Public Policy Forum Blog

The Good News and Bad News of MPS' 2017 Proposed Budget

The Public Policy Forum's annual review of the Milwaukee Public Schools (MPS) superintendent's proposed budget finds plenty to like. But, as is typically the case with MPS finances, we find red flags, as well.

The most striking element of the proposed budget is its ability to maintain and expand investments in several strategic priorities, despite its typical challenge of flat state aids and frozen per-pupil revenue limits.

For example, the budget includes expansion of summer school and English as a Second Language services, 'bridge' programs for ninth graders, an increase in Advanced Placement and International Baccalaureate programming, and free driver's education. It also adds 183 positions and is able to allocate $12 million for salary increases. These investments are made in the context of an overall decline in budgeted revenues of $1.3 million.

So how does the budget accommodate new investments despite its shrinking revenue streams?

The answer lies in internal reallocation. Most notably, the budget transfers $8.5 million in property tax revenues from the construction fund to school operations; and it reduces by $31.2 million the district's contribution to its reserves for retirement liabilities, thereby freeing up an equivalent amount for new and ongoing initiatives.

And therein lies the red flag. Unlike the 2016 budget, which applies 2015 savings to debt payments but preserves the displaced funds for carryover to future years, the 2017 proposed budget uses the $31.2 million from the reduced retirement liability contribution to expand expenditures by that full amount. That action – combined with the $8.5 million transfer from the construction fund – produces a level of 2017 expenditures that is $39.7 million above continuing revenues.

So, the good news is that MPS' ability to invest in strategic plan initiatives that hold promise to improve academic achievement and stem the loss of enrollment is maintained in the proposed budget. The bad news is that future-year challenges may be exacerbated, as the use of internal reallocation strategies may be more difficult to achieve in future years.

Other key findings from the Forum's 2017 MPS Proposed Budget Brief include the following:

  • Fringe benefit spending is projected to increase by $3.3 million in 2017. This appears to signify the end of several successive years of health care savings that MPS officials were able to utilize in previous years to redirect to classroom needs.
  • MPS’ student enrollment, which is used to calculate equalization aid from the state, is projected to fall by 700 students in 2017. MPS will lose $11.2 million in its combined amount of equalization aid and property tax levy in 2017 as a consequence of recent and projected enrollment declines and a freeze in the per-pupil revenue limit.
  • Categorical aids, which consist largely of grants from the federal government to serve special categories of disadvantaged students, are budgeted to decrease slightly in 2017, and have declined by 14.5% since 2013. 

We conclude that MPS' overall approach for 2017 "appears both financially defensible and strategically sound," in part because the district has shown the ability to generate internal savings to address ongoing fiscal pressures. At some point, however, repurposing internal funding and instituting cost efficiencies will become more difficult. Cost reallocation can produce both winners and losers, and some types of program savings may not prove popular or feasible to achieve. 

The proposed budget will be finalized in the fall once the district receives final aid amounts from the State of Wisconsin.

Author: 
Rob Henken