A “retrenchment” year for MPS

For more than a century, the Public Policy Forum has prided itself on impartial and objective budget analysis that explains the financial challenges facing local governments and school districts, but that calls them out when they violate fiscal best practices in their attempts to make ends meet.

When it comes to our review of the Milwaukee Public Schools’ (MPS) finances and budgets, achieving the right balance is no easy task. On the one hand, we deeply sympathize with the district’s unenviable task of securing sufficient resources from year to year to appropriately educate a student body that suffers from extreme poverty, and to increase its competitive position vis-à-vis private and independent charter schools. Yet, on the other, we must express concern when the district’s noble efforts to do so exacerbate the challenges it will face in subsequent years.

Such was the case in 2017, when MPS used one-time savings that resulted largely from its ability to pre-fund certain retirement and debt-related payments late in 2016 to finance new positions and strategic initiatives. MPS’ leaders acknowledged the funds would need to be restored in the 2018 budget. However, they saw this as a unique opportunity to invest in high-priority initiatives, and they expressed hope that additional revenues or new internal reallocation opportunities might materialize to painlessly plug the gap in 2018.

Unfortunately, as we explain in our 2018 MPS proposed budget brief, that has not turned out to be the case. Under the proposed State budget, MPS’ State aids would increase only slightly. Meanwhile, not only do new reallocation opportunities not exist to help finance school operations, but the budget must find a way to restore $36.6 million to retirement and capital-related debt accounts, and to add $4.5 million for growing health care costs.

The result is a “retrenchment” budget for MPS that cuts 194 positions and reduces school budgets by $31 million to address debt obligations and rising fringe benefit costs. District officials say the impacts will be manageable, however, as school-related position and funding increases in the 2017 budget still exceed the reductions required in 2018. Also, the position reductions should be accommodated mainly through staff turnover, retirements, and vacancies.

Other key findings from the Forum’s 2018 MPS Proposed Budget Brief include the following:

• The budget anticipates a $15.4 million increase in per pupil aid from the State based on the Governor’s recommended 2017-19 State budget. That increase is mostly offset, however, by a projected $12.9 million reduction in combined State equalization aids and local property tax levy based on aid amounts and revenue limits in the Governor’s budget.
• While the proposed budget fully restores one-time savings in retirement and capital-related debt accounts, it again includes a transfer of $9.5 million in property tax levy from the construction fund to school operations. This transfer likely will need to be restored in 2019, adding to budget challenges that year.
• After several successive years of decline following the negotiation of a new teachers’ union contract in 2010 and changes enabled by Wisconsin Act 10, MPS’ health care expenditures are projected to increase for the second consecutive year (by $4.5 million, or 4.2%). Total fringe benefits expenditures are projected to increase by $3 million (1.2%).
• New student enrollment projections indicate that MPS will start to see an increase in students after 2018, with enrollment estimated to increase from 83,761 to 86,529 students (3.3%) by 2022. Enrollment is critical to MPS, as it is a key factor in the calculation of equalization aid from the State.

We conclude by noting that while proposed budget reductions will affect many schools’ plans to improve teaching and student learning, MPS should weather the upcoming year without serious or lasting damage to its fiscal prospects. However, considerable heavy lifting will be required to avoid such damage in future budgets.