By 2015, four school districts in Geauga County will likely be on life support. In other words, their costs will substanially exceed their revenue, a trend which school funding experts say is not sustainable.
Editor’s Note: This is a long story, but the issue of school funding and the challenges school districts and taxpayers face have enormous consequences for Geauga County parents, residents and taxpayers. Some tough decision are on the horizon.
By 2015, four school districts in Geauga County will likely be on life support.
In other words, their costs will substanially exceed their revenue, a trend which school funding experts say is not sustainable.
As a result, board of education members and administrators from Ledgemont, Berkshire, Cardinal and Newbury school districts have agreed to look into the possibility of consolidating or merging their districts.
Last Wednesday, the Geauga County Educational Service Center held a meeting to unveil results of a consolidation study Columbus-based Public Finance Resources, Inc. recently performed at the request of the county board of education.
“We are far from any decision stage. I think right now we are in the exploration stage,” said GCESC Superintendent Matt Galemmo to a room filled with 35 members and administrators from the four school districts as well as the county board of education, along with representatives from PFR, Geauga County Auditor Frank Gliha and several members of the media.
During the meeting — which lasted 90 minutes and was held in Building 8 of the county office complex at 470 Center St. in Chardon — Galemmo said on top of initiating the private audit, he also met with Gliha to request a public audit of all seven county school districts.
“We’re not anticipating or expecting any kind of decision to be made. All we’re asking is that you listen to the results, take the data back, share that with your board and anybody in your community that you would want, and start thinking about do we want to go to the next step,” Galemmo said.
In short, the districts are going to have to look at options such as consolidation, cooperative high schools or magnet school and mergers, he said.
The county board of education would look at available grants to perform the necessary feasibility studies “because it’s expensive and we know nobody else has funding to do that right now,” Galemmo said.
An academic program audit would also be done and include districts within the group, the county and state, he said.
“Again, the purpose of this is not just to see if you can stay out of the (Ohio Department of Education) loan fund, the purpose is to see that we have quality education in our county and in your individual districts,” Galemmo said. “That’s why we’re doing this.”
The superintendent cut right to it when assessing the facts.
“If there is a direction here that we want to go, there’s going to have to be a lot of planning, you’re going to have to develop governance, you’re going to have to develop a structure and you’re going to need consulting from the finance, you’re going to have to get consulting from legal,” he explained. “These are funds I know that you don’t have at this point and these are funds that we don’t have.”
But there could be grant and foundation money to pay for these studies, Galemmo added.
“We’re just skimming the surface here. And when you think about it, there’s a whole other aspect. How do you get the community engaged in what we’re thinking about and what the future could hold?” asked GCESC Assistant Superintendent Suzanne Allen. “This is very big and bold, but I think if you just go step by step and see what the data show us and what the information is, then maybe we could take the next step.”
Financial Report Card
Ernie Strawser, a consultant with PFR, said if the country had not gone into a “great recession” in 2008, most school districts would not be facing the difficult decisions they are today.
Independent data as well as financial forecasts the districts filed in October project all four districts will face a “structural operating shortfall” in 2015, ranging from a $949,775 revenue shortfall in Berkshire to $1,418,159 in Ledgemont.
“You have two choices in fixing these kinds of operating shortfalls. It’s either cut expenditures or raise revenue, or both,” Strawser explained. “So, if you were looking at the four individual districts, the lowest operating shortfall that is reported right now for 2015 is 9 percent. We work with a lot of school districts. If you have to make a 9 percent adjustment to your programs, it’s very noticeable. Very, very noticeable.”
While school officials could make a decision to change direction, “it’s tougher and tougher to do,” Strawser said.
The impending shortfall is the “number one motivator” for board members to consider options like shared services and consolidation — any options that would make the districts more sustainable, he said.
All four districts are also reporting a “negative” cash reserve in 2015, Strawser said.
District Expenditure Data
From fiscal year 2005 through 2011, all districts except Cardinal spent anywhere from 12 percent to 20 percent more per pupil over the seven-year period.
Declining enrollment in each of the four districts translates into an increase in expenditures per pupil, assuming expenditures are maintained, PFR consultant Matt Bunting explained.
Newbury, for example, has lost 130 students since 2005, according to the ODE. Over that same time period, the district’s expenditures per pupil have risen from $8,632 to $12,198.
“In a district that size, a loss of 130 kids really drives up the per pupil expenditures,” Bunting said. “Through no fault of its own, it might have jumped up.”
District demographics also influence the numbers, Bunting said.
“If you and I have exactly the same number of students, but I have 10 percent more special needs students, that’s a weighted funding; I’m getting more money with the expectation of spending more money on those kids,” he explained.
Comparing 2006 to 2011, only Ledgemont experienced a decrease in the number of students with disabilities served.
Also, in 2011, the percentage of economically disadvantaged students served ranged from 21.89 percent in Berkshire to 38.07 percent in Cardinal.
“These are probably the two single drivers of cost because of the services you provide to those two groups of students,” Bunting said. “If those go up, your costs also go up.”
The bottom line is whether the spending trends, which are “going north,” are sustainable moving forward, he added.
In terms of tax valuation and rates, the same declining pattern exists in all four districts from 2006 to 2011.
The elimination of the tangible personal property tax (TPPT) on businesses over a five-year period is affecting each district.
As a result, residential property is increasing significantly as a percentage of each district’s total valuation.
Cardinal, for example, had the lowest percentage of residential value in 2006 at 67 percent. While it still does, the percentage has jumped to 76 percent — over three-quarters of the valuation, PFR consultant Mike Sobul noted.
If all four districts were combined, the valuation would have shifted from 76 percent residential value in 2006 to 83 percent in 2011.
“That is high … it’s not exorbitantly high compared to districts that are like this, that are a more rural area where there is not a lot of business and industry,” he said.
Also, total district value has declined in all districts, except Ledgemont, from 2006 to 2011.
If the districts were combined into a single district, Cardinal would have the largest valuation piece at $286,648,400 and Ledgemont, the smallest at $102,039,620.
Taxpayers in all four districts support their schools with property or income taxes, and bond and permanent improvement millage, or a combination of one or more.
Cardinal is the only district with bond millage while Ledgemont and Berkshire are the only districts with an income tax component, Sobul noted
Cardinal is also the only district with outstanding debt, including “library” debt, he added.
“There’s still (the) question, if there were a merger, would that library debt go across all of the districts,” he said. “That’s still being looked at legally.”
Sobul added if all four districts combined, Cardinal’s school debt — about 0.91 mills — would be spread across all districts.
The library would add an additional 0.29 mills, he said.
PFR looked at possible tax rate scenarios to raise the current level of revenue in a merged district.
The two basic scenarios — property tax only and equivalent income tax plus property tax — are designed to raise the same amount of money as the four districts currently are raising.
“That amount is about a little more than $24 million,” Sobul said.
If a merged district were funded with a property tax only, the rate would be approximately 29.65 mills, he said, assuming 78 percent of all district revenue comes from residents.
If a 1.25 percent income tax were levied across all four districts, plus a property tax to make up the difference between what a property tax would raise and the $24 million, it would take a property tax of 21.41 mills, Sobul explained.
“These are just examples. There are probably a number of different ways this could all get constructed in the end, if there were such a merger,” he said. “There are still some legal issues.”
“The individual district example of what you’re faced with today is that the smallest district has had some of the biggest challenges as its enrollment has gone down to try to keep costs lower on a per pupil basis,” Strawser said. “It’s like any business. You have a certain amount of fixed cost; it’s not all variable. You have to have a certain amount of cost no matter what, no matter how many students are in the building, for example, and so there are just fewer students there to allocate those cost burdens.”
• Everyone needs to be concerned about the overall wealth indicator for the area in terms of state funding.
“Where do you now fit relative to the other districts and how might the new working formula benefit the districts versus potentially harming the districts,” Strawser said.
• Property valuation of a consolidated district would be 83 percent residential and agriculture.
“This is the challenge that you have,” Strawser said. “Eighty-three percent of your local money, if it’s a property tax levy, is going to come from the residents.”
There is no commercial wealth to tap into, he added.
“If you go with the income tax, 100 percent comes from residents. That’s a challenge,” Strawser said.
• Tax rates and types have some flexibility warranting further analysis.
“You have a lot of options when you look at all the levies that are out there among the four districts and what potentially could come out of that,” Strawser said, adding PFR presented a “same revenue” scenario.
Q & A
Cardinal Schools Treasurer Merry Lou Knuckles asked if the districts did consolidate, would they automatically take on the highest tax rate or Ledgemont’s or Berkshire’s income tax.
Strawser said PFR could model any scenario.
“We now have the data set up for you to do that,” he explained.
The Ohio Attorney General legal opinions on consolidation of school districts mainly date back to the 1950s and 1960s, Sobul said, prior to passage of House Bill 920.
“Basically, there seems to be an ability to look at the whole gamut of levies that the four districts currently have and pick and choose among those levies,” Sobul said. “The only caveat being you cannot end up at a rate higher than the highest rate among the four of you.”
As mentioned in previous Geauga Maple Leaf stories, there is also a difference between a merger and a consolidation.
The ability to pick and choose between levies is predicated on the formation of a brand new district as opposed to one or more districts being absorbed into another district, Sobul explained.
In the latter case, the surviving district’s rates would apply across all of the property in the absorbed district.
Cardinal Schools Superintendent Paul Yocum asked if the ODE might be willing to forgive Ledgemont’s $2.5 million in solvency loans if the four districts combined.
“We’ve asked them that and at this point, they’re saying no,” Galemmo said.
He added his office is beginning to talk to state legislators about a possible solution.
“But if the group wants to go ahead with the next step in exploring this — and obviously a trip to Columbus with someone representing all the districts and ourselves — we would have a list of people to talk to,” Allen said. “Because we have to get something back, we have to get some support.”
The same issues pertain to each district’s facilities, Galemmo said.
“You have a set amount of money that each district is going to get, a percent from the community as well as from the state,” he said. “One of the questions we asked was, if there were a merger of districts — the fact that you’re trying to be economical — can you get a higher percent from the state?”
At this point, the answer is no, Galemmo said.
The last “big merger like this” was the merger of four districts into a countywide district in Adams County around 1970, Sobul said.
Since then, there have been three or four consolidations, but with a surviving district, he added.
“Because of the funding situations, you’re going to see a lot more schools going into the loan fund,” Galemmo predicted. “You’re not going to be passing levies and the reason Ledgemont is in the loan fund is because it went two years without passing or renewing a levy.”
He added, “So, I think in the future you are going to see more of these kinds of discussions because the money’s not going to be there.”
Strawser said many districts are holding on as best they can “to that very core curriculum and education.”
“We keep stripping down and stripping down to this just very basic level of service and, guess what, that basic level of service is even more than we have coming in,” he added.
In addition, federal stimulus funding provided some districts with support and now that is gone, said PFR consultant Stacy Overly.
Open enrollment and community schools also have hurt districts like Newbury and Ledgemont, in particular.
“And when you lose a student, you just don’t lose the amount the state was giving you, you lose the full $5,700,” Galemmo noted.
Strawser added, “Your local tax dollars go with that student, don’t ever lose sight of that.”
There are also fewer school-age children in these districts to draw from, according to census data.
“This is the demographics of Ohio. In general, Ohio has trouble retaining students coming out of college; they move out of state,” Sobul said.
State Rep. John Patterson, who represents of the newly drawn 99th House District — which includes all or part of the Ledgemont, Cardinal and Berkshire school districts — said he is meeting with ODE officials this week to discuss the Ledgemont situation.
“Until June of this past year, I was a teacher,” he said. “I’m coming into this from the trenches to fight for our kids, that was my number one reason (for running for office). Give me some direction here as to what you need to do and I’ll do my very best.”
Patterson also said he would be working across party lines with state Sen. John Eklund, R-Munson Township, “because it is that serious.”
Prior to the close of the meeting, Gliha handed out results of a public audit his office conducted of the seven Geauga County school districts.
Those results were not discussed, however.
Cardinal Schools Board of Education member Katie Thomas questioned what type of popular support a merged district would get.
“We ultimately all have to go back to our voters to pass more millage,” she said, noting there was “a lot of angst” about consolidating Huntsburg and Parkman into Middlefield, and closing elementary schools.
“We still have to go to our people and how is this kind of arrangement going to persuade them to continue to support the schools, because there will be more support somehow,” she asked.
Galemmo reiterated there would need to be an entire community engagement portion of any feasibility study.
“You’re going to have to get the community on board before any of you make a decision,” he added.
When Berkshire merged its elementary schools into one, Berkshire Schools Board of Education member Val Timmons noted it took seven tries just to increase the income tax a quarter of a percent.
“That was a major effort,” she added. “And that’s one community.”
Galemmo said residents must be shown any consolidation would be beneficial to the respective communities.
“You’re going to have to show the community that the outcome of what we’re going to do from this is going to be something that’s going to benefit our kids,” he explained. “People are going to want to come to schools in Geauga County, they’re not going to want to leave. That’s what you sell.”
There are about 10 to 12 different ways to accomplish a merger, including some that involve a community vote, said Robert McCarthy, an attorney with Bricker & Eckler, a Columbus-based law firm hired to opine on legal issues surrounding any merger or consolidation.
“That would be the legal information we would get before you made any final decisions,” Galemmo said. “There’s a lot of information that you need, but it’s a long process.”
Newbury Schools Board of Education member Martin Sanders asked how long the process could take if everyone decides to move forward.
“It’s hard to give you a range here,” Galemmo said, noting some districts like Ledgemont are in more need of an emergency.
“I think at the low end, you may be looking at two years to four years,” he said. “I could be wrong on that, but I’m thinking you’re going to have to look at doing some intermediate type of activity.”
That is why Galemmo wants each district to look at issues like transportation, food service and maintenance.
“Those are things that we can do now, where you don’t need a vote,” he said. “And if it makes sense, it gets districts used to working together.”
John Karlovec also contributed to this story.
PFR’s presentation included numerous graphs comparing certain financial matters in each of the four districts with “similar districts” as defined by the Ohio Department of Education.
• All districts except Cardinal spend more per pupil than similar districts.
Newbury, for example, spent $12,199 per pupil in 2011 compared to $9,622 per pupil for similar districts.
Cardinal spent $9,256 per pupil while its peer group spent $9,601.
Strawser explained other factors can influence spending levels such as the number of students identified with poverty or disability factors within a district.
• Three of the four districts have more staff than similar districts.
Berkshire and Newbury, for example, have 19.41 percent and 21.36 percent more staff, respectively, than districts most like them.
Cardinal has 17.25 percent fewer staff than the districts most like them.
Staffing levels indicate service, which is one of the challenges that all districts are facing, Strawser said.
“You’re providing a level of service that the combination of state funding and taxpayers are not supporting,” he said. “That’s the bottom line if you’re spending more than you have coming in.”
Added Strawser, “Service is offered through the teachers and other staff.”
• Three of the four districts have capital funds available for capital projects, according to the 2011 tax rate.
Berkshire, Cardinal and Newbury — which all have permanent improvement levies — are all better positioned than their respective similar districts to “keep roofs up and to keep buses going,” Strawser said.
• All districts, except Ledgemont (37.58 percent), are below 30 percent in terms of state funding.
Theoretically, districts that are low in state funding and high in local wealth and ability to raise money locally, Strawser explained.
“That theory doesn’t always turn into reality,” he added, pointing out state funding is based on the 2009 funding system, which has been reduced even more.
“So, if the system wasn’t working real well for districts such as yours in 2009, it’s reduced even since then,” Strawser said.
A new state funding formula should to be unveiled in the next few weeks, he added.
“But what we do know is this, the formula hasn’t been real kind to you now individually,” Strawser said. “And you saw the per pupil valuation change. It’s an indicator that you’ve improved in per pupil wealth. I don’t think that you’re wealthy; I think it’s the same amount of less in wealth distributed over fewer students.”
• Taxpayers in three of the four districts are already making “more effort from their income” to support their respective district than the state average, Strawser said.
Berkshire’s taxpayers, for example, are making 27 percent more effort from their income than the state as a while, he noted.
“The district with the lowest taxpayer effort is Ledgemont,” Strawser said.
Ledgemont’s taxpayers not only are 14 percent below the state average, they are 30 percent below taxpayer effort in similar districts, according to the data.
• The property tax millage equivalency ranges from 26.26 percent in Cardinal to 37.11 percent in Newbury.
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