Wednesday, September 25, 2013

Half a million here ...

A fair amount has happened since school started so I thought I'd do an update.

We're Newsworthy

Welcome to Kimberley Haas, a reporter Foster's sent to the 9/17 school board meeting.  Ms. Haas has written two articles about us since then:

Foster's, September 19, 2013 Plans for cafeteria at Moharimet School discussed

Foster's, September 20, 2013  If OR tuitions more students, taxpayers could realize $400g

Jeff McMenemy of SeacoastOnline is also on the beat:

SeacoastOnline,  September 10, 2013  Towns seek to lower proposed tuition rate

SeacoastOnline, September 18, 2013 Oyster River H.S. lowers tuition price for Newmarket, other towns

You can always watch old school board meetings on YouTube (9/18/139/4/13).  But you don't have to because I sit through them and report back to you here.

 Mohariment Cafeteria, $500,000

The initial enrollment figures for the two elementary schools were startling.  Mast Way began with 287 students, Moharimet with 409.  That's 122 students, 43% more, at Moharimet if you're counting.

Moharimet has an official functional capacity of 388, so it's a little tight in there.  The pain is most acutely felt in the multipurpose room, which serves as a cafeteria when not a gym or auditorium.  And sometimes, we found out, at the same time that it is a gym.

This leads to the first of our half-million dollar items alluded to in the title.  The board gave Superintendent Morse approval to explore building a cafeteria at Moharimet.  The intended capacity is 360, the expected price tag is $500,000 and the size is 10 feet longer than Mast Way's (inequity?).  It would be sited near the kitchen, either in the parking lot or toward the church.

The superintendent wants to begin construction this April, so the cafeteria is ready by September.  This means spending money in the current fiscal year.  This is possible due to some found money (more about that next).  This district plans to seek approval for the Moharimet cafeteria from the voters in the March election before proceeding.

$500,000 is 1.25% of the $40M budget.  Found money or not, if the board decides to build a cafeteria at Moharimet your FY15 school tax will be about 1.25% more than if they decide not to. 

The superintendent preemptively defended himself against the implied charge that it's only the overcrowding from the imbalance that's moved the Moharimet cafeteria to the top of the priority list.

Local Government Center Fraud Payout, $500,000

From what I can tell, despite the name, Local Government Center (LGC) is a private, for-profit company. LGC is an insurance agency.  It was rather dubiously formed by merging non-profits that were administering insurance for municipal employees.   It got in trouble for mixing pools, which is a fancy way of saying LGC didn't return excess health insurance premiums to the towns and school districts who paid them that it was required to by law. 

The district's share of the settlement is $688,555.  Since employees pitch in a certain percentage of their heath insurance premiums, some of this money belongs to them.  The superintendent speculated that the district would retain around $500,000. 

ORCSD is getting the settlement in the form of what I think was called a premium holiday. Basically, LGC is giving us a discount of $688,555 on our health insurance this year.   Seemingly sensible local governments (including Durham) that sought insurance elsewhere in the wake of the scandal are crying foul, as only current customers are in a position to take the premium holiday.

 LGC was also in the news recently as the conflict of interest that ended the NH Senate Presidency of Peter Bragdon. NHPR has been covering LGC well for a long time.   

My main concern is that every time there's some revenue that comes into the district it becomes an excuse to spend with "minimal impact on District taxpayers"  (agenda).   New projects add to taxes whether or not they are offset through found money or tuition profit or spread over the years through financing.  Instead of a minimal impact on the taxpayers, we should aim for a positive impact: lower taxes.

Oyster River Cuts Proposed Tuition $500,000 per year

The prospects for a tuition deal improved after we lowered the proposed tuition for Newmarket from our cost per pupil (CPP) ($16,324) to $14,500.  As before, this tuition deal does not include transportation and places a ceiling on special education support.   Dr. Morse proposed a plan where the board approves a single proposal that it offers to each of the interested districts.

The Newmarket Perspective

There's been a somewhat odd dynamic to the negotiation with Newmarket.  It was announced last spring that Newmarket was willing to pay our cost per pupil.  Somehow it only occurred to Newmarket in September to ask for a lower rate, which we gave them.

There is some drivel going around that Newmarket could actually save money by building a high school rather than tuitioning out to Oyster River, given the high rate.  That seems ludicrous to me, but let's do the math to be sure.  [In a comment below, Mike M. reports that it has been admitted that there was a math error by the Newmarket folks.]

NH DOE has Newmarket FY12 CPP at $15,159 and Oyster River at $16,502.  DOE also provides CPP for high school only: Newmarket $16,194, OR $16,304.  Let's make a guess (probably a lowball) that a new high school costs $30M.  [MM says $53M.]  If we believe the high school DOE numbers, at the initial high rate the extra tuition Newmarket would pay to Oyster River would pay for a new High School in 30M/((16324-16194)*250)) = 923 years!  Let's say we compare to Newmarket's lower district-wide CPP -- then Newmarket's increase would pay for a new High School in only 30M/((16324-15159)*250))  = 103 years.

As a matter a fact, the new deal saves Newmarket so much money that in 30M/((16194-14500)*250) = 71 years the taxpayers of Newmarket would have saved enough to buy a new High School, courtesy of the taxpayers of Oyster River.  (It's actually much faster than this when you consider the inflation adjustment discussed below.) 

Now, I like the idea of a tuition agreement and despite some trepidation I want to help our neighbors over in Newmarket.  I just don't see why we need to be so generous we save their taxpayers over $400,000 the first year and an increasing amount in the years beyond. 

The Oyster River Perspective 

The discount just offered amounts to 16,324 - 14,500 = $1,824 per student, or $456,000 per year for the expected 250 students.  

The superintendent promised 25% of the tuition to taxpayer relief, down from the 40% promised when Newmarket was willing to pay up.  Let's see, 25% * 14,500 * 250 is around $900,000,
a bit more than 2% percent off your taxes.   The old figure, 40% * 16,324 * 250  is around $1,600,000, around a 4% tax break.

From the district's point of view, they were retaining around $2.46M (60% * 16,324 * 250) in the old deal and around $2.72M (75% * 14,500 * 250) in the new one.  Look at that -- another quarter million dollars of found money.  Time for free all day K.

[MM reports that Foster's made an error reporting "400g".  I've indented my original commentary which was based on taking Foster's at its word.] 
But Foster's reports that the taxpayers can realize $400K annually in the new tuition deal.  (If it was up to me, the headline would say "only $400g.") This is much less than the $900K I calculated.  There appears to be some slight-of-hand going on here.
Where it was previously reported that 40% of the gross tuition would be returned to the taxpayers, $400K seems to be 25% of the tuition profit of $1.6M, not of the total tuition revenue of $3.6M (14,500 * 250). The costs are expected to be $2M, mostly for staff.
What of the 75% of the profit not returned to taxpayers?  That's $1.2M more of found money.  That's plenty to get a football program going, along with a bunch of girls' sports to avoid Title IX troubles.

One important thing to note is that the tuition deal should help our cost per pupil.  (The renegotiation didn't affect the costs, just the revenue.)  Back of the envelope, assuming 250 additional tuition students at a $2M cost, our CPP of $16,502 would change to ((16,502*2,000+2,000,000) / (2,000+250)) = $15,557, a 6% reduction.  


I didn't tell you the worst part of the proposed deal.  There is a 2% nominal increase in the tuition we charge over each of the first 8 years.  This is very likely a ridiculously low number.  It is below the broad inflation rate (CPI), and seriously below the observed inflation in school costs. 

From 2001 to 2012 (the latest year available), the NH Cost Per Pupil has increased at an annual rate of 6.27%.  (That's the nominal increase -- it's 3.81% after inflation.)  Over the same period, Oyster River CPP grew at 7.31% a year.  If that continued, the nominal 2% increase would mean Newmarket pays $16,656 in the 8th year, while our cost grows to $26,749.  Their 12% discount becomes a 38% discount, perilously close to not even covering the cost of the additional staff.

Since the financial crash, nominal cost per pupil has grown more slowly.  The state CPP grew at an annual rate of 3.86%, while Oyster River's grew at 1.95%, actually below the rate of inflation (which remained at 2.4% in the period) and below the proposed 2%.  As just mentioned, we should get a dip in CPP after we take additional tuition students.  But it's unlikely we will be able to maintain the austerity of nominally growing less than 2% a year for another eight years.


So the Oyster River taxpayers are expected to go along with a tuition deal that will reduce their taxes an anemic 1% 2%.  The students get to maintain and increase their programming.  The administration gets its slush funds. The Newmarket taxpayers start out paying 10% less per student for a better high school, and that discount grows over time.

The tuitioning deal needs to be a balance between the needs of the students and the desires of the taxpayers of both Oyster River and the other district, most likely Newmarket.   My feeling about the current proposal is it tilts too heavily in favor of the students and Newmarket taxpayers at the expense of district taxpayers.

I would be in favor of a tuition deal where the tuition rate would rise at a rate equal to the rise in NH cost per pupil.  Or, if we wanted to tie the rate to our own costs, we would need to be careful about the expected CPP reduction when we get a new influx of tuition students.   We could solve it with a minimum increase (say 2%, or the CPI) if our CPP happens to grow more slowly.   We might also want a formula that closes the discount over time.

The other concern I have with the tuition arrangement is not the deal per se, but the proposed staffing.  Tuitioning is perhaps our only opportunity to get our class sizes toward the high end of our policy (18-22) without morale-sapping layoffs.  To do this, we have to hire the minimum number of teachers.  We need to be similarly tightfisted on new non-teaching staff.  I haven't seen any evidence that this analysis was done by the administration.  Or if it has, they haven't shared it.

The third concern is the profit -- the difference between the tuition charged and the cost to provide the extra staff and programs.  The administration is essentially proposing to split the profit, now estimated at $1.6M annually, with the taxpayers.  The latest proposal seems to be 75% 45% to the administration, 25% 55% to the taxpayers [corrected $400K->$900K].  I'd like to see 100% to the taxpayers.

$500,000 to Reserve Fund  

There is an item in the 9/4/13 minutes that Sue Caswell reported that the total FY13 fund balance is $1,097,714 and that "they will retain $500,000."  I think what this is trying to say is that the new reserve fund, approved by the voters last March, will be initially funded with $500,000 that would normally be returned to the taxpayers.   Congratulations district property taxpayers -- your taxes just went up another 1.25% next year.

I personally don't think it's right that Sue gets to decide how much the Reserve Fund is funded. Nothing against Sue -- we'd probably all be better off if we always did what Sue suggests.  But Sue isn't one of the people we elected to make decisions like this.  I thought that a board vote would be required to approve this transfer, but I'm too lazy to try and decipher RSA 198(4)b to find out for sure.

Loophole in Budget Goals may cost $500,000

The budget goals were approved as modified.  My concern is the loophole in goal 1:

The ORCSD 2014-15 Budget will not exceed the cost of living as established
by U.S. Government for 2013. Health Insurance, negotiated contracts and
State cost shifts/mandate not subject to COLA.
Now, if I was a superintendent I would want to write the goals with as many loopholes as possible, so I could claim victory no matter where the budget ended up.  However as a taxpayer, I would prefer the goals be loophole free.   If we're unable to negotiate a good contract, or the state shifts more costs onto us we might not be able to achieve our goal.  But we'd have tried, and we'd have reasons, possibly good ones, for our failure.  Life happens and one doesn't always achieve one's goals. I guess I'd make a lousy superintendent.

I have no idea if the cost of this loophole will be a $500,000 -- it's just a guess keeping with the theme of this post.   A half a million here, a half a million there and pretty soon we're talking about real money.  But the real real money is in the tuition deal, where it currently looks like the taxpayers of Oyster River are being given the short straw, where their meager 1% savings over the first year may grow into a substantial tax increase by the eighth year.