Board Discussion Meeting Tonight

Tonight we have a regular discussion meeting of the Board. You can see the agenda here.

The items for discussion are as follows:

III. Discussion
A. Adoption of Policy KBF, Classroom Visitation - Enclosed is a copy of Policy KBF,
Classroom Visitation. The Policy Committee recommends adoption of this policy at the
January 19 regular meeting.

B. High School Renovation Project – James Fraasch

C. 2009-10 Capital Projects Budget – The Capital Budget is scheduled for approval in February.
The preliminary list of projects will be presented to the Board for review prior to discussion
and approval in February.

Tonight I get the chance to present that proposal I put out there in October. Based on feedback received, tonight's presentation will be very similar in scope to the original proposal but will most definitely have a few changes. I will make the full presentation available for download here after the meeting tonight.

If you haven't seen it, check it out. If you have seen it and have questions, please watch the Board meeting tonight or send me an email.

I expect tough questions from the rest of the Board and from members of the community.

Thanks for reading.

James

The Aftermath of Financial Crises

Part of what I want to do on this blog is to let people know what I am reading. If you understand a bit about what I read, you understand perhaps a bit better how I come to my decisions. Last night I came across a research paper entitled "The Aftermath of Financial Crises" written by Carmen Reinhart (University of Maryland, NBER and CEPR) and Kenneth Rogoff (Harvard University and NBER).

The authors had previously done research into the aftermath of financial crises in developing countries and this paper expands to include developed countries as well. It is a relatively short read (13 pages) and is quite informative. You don't have to believe everything they say, but you should respect it. I believe there is a consensus out there that we are right in the middle of a pretty severe financial crisis. These authors are ranking what we are going through now right up with what they call the "Big Five" post-war crises that include Spain 1977, Norway 1987, Finland 1991, Sweden 1991, and Japan 1992.

They make some very interesting points regarding expected changes in employment, output, equity prices, housing prices and more. Below is an excerpt:

Broadly speaking, financial crises are protracted affairs. More often than not, the aftermath of severe financial crises share three characteristics. First, asset market collapses are deep and prolonged. Real housing price declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over a downturn of about three and a half years. Second, the aftermath of banking crises is associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. Output falls (from peak to trough) an average of over 9 percent, although the duration of the downturn, averaging roughly two years, is considerably shorter than for unemployment. Third, the real value of government debt tends to explode, rising an average of 86 percent in the major post-World War II episodes.

Interestingly, the main cause of debt explosions is not the widely cited costs of bailing out and recapitalizing the banking system. Admittedly, bailout costs are difficult to measure, and there is considerable divergence among estimates from competing studies.

But even upper-bound estimates pale next to actual measured rises in public debt. In fact, the big drivers of debt increases are the inevitable collapse in tax revenues that governments suffer in the wake of deep and prolonged output contractions, as well as often ambitious countercyclical fiscal policies aimed at mitigating the downturn.

It's interesting what they say here. That third point about the real value of government debt exploding is certainly a path that we are embarking upon. What is it that we have now, one $700 billion stimulus package down, and a one trillion dollars left to go?

It's been strange hearing economists predict that the way we solve this crisis is to do what got us in this crisis in the first place. We spent too much, we borrowed too much, we leveraged too much. And now the government has reduced interest rates to 0% which necessarily punishes those who wish to save and encourages people to borrow. The government keeps handing out cash to banks and asks them to lend more. The problem is, the American consumer is tapped out. There is a retrenchment of the consumer happening now that is of a degree not seen in some time. How long that retrenchment (and the reduced consumption that goes along with it) lasts will determine the severity and length of this economic downturn.

It is often said that history repeats itself. I prefer saying that history rhymes. I think that is more accurate. To that point, I would like to point out a series of papers written by Ludvig Von Mises. Von Mises was a preeminent economist that was part of the Austrian school of economics. Most people today are taught Keynesian Economics which were developed by another economist, John Maynard Keynes. Keynes is the inventor of all those supply and demand curves you learned about in high school and perhaps in college as well. Von Mises did not agree with everything about the Keynesian school of economic thought. Through his papers published before, during, and after the Great Depression, you can get an idea of what he believed to be the causes of, and the cures to, the Depression. There is a series of papers out there called "The Causes of the Economic Crisis and Other Essays Before and After the Great Depression". The essays contained in this document were published between 1923 and 1946. The last paper from 1946 has a working title of "The Trade Cycle and Credit Expansion: The Economic Consequences of Cheap Money". The conclusions from that paper really allowed me to get a handle on what we are going through today and what effect government intervention may have.

The point of this is to say that the large majority of economists that are prominent today come from the Keynesian school of economic thought. When we hear people talk about a huge majority of advisers and academia folks agreeing on the best way to get us out of whatever malaise we are in, it is because most are believers in the Keynesian school of thought. Those that follow the Austrian school of economic thought were proven to be correct about a lot of the causes of the Depression. Those that are Keynesians believe that we can stimulate demand (and therefore employment and production) by embarking on massive government spending programs. While these programs may make us feel good in the near term because we can see that our government is trying to do something, the long-term consequences of such programs is astounding.

I am hopeful that the Austrian school of economic thought will start to make its way into the mainstream in 2009.

What does this have to do with anything on the School Board. Well, as President Bill Clinton would say, "It's the economy, stupid".

And just in case you were wondering, yes, I do read those things for fun! I love reading material from people that were closer to the history than I am. When I wanted to read about the US Constitution, I read Charles Austin Beard's The Republic first published in 1943. When I wanted to read about the underpinnings of capitalism, there is no shortage of books out there. I chose (among many others) Adam Smith's The Wealth of Nation's (1776), John Chamberlin's The Roots of Capitalism (1977), and Jude Wanniski's The Way the World Works (1978). These books come from a different time and from a different perspective. To me it is fun to see how well these authors have predicted what our world would look like today.

Thanks for reading.

James

Pennsylvania's Graduate Competency Assessements

Today I was doing some more research into the Pennsylvania Department of Education's attempt to implement the Graduate Competency Assessments throughout the state. You may remember a while back that Mt Lebanon School District passed a resolution opposing the GCAs. Today I came across the Montgomery County Intermediate Unit White Paper on Graduate Competency Assessment.

Here is a little demographic information on the county. Montgomery County borders Philadelphia County. It is a commuting suburb for Philly and parts of New Jersey. It ranks as the third most populous county in Pennsylvania behind Philadelphia and Allegheny Counties. According to Wikipedia, Montgomery County ranks as the 44th wealthiest county in all of the United States.

It was with great interest that I read the white paper. Please take a few minutes to review the document. It outlines very clearly the many problems GCAs will present. It also outlines very clearly that the problems the PDE is trying to solve do not get addressed properly with the GCAs.

You can find the online version of the white paper here. Below is an excerpt:

A substantial body of research makes clear that GCA’s are an inadequate prescription for concerns about curricular rigor, relevance or equity.

“The perception that our education tests are precise because they yield numerical scores is fundamentally mistaken.” (James Popham, Educational Leadership, December 2007). The research and literature is rife with evidence that high stake tests should never be the sole determinant when making important decisions about students.

It's good to see other organizations out there standing up for what is right. Please contact State Representative Matt Smith and State Senator John Pippy to voice concerns about the GCA's moving forward.

Thanks for reading.

James

Mt Lebanon High School Project Upcoming Meetings

The Mt Lebanon High School project is front and center on the January and February school board calendars.

Beginning next week the District will hold a series of meetings. The first set of meetings will be to inform the public as to what the findings of the architect and construction manager were with regards to their analysis of the options presented to the public at the July 2008 community forum. The meetings will update the public with the revised numbers for each of the options.

The public should start to see some discussion at Board meetings regarding each of the options beginning with the January 26th meeting.

The upcoming meeting schedule is as follows:

Monday, January 12- Architect update 6:30pm in the High School Library

Wednesday, January 14- Community Forum 7:00pm in the High School Auditorium

Monday, January 19- Regular School Board Meeting 7:30pm High School Library

Tuesday, January 20- Neighborhood Meeting 7:00pm Markham Multi-purpose room

Wednesday, January 21- Neighborhood Meeting 7:00pm Howe School Auditorium

Thursday, January 22- Neighborhood Meeting 7:00pm Jefferson Middle School Cafeteria

Monday, January 26- Special Meeting to Discuss Bldg Options 7:30pm Fine Arts Theatre

Monday, February 9- Architect Update 6:30pm High School Library

Monday, February 16- Regular Board Meeting-Anticipated vote 7:30pm High School Library


If you have not done so already, please email the Board with your comments and suggestions.

Thanks for reading.

James

Parent Resource Network Bailout Gala

There are a lot of interests I have outside of my school board life. One of those interests is Parent Resource Network. My wife and I started a not for profit company a few years ago. There is a long story as to how things got started. The abridged version goes like this:

My daughter, Taylor, was born 16 weeks premature due to my wife, Kelly, being sick. Taylor was born via an emergency c-section in order to save Kelly's life. There was little chance (less than 10% according to the doctors) that Taylor would even live. Even if she did manage to survive, we were told that she would have significant physical and mental handicaps. To complicate matters, the c-section happened when Kelly was visiting her parents in Chicago and I was living in our apartment in Washington, DC.

Through our time in three different neo-natal intensive care units (first in Chicago, then at Georgetown, then in Northern California) spread over a 9-month period, Kelly and I got to appreciate how difficult it was for families to have their lives changed so much due to the premature birth of their babies. For us there was so much to learn about how to take care of a medically fragile infant. There were oxygen tanks, apnea monitors, trachs to change, oxygen sensors to monitor, and an assortment of beeps and buzzes with which we had to familiarize ourselves. Add to that the birth of our second child just a few months after Taylor came home from the hospital, and well, it was quite an experience. Through the many doctor checkups, trainings, and lingering illnesses, we managed through the first two years of Taylor's life the best we could. Fast forward to today and we have a 7 year old daughter who, while she does have some speech and physical delays, is as happy and loving as any child you will ever meet. If you like to be hugged, then you need to meet Taylor. She will brighten your day.

Kelly comes from a background of social work. She approached me in February 2007 (about the same time I decided to run for school board!) and asked me if she could leave her full time job to start her own non-profit that would help those families that were just like us. She wanted to make sure that families in NICUs had the means to visit their little ones in the hospital and that, while there, they were as comfortable as possible. After giving it only a moment of thought, I of course told her to go ahead and get this thing started. Kelly has since created a vast network of parent volunteers that provide a number of services to parents of children that have been born prematurely or with a birth defect.

Parent Resource Network provides:
-A toll free hotline for parents with any questions or concerns about their premature infant
-Hospital Outreach by parents that have been directly affected by the PRN mission
-Parent Mentoring to educate and help new parents through the maze of information coming their way
-Support Groups to help those that have suffered the loss of child
-Helping Hands to distribute the necessities of daily life to those that are staying in the hospital (gas cards, toiletries, etc).

In order to continue the PRN mission of helping these families, the organization holds a Gala once a year. This year's gala is on Saturday January 17th and will take place at the Omni William Penn hotel in the Grand Ballroom. Tickets to the event are $50. There will be a table casino with top prizes, music by a Mt Lebanon DJ, silent and live auction items, and we will also honor the CEO of Children's Hospital, Roger Oxendale.

We have room for just over 400 people and would love to see the event sell out. We have lowered the ticket prices from $100 to $50 per person this year in response to the economic downturn (hence the term "Bailout" Gala).

If you would like to go to the event, please either email Kelly or myself. You can find her website at www.parentresourcenetwork.org. Or you can purchase your tickets with your credit card securely from PayPal right here. You do not need to be a PayPal member to pay with your credit card.

If you cannot attend the event but would like to donate to Parent Resource Network, please visit the PRN website and look for the 'Donation' button.

And by the way, when I say "WE" started this, it really is all Kelly. It is her passion to make this organization successful and to help families throughout Allegheny County. My role is simply providing her the support she needs to be able to attend the numerous meetings, events, and conferences that help make PRN a success.

Best wishes and Happy New Year.

James

The Economy and Pennsylvania School Districts

First, on a personal note, it is great to be back in Mt Lebanon. My family had a good vacation. We first spent some time in Washington DC and saw first hand the preparations being made for Obama's inauguration. We stayed across the street from the Willard Intercontinental Hotel which is famous for hosting both Martin Luther King, Jr (where he finished writing his "I Have a Dream" speech) and Julia Ward Howe (where she wrote "Battle Hymn of the Republic"). After two days in DC, the family headed down to Yorktown, VA where the last great battle of the Revolutionary War was fought. It was a great trip.

Upon my return I went through some of the newspaper articles I had missed. The following article from the Tribune-Review was published on Christmas Day:

Financial meltdown seeps to districts
By Rick Wills
TRIBUNE-REVIEW
Thursday, December 25, 2008

Public schools are feeling the squeeze from the financial chaos and instability that have clouded the future of everyone from the Big Three automakers to people nearing retirement.

Schools' revenue from earned income taxes has dropped in some cases, while real estate transfer tax revenue already is down 27 percent this year in Pennsylvania. Some school districts have reported abrupt jumps in tax delinquencies.

To make matters worse, returns on the handful of fixed-income investments that school districts are allowed have dropped from about 5 percent one year ago to less than 1 percent in many cases.

It is pervasive. Tax revenue is down across the board," said Jay Hines, executive director of the Pennsylvania Association of School Business Officials. "And state revenue shortfalls are a leading indicator of what will happen with schools and local governments."

No one expects state funding of schools to increase from last year.

"If the state flat-funds us -- and everyone thinks they will -- that's another hole in our budget," said Jeff Kline, business manager for the Hampton School District.

In Hampton, tax delinquencies already are on the rise, Kline said. The district anticipates that revenue from earned income taxes could fall as much as 10 percent this year.

"We were not impacted until the last two or three months," Kline said.

The district expects to lose between $300,000 and $400,000 because of falling income from the district's investments, which now yield less than 2 percent.

"It is a rough budget for this year," said Kline, who said his district might eventually have to look at a variety of cost-cutting steps.

In North Hills School District, mercantile and business privilege tax revenues are down slightly this school year. District business manager David Hall expects the outlook to worsen.

"We have four car dealerships in the district. And if General Motors' sales are down 40 percent, I can assume the car dealers are not doing well," Hall said.

The biggest part of any school districts' funds come from property taxes, a matter about which Hall is not especially worried.

"The same rule that keeps assessments from going up in Allegheny County also keeps them from going down," he said.

Even in the event of foreclosure, banks that take over properties generally continue to pay property taxes, said David Davare, director of research services for the Pennsylvania School Board Association.

"Banks will pay taxes to protect themselves," Davare said.

Communities with a large commercial base are more insulated in the short term but could be at risk in the long term if the economy continues to spiral downward.

"That will have an impact," Davare said.

So far, the biggest impact the recession has had on Pennsylvania schools is in the postponement of construction projects, Davare said. Four of the state's 501 school districts have postponed major construction projects, while six others have decided to go ahead.

An extended economic slump could force districts to make painful cuts, Davare said.

"They will have to look at the extras and maybe make some hard decisions. But we still have an obligation to educate every child that shows up," he said.

Keystone Oaks business manager Gwen Walker prepares for the worst, no matter the economic times.

"We always budget very conservatively and do not anticipate a high rate of return on investments. We learned that lesson in the late 1990s," Walker said.

Rick Wills can be reached at rwills@tribweb.com or 724-779-7123.

There was a second article published in The Almanac that went further into detail on effect the economy is having on the Pennsylvania State budget. The State is dipping into its rainy day fund to help balance the budget:

State dives headfirst into tight economy
By Bob Williams Staff Writer
December 30, 2008

The year 2008 may be remembered as the year the national economy imploded after many years of liberal lending by banks, and irresponsible borrowing by tens of millions of Americans from sea to shining sea. As of Dec. 9, there were 41 states facing budget shortfalls, Pennsylvania among them. But it could be worse, say Pennsylvania lawmakers and Gov. Ed Rendell (D). California, for example, is on the verge of fiscal collapse which could have a ripple effect throughout the U.S. in 2009. California this week eliminated $3.8 billion worth of construction on schools, roads and other public works projects.

Gov. Arnold Schwarzenegger (R) said California will run out of cash in February 2009, facing an 18-month deficit of over $40 billion.

By comparison, Pennsylvania is in good shape. As of Dec. 9, state revenues were $658 million behind estimates with current trending projecting a $1.6 billion shortfall by June 2009.

In response, Rendell and the state legislature have moved to approve a wish list of some $500 million in budget cuts. More cuts will follow, legislators say. A tax increase is not on the agenda--yet. Cuts proposed include the following: • $464 million from the already announced budget cuts and other cost-saving measures, including a wage freeze for more than 13,600 non-union employees and the elimination of this year's cost-of-living adjustment for the governor and cabinet members; a hiring freeze; and the curtailment of out-of-state travel; • $36 million in budget cuts by the General Assembly and other independent agencies - reductions that have yet to be identified by those entities; • $375 million from a portion of the commonwealth's $750 million Rainy Day Fund - which will safeguard the remaining half of the Rainy Day Fund to meet future economic challenges; • $174 million in income from the Marcellus Shale natural gas drilling leases•; $450 million in anticipated federal fiscal relief; and • $101 million in unused funds left over in state accounts from prior-year budgets.

"In Pennsylvania, general fund revenue collections from July through November were $657.9 million - or 6.8 percent - lower than estimated," Rendell said. "During the same period, motor license fund revenues were $112.5 million - or 9.8 percent - lower than estimated.

"Now that that rainy day is here, we will be able to draw on the funds we have prudently put aside to help us balance the budget. To continue its pattern of fiscal prudence, the commonwealth plans to use only half of the Rainy Day Fund - $375 million - to balance the 2008-09 budget," Rendell said.

While not confirmed, Rendell said President-elect Barack Obama has earmarked $450 million to Pennsylvania as part of his proposed federal stimulus package.

The reason actual revenues are down by $657.9 million with projections of a $1.6 billion deficit is that Pennsylvania budgets run from July 1 to June 30 of the following year. Pennsylvania's last budget was approved in July 2008. The $657.9 million represents the losses through December 2008. If the current trends continue through June 2009 and no cuts are approved, the deficit will be $1.6 billion by June 2009.

The State flat-funding our budget next year would clearly have an impact on us. While we do not get as much funding from the State as many other Districts in Pennsylvania, it will make it more difficult to pass a balanced budget.

Finally, there was a third article published in the Post-Gazette that looked into the PSERS contribution rate increase coming in a few years. I posted an entry on my website on December 18th. The full article is below:

Payments to school retirement system set to soar

Tuesday, December 30, 2008

By Joe Smydo and Eleanor Chute, Pittsburgh Post-Gazette

North Hills School District over the years has built up a healthy $10.2 million fund balance, but officials won't go on a spending spree any time soon.

David Hall, director of finance and operations, said he expects to need at least some of that money to deal with ballooning payments to the state Public School Employees' Retirement System, forecast to begin in 2012-13.

School districts and the state, which share the employer pension costs, haven't contributed enough money to cover PSERS' liabilities, particularly as financial markets have declined.

As a result, PSERS has an unfunded liability of $8.4 billion, its actuaries, Buck Consultants, told the agency's board this month.

That shortfall is forecast to come to a head in 2012-13, when the rate of retirement contributions by school districts and the state are expected to more than triple.

"The chickens come home to roost eventually," Mr. Hall said.

The burden of coming up with the money will fall on taxpayers, both local and state, making the problem a critical one for school boards and state officials who already are struggling with tight budgets.

This month, PSERS approved an employer contribution rate of 4.78 percent of salaries for 2009-10, only slightly above the current rate of 4.76 percent. Of the employer contribution, about half is paid by school districts, charter schools and other public school entities. The state pays the other half.

Employees' contributions are expected to average 7.32 percent of their salaries in 2009-10. The state and PSERS cannot change the employee contribution rate without granting new benefits, so the shortfall ultimately must be made up by schools and the state.

Current estimates call for the employer rate to increase to 16.4 percent of salaries in 2012-13. But by this time next year, based on stock market trends, the estimate for the employer's 2012-13 rate may exceed 20 percent, Jeffrey Clay, PSERS executive director, cautioned the agency's board.

"We are not funding the benefits earned each year, much less paying the unfunded accrued liability of the system," Mr. Clay told the board this month.

"This is the equivalent of having the mortgage and not paying the principal. The principal gets added to the debt and, of course, interest is charged on top of that," he said.

For school officials in the North Hills, which has an annual budget of about $65 million, the increased share translates into millions of dollars. Currently, the district contributes half of its share of $1.5 million for the PSERS cost, or about $750,000. If the contribution increases to 16 percent of employee salary, Mr. Hall figures the district and state combined share will rise to about $5.8 million, meaning the district's share would be about $2.9 million.

How did the fund get to this position?

The state in 2001 and 2002 enhanced retiree benefits. Then it decided to delay larger contributions to the fund until 2012-13, partly because of stock market volatility in the years following the decision to enhance benefits.

The employer contribution rate dipped as low as 1.09 percent of salaries in 2001-02.

"That was, to me, the epitome of penny-wise and pound-foolish," Quaker Valley Superintendent Joseph Clapper said.

PSERS cannot raise the rate now to allow a more gradual increase because it must follow the rate formula -- which includes averaging five years of investment returns -- set by the Legislature.

The procrastination -- with its specter of massive payments beginning in 2012-13 -- has frustrated some school officials and the 40,000-member Pennsylvania Association of School Retirees.

"Even though we know we are coming up to a cliff, nobody's been willing to address that cliff ahead of time," Mr. Hall said.

Some districts -- including Butler Area, North Hills and Quaker Valley -- have nest eggs or forward-looking budgeting that may soften the blow.

But even if districts have set money aside, the high rate is not expected to be a one-year event. The current PSERS forecast put it above 14 percent for at least five years after the spike hits.

Some are calling for the Legislature to make changes to avoid or minimize any rate spike in 2012-13.

"I think the Legislature needs to take a look at the fundamental nature of the retirement system. We really can't afford this system going forward as structured," said Tom Gentzel, executive director of the Pennsylvania School Boards Association.

Richard Rose, a member of both the PSERS and Bethel Park School District boards, said, "I think something has to be done, but it's out of PSERS' hands to do it."

He suggested the Legislature require schools to follow a state Department of Education recommendation that schools budget more than 7 percent each year for retirement contributions so they can build a reserve to be ready for the rate spike.

Mr. Rose said that PSERS had been doing "very well until the market crashed on us like this. We have to ride out the storm. We are still currently investing money, and hopefully there are some reasonable investments out there today that will put PSERS back in good standing."

Over the last decade, about three-fourths of the pension fund came from investment returns.

In the last school year, PSERS investments fell 2.82 percent, its first negative annual return in more than five years and a significant drop from the 22.93 percent earned in 2006-07.

In a report last summer, the governor's budget office painted a troubling picture of PSERS and the State Employees Retirement System, or SERS, which covers non-school retirees.

SERS will not set its new employer contribution rate until spring. Its current rate is 4 percent, and its last projection for 2012-13 was 5.7 percent.

"Unfortunately, this year's investment climate has made old news out of that number," said SERS spokesman Robert Gentzel. SERS reported its investment returns fell 14.4 percent for the first nine months of this year.

The Association of School Retirees has asked the Internal Revenue Service to review the state's management of PSERS and SERS.

"The escalation of our systems' unfunded accrued liabilities poses a very real danger to the taxpayers of Pennsylvania, who will ultimately be required to contribute much more to our systems in later years to make up for the funds that the systems did not receive from the state and school districts and all that the systems were not able to generate from investment of those contributions," Ureneus V. Kirkwood, president of the retiree association, said in a Dec. 2 letter to IRS Commissioner Douglas Shulman.

Tom Gentzel expects that PSBA will make a proposal early next year to create a plan that would apply to employees hired after a certain date in the future.

"One of the ideas that we've been drawn to is the idea of some kind of a hybrid plan, a combination of a defined benefit and defined contribution," he said.

It may be time to think about such a plan, he said, because a high number of teachers who are from the baby boom era will be retiring in the coming years, resulting in new hires that could enter a new kind of retirement plan.

Joe Smydo can be reached at jsmydo@post-gazette.com or 412-263-1548. Eleanor Chute can be reached at echute@post-gazette.com or 412-263-1955.

First published on December 30, 2008 at 12:00 am

There are a lot of factors that will have an effect on our next budget. It will be difficult to navigate these waters.

Thanks for reading.

James

PSERS Contribution Rates set to increase 244% by 2013

PSERS has released its employer contribution rate that will be effective July 1, 2009. That rate will be 4.78 percent, a slight increase from this year's rate of 4.76 percent.

From the press release:

PSERS Executive Director Jeffrey B. Clay also cautioned that, while the latest actuarial figures support only a small increase in the contribution rate, school employers should continue to prepare for the dramatic employer contribution rate increase forecast in four years.

Mr. Clay stated that “while PSERS cannot collect employer contributions in excess of what is actuarially required by funding methodologies, some school districts on their own have begun to create a reserve in anticipation of the large rate increase projected in FY 2012/2013. Mr. Clay recognized the difficulty for school employers to create a reserve in the current economy, but stated “it would be very prudent for school employers to do so.”

Here is a chart of the expected contribution rates that was put out by PSERS. This chart outlines the projected rates of contribution all the way out to the year 2038. According to this chart, the employer contribution rate is scheduled to increase from 4.78 percent for 2009 to 16.40 percent beginning in 2013. That would be a 244% increase.

Last year the District spent roughly $2.8 million on these contributions, half of which were reimbursed by the state. In the District budget available online on page 68 you can see how much revenue Mt Lebanon received in reimbursement. Forecasting from today's numbers, a 244% increase would mean our contribution for the 2013 year would be close to $6.8 million of which about $3.4 would be reimbursed by the state.

Hopefully our state lawmakers will see this and make sure they do some leveling of the contribution rate before the huge increase.

Thanks for reading.

James

Almanac Article

I thought yesterday would be my last post before vacation. However, there was an article in the Almanac that covered both the Mt Lebanon and Upper St Clair construction projects. I will post the article below and then give a few comments on some of the quotes that are in there.

School plans under review
By Bob Williams Staff Writer bwilliams@thealmanac.net

With the U.S. economy facing the worst downturn since the Great Depression according to J.P. Morgan Chase & Co., residents in Mt. Lebanon and Upper St. Clair have some thinking to do before investing nearly a quarter billion in three aging school buildings.

Mt. Lebanon High School and both Upper St. Clair's middle schools are in need of major renovations, say school board members in the respective communities.

A narrow majority of Mt. Lebanon School Board members say postponing $80 million to $150 million in construction at the high school is folly, while a strong majority of board members in Upper St. Clair say they aren't ready to put the brakes on a $60 million to $65 million overhaul of Fort Couch and Boyce middle schools.

The question is, will the national economic downturn have a local impact?

National outlook

National economists say 2008 could be one of the worst years since the Great Depression. In November alone, 533,000 jobs were lost. December could be worse. The national GDP for the fourth quarter may be less than zero with the GDP free-falling 6 percent over the year. The stock market lost half its value over 2008, over one trillion dollars. The 401K plans imploded.

The failed federal loans to the Detroit automakers caused GM to announce 21 plant shutdowns. Millions of jobs are affected by the Big Three. President George W. Bush may try to override a veto of the loan package by the U.S. Senate last week.

Offsetting these negatives is the federal government's trillion dollar bailout plan, which is hoped to shorten the duration of the recession.

Many economists, including J.P. Morgan, expressed confidence in President-elect Barack Obama's economic team. Once the new president is sworn in, the markets may react favorably and move in a positive direction. Fuel costs are down, as are interest rates. If these both continue to remain low, it could help boost the economy in 2009.

Mt. Lebanon's option

Reviewing these economic realities, Mt. Lebanon School Board member James Fraasch offered an alternative to the current plan for the high school renovation.

"If we were to raise our property taxes another 15-20 percent to pay for a large project, then we should all be concerned about the long-term effect that will have on families deciding to relocate here versus Peters, Upper St Clair, Cranberry and other towns like them," Fraasch said. "If our taxes are slightly higher than these places, that is one thing. Having them 20 percent higher is another thing altogether."

Mt. Lebanon's high school-aged student population has dropped by 500 over the past decade. U.S. News & World Report this year has recognized Mt. Lebanon, Upper St. Clair and Peters Township high schools with "silver" awards. The magazine has given only 20 of Pennsylvania's 670 high schools a "silver" rating.

Chart path

"If what the people want is a completely new school, then the only way to get there is to do my plan," Fraasch said. "Why spend $70 million today, when we can wait a few years and get the new school? Let's have this conversation. If the community wants a new school, let's sit down and chart a path to get there."

Fraasch's plan involves making the high school roof leak proof for 10 years and purchasing new boilers. He proposes using the district's $9 million in savings to pay for most of these repairs. Over the next 10 years, the district would pay down the existing debt. At that point, Fraasch said, the district could afford a completely new school.

"We could purchase boilers that use alternative energy, thus saving costs there. Once the new school is built, these boilers could be relocated to another building," Fraasch said.

The long-term bonus would be a modest tax increase to pay for a completely new high school, Fraasch said.

'Impractical delay'

Both Dan Remely and Elaine Capucci, chairs of the board renovation committee, said they oppose putting the plans on hold now. A 10-year delay would be impractical given condition of the building, they said.

Rough construction-only estimates for a 440,000 square foot high school range between $80 million and $132 million. The difference in the estimates reflect renovation, partial renovation and a completely new facility.

Kerry Leonard from Celli-Flynn Brennan (CFB) said those figures do not include any architect or engineering fees, construction testing, furniture, fixtures, equipment or cost escalation.

The present 545,000 square-foot building on a 28-acre tract houses 1,912 students in grades 9 to 12. District administration is also located within the building.

Remely in September presented a plan which cuts 80,000 square feet from the size of the building and features both new and renovation of the existing building. With construction fees approaching $200 a square foot, some $16 million could be saved. Remely told architects to work on his plan.

Board members declined to ask architects to do any study of Fraasch's proposal.

USC's choice

In Upper St. Clair, board members on Dec. 8 voted to proceed with construction planning and design for both Fort Couch and Boyce middle schools.

With $60 million possible in additional spending, the overall debt level of the district will top at $123 million, said bond counsel Mike Bova from Boenning & Scattergood, Inc. This figure includes previous debt.

In approving the final design phase, board members said a decision on whether or not to renovate the two buildings won't be binding until submitted bids are actually approved. Board Member Angela Petersen said when architects complete their designs in July 2009, their work could be used in the future if the board decides to withhold approval of bids or if the economy slips further into the red.

Scalebacks set

In October, estimates by project manager P.J. Dick put costs for both schools at $61.8 million with about $4 million in additional design alternates. On Dec. 8 the board advocated a series of scalebacks and set estimates at about $58.5 million with $4 million in design alternates.

The design alternates include a $1.6 million theater, $270,000 in field improvements and $1 million for artificial turf at Boyce and $1 million for article turf and $254,000 for a gym alternate at Fort Couch. Like the base bids, approval of the design alternates would be at the board's discretion.

This article has a quote from me that I had not put in the proposal or in any of the other previous articles out there. That quote is the following:

"If what the people want is a completely new school, then the only way to get there is to do my plan," Fraasch said. "Why spend $70 million today, when we can wait a few years and get the new school? Let's have this conversation. If the community wants a new school, let's sit down and chart a path to get there."

This one quote, without background information, would raise some eyebrows I think. It is what I said and it is what I believe so I am not in any way saying it was a misquote, I just feel it important to understand why I said it.

As this article points out, and as I have been saying for some time, we are in a different economic reality than the one that existed even a year ago. Two months ago the Audit/Finance Committee talked about how much additional debt this District could add before being forced to go to a referendum. There is a law on the books that says that a school district can have debt up to 225% of its 3-year average annual revenues before being forced to go to a referendum. Any debt that would force us over that 225% level would have to be approved by voters. What we learned at that Audit/Finance Committee meeting was that the "magic" number is roughly $116 million dollars in additional debt over the next year or two before we are forced to go to a referendum. The thinking behind the quote above comes from understanding that ANY high school proposal that requires the District to add over $116 million in new debt would likely fail in a referendum vote.

That is basically the final reason why I believe a fully LEED certified high school building is off the table in the near term. Understand that this isn't an either/or discussion. It isn't either do this proposal or build a new school. Those are not the only choices on the table. I am sure other Directors will make their thoughts known in January. Some of these ideas will include a complete renovation or perhaps a more phased construction approach that has yet to be fully discussed at a Board meeting.

There is a certain irony in this that I think is important to point out. There are many that have emailed the Board and said that the most important thing to keep in mind is that we need to hold our taxes in check so that we remain competitive with neighboring communities. There are also many that have emailed the Board and said the most important thing to keep in mind is that we need a new LEED certified school to maintain our reputation as a community that values education and that a tax increase to accomplish this is well worth the investment.

The reality of the situation is that the current economic environment seems to put these two groups of people on the same side.

Thanks for reading. I will be on vacation starting this weekend so email access will be spotty during the holiday's.

Thanks for reading.

James

Email of the Month

Since I am on vacation next week, I thought I would post this email of the month a bit early.

I have been very happy to see the conversation about the possibilities of the high school project take shape. While I took a bit of heat in the beginning for putting out a proposal on my website, the feedback has been largely positive and I firmly believe it was the right thing to do.

The Board receives emails most every day regarding the high school project. Some of those emails have been in support of a low-tax increase approach to the high school project and others are in support of a full brand-new school. There are a few that are in the middle.

Earlier today I responded to a constituent email regarding building a new school versus my "$15 Million Dollar Idea" as follows:

Thanks for the email.

I hope to be able to convey more thoroughly the thought process behind the proposal at one of our future Board meetings.

There are many pros and cons to my plan as there are pros and cons to all the other plans that have been put on the table.

At some point this Board will need to make a decision on what it is willing to spend and at what interest rates it is willing to spend. If bond rates continue to rise as they have for the past six months then the District could be forced into a bond market that might make floating bonds quite costly. We heard from our financial adviser on Monday night that bond rates have risen by 1.5% to 2% since July when we had our last community forum. The cost to float these bonds has risen as well.

Rather than float bonds at these rates, my opinion is that it may be prudent to investigate alternatives that would not hamper the District budget for a generation. That will be a discussion for the Board to have at a public meeting. I may very well be in the minority here and I am fine with that. I simply want to make sure that if we do engage in a large-scale project that everyone is aware of the budgetary constraints that would be placed on this District and its taxpayers for the life of whatever bonds are issued.

While you say the project will cost more if we wait ten years from now, I would suggest that at these interest rates, that might not be true- especially in light of the fact that both the Producer Price Index and Consumer Price Indexes are experiencing declines. The CPI dropped by the largest amount since 1947 in November of this year. Additionally, with a 2% increase (from 4.5% to 6.5%) in bond rates over a 25 year $110,000,000 bond issue, we would see total payments for that debt increase by about $18.5 million. The thing about bond rates is that they are very unpredictable. We do not know where they will be when we are ready for whatever project we do. At what interest rate will the Board deem going forward with a bond issuance impractical and irresponsible? That number exists and it should be defined by this Board before soliciting bids for any bonds.

The proposal I put out there takes a very stark look at what I believe to be the financial reality of where we are right now and puts that reality up against where this country is economically. After combining these two factors, the issuance of a massive amount of debt has me extremely concerned. That approach is but one way to look at this project. I understand that there are other perspectives to take with regards to the high school and I look forward to hearing them.

Best wishes,

James Fraasch

One quick note, I added the bolded part of the response to this website- I thought of it after I sent the response to the constituent.

As our Financial Advisor told us on Monday, we really are in a different economic environment. It is my belief that we have not yet spent enough time on the financial impacts to the District of any given plan. I hope that will change soon.

Thanks for reading.

James

New Articles in Local Papers

There has been a good discussion going on regarding the high school project. Below are links along with comments I have on each story:

Mt Lebanon Officials Say New School Can't Wait

The Co-Chairs of the High School Project Committee weigh in on what they think of the proposal I outlined last week. I clearly don't agree with some of the comments by the other Directors but I was glad to see that the discussion regarding our options is making the rounds in the local papers.

Students Push Board to Renovate High School

Two high school seniors make their voices heard at the Board meeting on Monday night. It is not often that we see students take to the podium and these students ought to be commended for coming out like they did. It's not always easy, especially if you believe that some of the people standing in front of you don't agree with you. I would have liked to have had the opportunity to talk to the reporter regarding this article since it addresses something I did. However, I was not contacted for the story. I would have simply suggested that every option out there addresses the leaky roof.

Mt Lebanon and Steel Valley Pick Presidents

This article chronicles the actions of the Board at our reorganization meeting last week. I had to get something in here that was not related to the High School!

The discussion that we need to have as a community is starting to take shape. It may not be happening behind closed doors in Executive Sessions, and it may not be happening in the Board room at public meetings, but it is finally starting to happen.

Thanks for reading.

James