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A Response to My Latest Post Regarding the West Bend School District

In response to this post, wherein I post the district’s historical spending trends, Lynn Corazzi drafted the following response which Dr. Herdrich sent to me.  Here’s the test of the email:

Attached is an addition to the historical data provided to Owen.  He uses this info to conclude that in 2009 dollars the district is spending more ant $19.6 million dollars more to educate 574 students.

A significant flaw in his approach is using a general rate of inflation to the entire budget.  In the inflation calculator he uses, the highest rate 3.84% in 2008-09.  Recall, however, that during this entire period schools operated under the QEO which guaranteed wages/benefit increases of 3.8%.  Applying the QEO minimum to even 75% of the entire budget, 1992-93 spending grows to $63.3 million, which is $9 million more than what Owen’s approach returned.

The attached spreadsheet provides the details including a graph which shows total adjusted spending using two different approaches.  In the end, there is still a $10.5 million “unexplained” to support 574 additional students.

Columns A-E = Data provided to Owen Robinson
Column F = Wages/Benefits % of the 1992-93 budget determined by the % in cell H4.  This amount grows by 3.8% every year.
Column G = All Other Budget items.  These amounts grow by the general rate of inflation
Column H = General Rate of Inflation from the calculator used on Owen’s blog site and his analysis.
Column I = 1992/93 spending at blended QEO and general inflation rates
Column M = 1992/93 spending at 100% at general inlation rates.  (This column is hidden by the graph)

I don’t have a sense of the actual wages/benefits percent increase over the years, or how precisely the 75% attributed to wages/benefits reflects our actual experience, but the exercise is illustrative of how inaccurate conclusions can be reached by using a simple approach that ignores legislative and fiscal reality.

I’ve not forwarded this yet to Owen, but I believe it’s part of our education outreach to the community and a perspective that each of us should have.

Thoughts?

Lynn

Here’s the included data:

and…

He also provided a graph that illustrates the data above.  I thank Mr. Corazzi for putting in the time to add some additional perspective to the discussion.  Here are my thoughts…

He is correct that using the national inflation rate is a blunt instrument since regional inflation rates vary and the specific makeup of an organization’s expenses may be impacted differently by the inflation rate.  For example, if the inflation rate is being driven up largely by the cost of energy, then organizations that purchase a lot of energy will be affected more severely than those that don’t. 

In this case, the vast majority of the district’s budget is in personnel.  Since those employees buy a broad spectrum of goods and services, they are affected by the inflation rate the same as the rest of the community.  Ergo, comparing the overall cost of personnel over time to the inflation rate is valid.  My flaw is that I should have used Washington County inflation calculations instead of a national numbers, but I can’t find such numbers for the county. 

Assuming a normal turnover in a static workforce, a personnel cost that tracks with the inflation rate means that you are paying them the same over time.  A personnel cost that tracks higher than the inflation rate indicates that you are increasing the overall real compensation.  Some businesses even track below the rate of inflation because they apply capital to reduce the number or expense of their labor force.  Corazzi’s analysis shows that the district has been increasing the real compensation of their labor force and that has been driven partially by the QEO. 

Corazzi’s analysis falls down a bit in that he just assumes a 3.8% increase every year.  I don’t know the real numbers, but they would be worth a look.  I’m willing to bet that most years the increase was over 3.8%.  But his overall premise is that the personnel costs have been consuming a larger and larger part of the budget and squeezing other things out.  If the district gave anything more than 3.8% for all of the years of the QEO, then they aggravated the problem.  What does this tell us?  Nothing that we didn’t already know.  If the district is ever going to control spending, it must control the cost of its labor. 

While all of this information is useful, it still does not refute my overall premise - that the district was not telling the truth when it said “The district has experienced 15 years of consecutive budget reductions.”  I agree that personnel costs are increasing faster than inflation and it is squeezing other things.  That doesn’t change the fact that the overall district budget has also been increasing faster than the rate of inflation and NOT being cut.

Posted by Owen at 1728 hrs
Politics + Politics - Wisconsin

1. Her ‘doctorate’ needs to be taken away.  Embarassing.

   Posted by Smeety on December 22, 2009 at 2048 hrs
   
   
   

2. Seriously. All this time wasted over the obvious.

   Posted by GAMazy on December 22, 2009 at 2108 hrs
   
   
   

3. I find it interesting how responsive they have become to your blog, perhaps you could post the boards monthly packets so they have time to look them over before the meeting.

   Posted by .(JavaScript must be enabled to view this email address) on December 22, 2009 at 2120 hrs
   
   
   

4. Interesting. I wonder if they meant something particluar (and non-obvious) when they said “budget reductions”. Perhaps discretionarly spending? Or non-labor budget items? Or amount paid by local taxes?

   Posted by .(JavaScript must be enabled to view this email address) on December 22, 2009 at 2141 hrs
   
   
   

5. - Last week, when Fed Chair Ben Bernacke maintained the current Fed rate, didn’t he site QEO adjustment for inflation in his determination?
   - Didn’t Paul Ryan, in his recent WSJ letter, state that with the QEO adjustment Wisconsin actually experienced deflation in 2009?
   - Didn’t Jim Doyle, in the state of the state address back in January, state that with the QEO adjustment, Wisconsin has actually lowered taxes in the last seven years?
   - I believe the letter in my recent State Farm bill stated that with QEO adjustment, my rates haven’t increased in years…
   - I believe I remember reading about QEO adjustment in my Macroeconomics class back in the day…

   Posted by Smeety on December 22, 2009 at 2304 hrs
   
   
   

6. It was nice to note that even with their adjusted “inflation” rate, that costs are up almost 20% after their adjusted inflation rate.  And while I will grant that they agreed to give much higher increases than the general inflation rate, they are incorrect in saying they were mandated to spend 3.8 percent more each year.  They certainly had every right to cut staff to make up the difference.  We face that decision all the time at work.  Do we not give raises this year?  Or if we have to, do we cut 5% of our work force?

   Posted by .(JavaScript must be enabled to view this email address) on December 22, 2009 at 2337 hrs
   
   
   

7. Anyone who balances finances in this manner has no business running anything. 

   Dr. Herdrich hasn’t shown the ability to manage a Burger King, much less a school district.

   She needs to go, and be replaced by someone that can balance a budget, for starters…

   Posted by .(JavaScript must be enabled to view this email address) on December 23, 2009 at 1334 hrs
   
   
   

8. If you wanted to keep costs down you would and they didn’t.  Yes, you may have to cut something or someone.

   Posted by .(JavaScript must be enabled to view this email address) on December 23, 2009 at 1336 hrs
   
   
   

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