New York schools face multiple funding challenges

November 21, 2012

Spending for public education in New York is the highest in the nation, at $20,645 per student every year. But recent reductions in state aid and a cap on the amount that a community may increase its property taxes is putting the brakes on school budgets. At the same time, increases in employee pension and health care costs are requiring a greater share of school revenue. Now school superintendents are faced with letting employees go and increasing class sizes. The fiscal vise is causing districts to do more with less.

In a recent survey performed by the Council of Superintendents, school leaders were asked if their districts were near insolvency and unable to meet their financial commitments. A surprising number indicated significant stress, as they had already spent down their reserves.

When superintendents were asked feedback, one wrote:

No matter how much we have in reserves, TRS/ERS, health insurance, and Triborough along with meager NYS aid, makes the financial model unsustainable.

-Upstate suburban superintendent

TRS/ERS is the Teachers Retirement System and Employees’ Retirement System. According to the report (emphasis mine):

Growth in pension costs slowed some for the current year, but last month the State Teachers Retirement System projected that employer contribution rates will need to increase from 11.84 percent to between 15.5 and 16.5 percent in 2013-14.  The contribution rate is applied against the payroll for employees in TRS, so the rate increase is equivalent to mandating districts to absorb a cost equal to giving all those employees 3.6 to 4.6 percent raises, on top of any actual raises.

And what is the Triborough law that makes life so difficult for school superintendents? It continues to give raises to union employees even after their contracts expire:

A rule of thumb is that “step” increases in collective bargaining agreements – additional pay for an additional year of service – are commonly around 2 percent.  With payroll typically accounting for half of school spending, a 2 percent increase in salaries alone would translate into a 1 percent increase in overall spending.

The state’s Triborough law guarantees payment of these increases even after a collective bargaining agreement expires. Superintendents see Triborough as an obstacle to negotiating both restraint on salary growth and actions that could save on health insurance.  In the survey, superintendents identify amending Triborough and prescribing minimum employee contributions for health insurance as their two top priorities for mandate relief.

One way that districts are absorbing rising pension and healthcare costs is through salary freezes and job cuts:

Districts reduced their workforce by an average of 3.9% this year, on top of 4.9% in 2011-12.  Reductions were generally steepest among city and rural districts and in non-teaching student support positions.

Things are bleak on the revenue side as well, as state aid is capped and tied to changes in state taxpayers’ personal income, which is heavily driven by Wall Street:

Less known is that the other major school revenue source – state aid – is also subject to a cap now.  Tied to yearly changes in the total personal income of state taxpayers, the cap provided for a 4.1 percent ($805 million) increase in School Aid this year and is expected to allow for a lesser increase in 2013-14.

The property tax cap has a much more immediate effect in terms of budgets:

Districts developed and adopted their budgets under the state’s new property tax levy cap law for the first time this past spring. Actual proposed budget figures and our survey responses point to the same conclusion:  the cap led districts to propose lower spending and tax increases than would have occurred under the old rules.

And what about federal aid to school districts?

Finally, the remaining 8 percent of school revenues – federal aid – is not capped by state law.  But it is more likely to shrink than grow as Congress and the President wrestle to construct long-term deficit reduction plans.

New York, the highest spending state in the nation on education, is facing substantial headwinds. There is currently little on the table in terms of legislative solutions to these budget challenges. How will education outcomes be affected? Stay tuned.

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