelphia.) So while it was rational and reasonable for the City to look to its unions for wage restraint in 1991 (since the City knew that its workers would still be better off than their peers working for other employers), it is far less reasonable to expect Philly teachers – already paid less than others in the regional teacher labor market – to take large pay and benefit cuts, particularly when their working conditions are worse than their suburban peers. This is a strategy that will discourage many of the best new teachers from even applying to work in Philly. It will make Philly public education even more uncompetitive, and force Philly teachers to close a significant portion of a budget gap that they did not create.5. Intergovernmental funding patterns for municipalities and school districts are different. We don’t generally expect the state to fund local police, fire, sanitation, and park services. All Pennsylvania municipalities fund these services almost entirely out of their local tax bases. Therefore, it was reasonable for the Commonwealth to expect in 1991 that the City of Philadelphia would fix its own City budget problems, without significant state aid. (And note that one big exception to this general rule is child protective services (i.e., DHS). These services – in Pennsylvania and in other states – are normally paid for at the state level (and in the overwhelming majority of states, they are OPERATED at the state level as well, not the county level.) So if you look back, you will see that the one area where the Commonwealth DID significantly increase its financial support for the City was in the area of child welfare. That was a critical part of the Rendell 1991 budget balancing strategy, and with the support of the Casey Administration and key legislative leaders, it got done.)6. The pattern for school funding is very different from the pattern for municipal funding. Responsibility for funding public education has over the years increasingly been shifting across the U.S. from the local level to the state level (though certainly more slowly in Pennsylvania than elsewhere), in part because public education is increasingly seen as a public good with benefits that extend beyond the boundaries of any specific school district, and in part because the previous reliance of public education on local property taxes has been shown repeatedly to produce dramatically unequal results. As regards Philadelphia schools, the state share of combined state/local funding for many years was 60/40. In the Rendell years, the state/local shares shifted to 65/35. But if the current Corbett plan is implemented and the $300M gap the state created through its cuts in 2011-12 is closed strictly with added city taxes, the state/local ratio would shift to 55/45 – that would be the lowest level of state participation in the funding of the Philadelphia public schools in modern history.

    None of this is meant to say that the PFT shouldn’t make some concessions in 2013. They should certainly contribute to the cost of their health care at the same rate as their suburban counterparts (matching the average 10% suburban contribution level would save the SDP about $25 to 30M), work a day that is closer to the state-wide average (this would add 15 to 30 minutes) and make other work rule changes.

    But suggesting that 1991 is comparable to 2013 makes the Corbett strategy of closing the SDP budget gap without any more state aid appear reasonable and fair. While it may happen, it is neither reasonable nor fair.

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