A Community Update on the School Division's Budget Process for FY 2013-2014
In a Tuesday, May 14 meeting, Virginia Beach City Council approved a municipal budget, including funding for schools, that will allow the school system to implement a 3 percent salary increase for all eligible employees (2 percent to base salaries and 1 percent to the required Virginia Retirement System contribution), effective September 1. Further details on executing this salary increase will be forthcoming from the departments of Budget and Finance and Human Resources in the near future. Another notable action by the Virginia Beach City Council was a reduction to the property tax from 95 cents per $100 to 93 cents per $100. While property taxes are a major revenue stream under the city-schools revenue sharing formula, Council’s decision was that this reduction would be executed in a way that will not negatively impact Virginia Beach City Public Schools in the future.
May 8, 2013: Improvement of recommended employee salary increase a possibility
In its Tuesday, May 7 meeting, the School Board adopted a resolution that amended an earlier budget proposal sent to City Council. The resolution paves the way for a 3 percent salary increase for employees, effective September 1. The increase would be executed this way: Base salaries would be increased by 2 percent and 1 percent would go toward the required Virginia Retirement System contribution.
This new scenario improves the recommended raise for employees, which originally stood at 1.34 percent with 1 percent being allocated toward VRS and 0.34 percent going toward base salaries. Chief Financial Officer Farrell Hanzaker noted that to make a 3 percent salary increase possible the school division had to close a $3.1 million funding gap. Here are the strategies being used to accomplish that:
- Debt service costs for the school division proved to be $1.5 million lower than what was originally projected. The savings will be allocated toward closing the funding gap.
- It has been recommended that $1.1 million be transferred out of the Sandbridge TIF into the operating budget. Typically these monies are transferred into the capital improvement budget to help address infrastructure needs.
- The school division will save $500,000 if the raise is executed in September rather than July. These savings will help address the funding gap.
Hanzaker told the School Board that school system leadership had discussed these plans with city leadership and the strategies being employed appeared to be viewed favorably. The City Council will adopt a final budget, which includes the school system’s operating budget, next Tuesday, May 14.
The School Board held a budget workshop Tuesday, April 9 to discuss the status of its operating budget proposal recently submitted to City Council. Board Chairman Dan Edwards noted that City Manager James K. Spore had presented an operating budget to City Council March 26. Besides including an expenditure plan for city operations, the city manager's budget proposal included a recommendation for school funding. As a reminder, when the School Board adopted its operating budget proposal March 6 for submission to City Council, it included a request for an additional $3.1 million. This additional funding would help the school system improve the employee salary increase from 1.34 percent to 3 percent. If this new scenario were to be adopted, the 3 percent increase would be executed in this manner: 2 percent toward base salaries and 1 percent toward the required contribution to the Virginia Retirement System.
During the workshop, Edwards noted that the city manager's recommendation to City Council did not include the additional $3.1 million the School Board had requested. Unfortunately, this money is needed to enable the school system to take advantage of monies the General Assembly provided for a 2 percent salary increase for some school employees. Here's the challenge: Virginia Beach City Public Schools (VBCPS) would have to spend more local money to access those funds than what the Commonwealth is actually providing. The state provided only enough money to pay for salary increases for those employee positions funded by the state Standards of Quality (SOQ). VBCPS pays for far more teachers and other staff than what the SOQ makes possible. Therefore, to ensure all teachers and employees receive a pay adjustment VBCPS would have to add money to the state funding.
Chairman Edwards said he believed that VBCPS would be the only school division in the state not accessing the Commonwealth's salary funding and felt this was unacceptable. There are several approaches toward securing the needed $3.1 million. One would involve the School Board waiting for an answer on the requested $3.1 million from City Council. However, Edwards said several individual City Council members had expressed a reluctance to provide funding beyond the amount determined by the city-schools revenue sharing agreement. Another approach would be the possibility of transferring almost $1.6 million out of Sandbridge TIF funds (money typically allocated to the capital budget for infrastructure projects) and to ask City Council to meet the Board halfway by providing $1.5 million.
The chairman noted that the superintendent would communicate this possibility to the city manager and ask that he, in turn, to take it forward to the City Council in future meetings. Chief Financial Officer Farrell Hanzaker noted that City Council has scheduled two budget hearings so there are in-person opportunities for interested citizens to weigh in on school and city priorities with their elected representatives. Those City Council public hearing dates and locations are: 6 p.m. Thursday, April 18 at Virginia Beach Middle School and 6 p.m. Tuesday, April 23 in City Council Chambers. Other contact opportunities are via email and phone.
In its Tuesday, March 5 meeting the School Board adopted a $677.4 million operating budget proposal for the 2013-14 fiscal year. As part of its deliberations the Board adopted a budget resolution that asks City Council to consider providing an additional $3.1 million to help the school system improve the employee salary increase from 1.34 percent to 3 percent. If this new scenario is ultimately adopted, the 3 percent increase would be executed in this manner: 2 percent toward base salaries and 1 percent toward the required contribution to the Virginia Retirement System (VRS).
As background, in its Feb.27 meeting the School Board had agreed to include a 1.34 percent salary increase in its budget proposal. Under this scenario employees would pay an additional 1 percent to the required VRS contribution, leaving them with a net increase to base salaries of 0.34 percent. However, last week the chairman, vice chairman and the superintendent met with the mayor, vice mayor and city manager to discuss progress on the school system operating budget. Board Chairman Dan Edwards reported on that meeting to the School Board, noting that discussion centered on the possibility of providing additional funding assistance to Virginia Beach City Public Schools to be used toward employee salary increases. Both the chairman and vice chairman noted that while the mayor and vice mayor could not speak for the entire City Council, the tone of the meeting was “agreeable and supportive.” They advised the School Board the city manager would be taking a close look at the school system budget and city department budgets in the coming weeks to ascertain what would be possible. On Mar. 26, the city manager is scheduled to present a municipal budget, which includes an expenditure plan for schools, to City Council. City Council will then begin its deliberations, adopting a final budget in mid-May. As a reminder, when administration began its budget deliberations, the school division faced a $32 million shortfall. The strategic transfer of $14 million from savings and $2 million from the Sandbridge TIF bought down this shortfall to $15.9 million. Some of the strategies the School Board’s budget proposal recommends to close that gap include:
- Raising class sizes at the middle and high school levels on the average of a half of a student
- Adjusting salary baselines to account for declining enrollment and attrition
- Reducing departments' and schools' non-personnel budgets by 5 percent,
- Accounting for savings made possible by a new high school master schedule and reducing central office positions (six to 10 positions).
In other action the School Board adopted a $432 million capital improvement program (CIP) budget. However, this includes $214.7 million that had already been appropriated for projects currently under way, such as Kellam High School, for example. The new appropriations amount to $217.3 million, which is $10.5 million less than the current year plan. Under this CIP work will begin on Princess Anne Middle School and Thoroughgood Elementary School in 2016-17 and Princess Anne High School in 2017-18.
Note: An earlier post included an incorrect salary percentage calculation. The information below has been corrected.
The Virginia Beach School Board deliberated on a number of employee salary increase options at its Feb. 26 workshop. After much discussion the option deemed most feasible involves providing a 1.34 percent increase (a .34% to base salaries and a 1 percent offset to the required employee contribution to the Virginia Retirement System). Five other options were considered before the School Board reached consensus.
The Board decided informally not to take advantage of monies the General Assembly has provided for a 2 percent salary increase for some school employees. The problem is the fact Virginia Beach City Public Schools (VBCPS) would have to spend more local money to access those funds than what the Commonwealth is actually providing. The end result is VBCPS would incur a $4-plus million shortfall. Here's why: The state provided only enough money to pay for salary increases for those employee positions funded by the state Standards of Quality (SOQ). Virginia Beach City Public Schools pays for far more teachers and other staff than what the SOQ makes possible. Therefore, to ensure all teachers and employees receive a pay adjustment, VBCPS would have to add money to the state funding. In addition, the state has limited school systems' flexibility in accessing its 2 percent pot of money by refusing to allow them to use any of that money to offset employees' required VRS contribution. This decision also contributed to driving up Virginia school systems' local costs.
The Board also informally agreed to put $1.7 million toward adjusting the compensation of principals and assistant principals. Some assistant principals' pay for 12 months of work is less than what they were being paid as 10-month classroom teachers. In addition, VBCPS, for the most part, is paying its principals less than what other Hampton Roads school systems are paying. John Mirra, assistant superintendent of human resources, advised the School Board that such inequities are presenting challenges when it comes to recruiting school leaders.
Ultimately to balance the operating budget for next school year, the Board informally agreed to raise class sizes in middle and high schools by half a student on average. Other budget balancing strategies being employed include adjusting salary baselines to account for declining enrollment and attrition, reducing departments' and schools' non-personnel budgets by 5 percent, accounting for savings made possible by a new high school master schedule and reducing central office positions (six to 10 positions). The School Board is scheduled to adopt a 2013-14 operating budget at its March 5 meeting. Once adopted that budget will be provided to the Virginia Beach City Council. City Council will vote on a municipal budget, included a school spending plan, in May.
The Virginia Beach School Board held a budget workshop Tuesday, Feb. 19. Much of the discussion centered on the possibility of an employee salary increase for fiscal year 2013-14.
Farrell Hanzaker, chief financial officer, noted that the Superintendent's Estimate of Needs was built on the Governor's proposed biennial budget that recommends a 2 percent salary increase for instructional positions included in the Standards of Quality (SOQ). The challenge for the school division is that the SOQ does not include all instructional, classified and administrative positions. Therefore, to ensure all employees receive the state-provided salary increase, Virginia Beach City Public Schools would have to put significant additional monies toward that end.
Hanzaker said that this issue is complicated by the fact the House and Senate collectively have developed several scenarios for implementing the salary increase. The House version of this legislation calls for a 2 percent salary increase while the Senate has outlined two posssibilities – one that mirrors the House version and a second one that provides a 1 percent salary increase for the instructional positions included in the SOQ. Neither the House nor the Senate recommendations would allow any of these funds to be used to offset employees' required contributions into the Virginia Retirement System (VRS). As a reminder, all VRS-eligible employees will have to pay 5 percent of their base salaries into VRS by 2016-17. Many school division have been phasing in this requirement and providing a corresponding offset for staff employed as of June 30, 2012. The 2013-14 fiscal year would be year two of the phase in for VBCPS and consequently an offset would be required to address the increased percentage requirements. This, of course, would require more funding from VBCPS. According to Hanzaker, the Senate's 1 percent salary increase scenario is much less costly for VBCPS -- a little more than $1 million -- while the House version would cost VBCPS an additional $4.5 million. To accomplish an employee salary increase some budget cutting strategies would have to be implemented and Hanzaker shared some. However, the School Board decided to wait on budget cutting discussions until more definitive information on state funding becomes available from the legislature.
The General Assembly is scheduled to end its legislative session Saturday, March 2.
The School Board held a budget workshop Tuesday, Feb. 12. The agenda included an overview of salary increase options for the 2013-14 fiscal year and a presentation on significant compensation issues associated with the unified pay scale. Following is a brief summary:
Farrell Hanzaker, chief financial officer, gave the Board an overview of several possible salary increase scenarios. Hanzaker pointed out that the Governor's recommendation to fund a 2 percent salary increase for instructional personnel does not extend to all employees, just for those positions funded under the state's Standards of Quality (SOQ). As an example, the SOQ does not provide funding for such positions as gifted resource teachers, computer resource specialists or school nurses, to name a few. This means to ensure all eligible employees get a like raise, Virginia Beach City Public Schools would have to allocate millions of additional dollars.
Originally, Superintendent James G. Merrill had recommended a 2.5 percent salary increase of which 2 percent would be used to offset the state requirement that employees pay into the Virginia Retirement System. As a reminder, employees must pay 5 percent of their base salaries into VRS by 2016-17. VBCPS is phasing in that payment over several years. By putting 2 percent of the proposed salary increase toward VRS, the total employee contribution increases to 3 percent in 2013-14. The additional half percent would have been added to base salaries. Unfortunately, both the Senate and the House have determined that SOQ monies which were going to be used to help fund the 2.5 percent salary increase cannot be used to offset VRS. That sent administration back to the drawing board to examine other salary increase options.
The options Hanzaker outlined were: 1) a 1 percent salary increase and a 1 percent VRS offset; 2) a 1.5 percent salary increase and a 1 percent VRS offset; 3) a 2 percent salary increase and a 1 percent VRS offset; and 4) a 3 percent salary increase and a 1 percent VRS offset. The first scenario would involve not accessing any of the state's 2 percent funding. Members of the School Board and administration expressed a reluctance to consider this option because it would result in a permanent loss of those monies. However, it is the only option that does not call for substantial budget cuts in other areas to make the scenario work. The second option would take the proposed operating budget out of balance by increasing the shortfall by $2.4 million. The third option would be more expensive, forcing a $4.3 million shortfall, and the fourth option would be the most expensive, resulting in a $6.4 million shortfall. Hanzaker noted that on Feb. 19 administration will bring forward for School Board consideration possible cuts designed to make some of the options more workable. Not inconceivable, he said, would be the recommendation of a furlough for employees. A one-day furlough for all employees would save close to $2.5 million.
Compensation Issues/Unified Scale
John Mirra, assistant superintendent of human resources, gave an overall review of the division's compensation programs including a presentation that addressed compensation challenges inherent in the unified scale. For both the teacher and unified salary scales there have been significant challenges as a result of compression. Compression occurs when there is little or no difference in pay between employees regardless of their skills and/or experience. For example, compression typically takes place when an individual with less years of service is hired at a salary level similar to those with more experience. Mirra noted that VBCPS had adjusted the teacher salary scale in 2006 to address issues of inequity. This "fix" cost the division approximately $14.5 million. However, there was no money left to address compression issues on the unified pay scale. VBCPS is now experiencing significant challenges in hiring administrators because the average salaries for some of the division's administrators are typically lower than neighboring divisions'. Another example is that some VBCPS assistant principals would make more money if they returned to the classroom with a reduced work schedule. Mirra told the School Board that effective succession planning for leadership is becoming more and more difficult as compression issues continue to be a reality. Several Board members expressed the opinion that addressing the unified scale would soon need to become more of a priority.
The School Board will continue budget deliberations throughout the month of February and is scheduled to adopt a budget in March. That budget will then be submitted to City Council which will then begin its own deliberations.
On Tuesday, Feb. 5, Superintendent James G. Merrill presented the School Board with a $680.4 million operating budget proposal. Following is a brief summary of that proposal. However, a full copy of his PowerPoint presentation and remarks are now posted as is his letter of transmittal included in the budget document provided to the School Board.
- VBCPS began the budget development process facing a shortfall of almost $32 million.
- The strategic transfer of $14 million from savings and $2 million from Sandbridge Tax Increment Financing (TIF) bought down this shortfall to $15.9 million.
- To close that $15.9 million gap Dr. Merrill recommended a number of measures. These included: raising class sizes at the secondary level (grades 6-12) by a .25 student ratio; freezing all vacant central office positions with an eye to eliminating six to 10 positions; and cutting all non-personnel budgets by 5 percent. (This is the fourth year that VBCPS has had to resort to this approach. The cumulative cuts amount to 13 percent since FY 2009-10.)
- Other strategies that will address the shortfall are reducing baseline budgets to account for staff turnover and reduced enrollment, and recouping some savings though the implementation of the new high school master schedule that will go into effect school year 2013-14.
- The proposal also recommends a 2.5 percent salary increase for all eligible employees. However, recent General Assembly action ultimately could require some change to this recommendation. Last year the General Assembly mandated that employees participating in the Virginia Retirement System (VRS) contribute 5 percent of base salaries by 2016-17. School divisions had the option of phasing in the required 5 percent contribution or making it effective immediately. In either case, divisions had to provide a corresponding salary increase to offset the contribution. VBCPS chose the phase-in option, so VBCPS employees began contributing 1 percent of their base salaries into VRS this fiscal year. The Superintendent's Estimate of Needs for 2013-14 addresses year two of the required phase-in by recommending a 2.5 percent salary increase that would be executed this way – 2 percent allocated to the required VRS contribution with the remaining half-percent becoming the net pay increase for employees. However, current legislation before the General Assembly could change that plan because it may not allow divisions to earmark state-provided salary funds to offset VRS contributions. This means that administration will have to revisit the 2.5 percent recommendation to account for the required increase for year two of the VRS contribution. We'll post updates about this pending legislation on this page along with details of how it may change the VBCPS budget proposal.
The ability to address a large shortfall without a significant negative impact on services to children is the direct result of the school system's prudent fiscal practices. Cost-cutting measures implemented over the years and savings retained from those strategies were crucial in helping VBCPS shield classrooms from devastating cuts. As a matter of record, the school system has moved $37 million out of savings into the last three years' operating budgets. Minus that ability, stakeholders would be faced with a much different school system than what they presently are enjoying.
Following Dr. Merrill's presentation of the Superintendent's Estimate of Needs, Chief Financial Officer Farrell Hanzaker provided the School Board with an overview of the proposed Capital Improvement Program (CIP) budget. This budget is the school system's six-year plan for addressing construction and building needs. An overview of that presentation is included below:
- The six-year CIP is updated each year to reflect any adjustments in funding or timelines for projects.
- The CIP is based on the Long-Range Facilities Master Plan adopted in 2007.
- The new appropriation for the six-year budget (FY 2013/14-2018/19) is $217.3 million, which is $10.5 million less than the current six-year plan.
- This $10.5 million reduction is necessary to address decreasing funding streams, which include(public facility revenue bonds, the Sandbridge TIF and PayGo contributions to the CIP. (Note: PayGo contributions are transfers out of the operating budget into the CIP, which allow the school system to buy down debt service and thus increase the capacity for the issuance of bonds for other projects.)
- As a result, recommendations include scaling back on summer renovations and delaying work on the next round of school modernization/replacement projects. Specifically, plans are now to begin work on Thoroughgood Elementary and Princess Anne Middle School in FY 2016-17 and Princess Anne High School in 2017-18.