A Community Update on the School Division's Budget Process for FY 2014-2015
As Virginia Beach City Public Schools (VBCPS) moves forward in the budget development process for FY 2014-15, this page will keep stakeholders updated along the way. As a reminder, the process continues through mid-May, concluding after City Council approves a municipal budget that includes an expenditure plan for public schools. This page will address School Board discussions and decisions as well as pertinent funding issues that may arise in coming weeks at the City Council and Virginia General Assembly levels.
A new fiscal year budget is now in effect in Virginia Beach City Public Schools. Below is a summary of some of its features:
- The operating budget will stand at $703.4 million. This is slightly larger than what the School Board adopted in March because the City of Virginia Beach was able to provide an additional $725,000 as a result of an increase in city revenues. The City Council approved these additional monies on Tuesday, July 8.
- The $725,000 is being used to augment the planned employee salary increase, from 2.79 percent to 3 percent. This improvement is a result of a concerted effort on the School Board’s part to improve the original salary increase. The compensation adjustment will be executed this way: 1 percent will be used to address the required employee contribution to the Virginia Retirement System. The balance of the increase will be factored into employees’ base salaries. Compensation adjustments will go into effect one month after the start of individual employees’ contract year -- August for 12-month employees; September for 11-month employees and September/October for 10-month employees (date contract dependent).
- Also included in the FY-2014-15 budget is $900,000 to adjust the salaries of those employees paid significantly less than their skills and years of experience warrant based on their current position on the scale. These equity adjustments will affect about 1,700 of the 4,807 employees on this scale. These adjustments represent the some of the monetary difference (increase in pay) needed to correct a pay disparity between employees on same grade with the same or comparable experience.
- Bus drivers will move up on the pay scale from Scale-8 to Scale-9 based on both their scope of responsibility and market factors. The cost of this adjustment is approximately $200,000.
According to Chief Financial Officer Farrell Hanzaker, the fact that the School Board is able to enhance the employee salary increase is notable since the Commonwealth of Virginia is experiencing a $300-$350 million shortfall here at the end of the fiscal year. This shortfall is likely to impact the school system’s budgeting process for the 2015-16 fiscal year.
In a workshop session held Tuesday, June 3, the School Board discussed the challenge of a budget impasse at the state level. As background, the House and the Senate both have passed biennial budgets. However, these budgets have not been reconciled into one approved biennial budget because of a political division over whether or not to expand Medicaid in the state. This situation has become more complex because the Commonwealth’s revenue receipts for May are approximately $300 to $350 million below projections. Since the end of the fiscal year is June 30, this means the state may end the year with a considerable decline in revenues – a decline that will have to be addressed. A strategy that might have to be employed is to access the state’s Revenue Stabilization Fund, which is essentially a rainy day fund. However, state law requires an enacted budget be in place before those funds can be accessed. At this writing, there is not an enacted budget, so the possibility exists that the impact of a $300 to $350 million shortfall will not be able to be addressed by the Revenue Stabilization Fund. This scenario obviously would require localities and school systems to reexamine their adopted budgets.
School Board Chairman Dan Edwards advised the board that he had participated in a statewide conference call on this issue and that the lack of an adopted state biennial budget and a significant shortfall in state revenues could have a negative impact on the funding localities and school systems receive, particularly for salary increases. Later in the evening, the School Board adopted a resolution urging the General Assembly to enact a biennial budget. A copy of that resolution is now posted.
In a joint meeting held March 4, the Virginia Beach School Board and City Council reviewed revised recommendations for their 2015 employee health care plans. The new recommendations were reworked to lower the expected cost increases that employees would experience.
A presentation of the new options was made by Ken Jeffries of Mercer, a health care consultant that worked with the Benefits Executive Committee (BEC) to design the 2015 plan. A copy of that presentation is now posted. However, following is a brief summary of that presentation:
- Health care costs continue to escalate. With an average annual increase of about 8 percent, the gross cost would double in the next 10 years to more than $300 million. These cost increases are not sustainable; thus the only ways to address them is to have employees share more of the cost and to make plan design changes.
- The projected cost for 2015 is $151.2 million (the 2014 cost is $138.6 million) if no changes were made to the plan design or contribution. Health care reform has contributed to the rising costs. It will cost the city and the schools an additional $4.7 million to address required eligibility changes (such as providing health care for part-time employees who work at least 30 hours a week), a required plan design change (to apply pharmacy copays towards the out-of-pocket maximum) and new fees (the city and schools now have to pay an administrative governmental fee of $63 per individual covered by our health care plans).
- The original BEC recommendation would have allowed the city and the schools to avoid $15.7 million in additional costs. The new recommendation still allows both organizations to avoid costs, but at a much lower rate, $8.9 million.
- For the PPO Plus Plan and the PPO plan, the new deductibles would be $1,000 (individual)/$2,000 (family) and $1,500 (individual)/$3,000 (family), respectively. In comparison the original recommendations were $1,500/$3,000 and $3,000/$6,000. The POS plan would remain as recommended: $500/$1,500.
- The highest amount an individual subscriber would pay under the new plan would be $3,500 or $7,000 on the family plan. The previous recommendation had set those limits at $5,000 per individual and $10,000 per family. Pharmacy co-pays would apply to the medical out-of-pocket maximum.
- All plans will cover chiropractic, hearing aids and routine eye care. However, none of the plans will cover acupuncture, cosmetic surgery, non-emergencies outside the U.S., private duty nursing, infertility treatments, bariatric surgery or child dependent obstetrics (dental and long-term care available through separate plans)
- There are lower monthly premiums in two of the three plans. However, please note that these rates have not been finalized and are subject to some change.
- The $750 additional cost for not participating in Wellness for Life is recommended to be lowered to $500.
- Effective Jan. 1. 2015, spouses would not be allowed to enroll in the school system’s health plan if they have access to group insurance through their employers.
- The recommendation to increase the years of service required to 30 for eligibility for health care in retirement was revisited. Twenty-five years would continue to be the benchmark for providing employees with eligibility for and a school system contribution to the retiree health plan.
- Employees hired on or after July 1, 2014 must have at least 15 years of service to stay on the school system’s health plan upon retirement, but would not be eligible for a school system contribution and therefore would be required to pay 100 percent of the cost of the premiums.
- The BEC will set final rates in April. The Consolidated Benefits Office would use the May through October time frame to communicate the many details of the new plans.
School Board adopts $705 million operating budget and $316.6 million CIP Budget
On Tuesday, March 4 the School Board adopted a $705 million operating budget for 2014-15 and a $316.6 million six-year Capital Improvement Program (CIP) budget. Below is summary of these expenditure plans for public schools.
- While there was some increase in state funding, it was all required to cover the 16 percent increase in Virginia Retirement System (VRS) costs.
- The school system is receiving approximately $7 million more than was originally anticipated from the city-schools revenue sharing formula. All of those additional funds have been allocated to employee compensation and employee health care. Under this proposal eligible employees would receive a 2.79 percent increase to their base salaries. This would include the mandatory 1 percent increase to the employee contribution to VRS.
- Two other elements of compensation adjustments are an incremental approach to fixing compression and scale placement problems for non-teaching staff on the unified scale. The Board approved $900,000 to adjust those employees paid significantly less than their skills and years of experience warrant based on their current position on the scale. These “equity adjustments” will affect about 1,700 of the 4,807 employees on this scale. These adjustments represent the monetary difference (increase in pay) needed to correct a pay disparity between employees on the same grade with the same or comparable years of experience.
- The Board also moved bus drivers up on the pay scale from Scale-8 to Scale-9 based on both their scope of responsibility and market factors. The cost of this adjustment is approximately $200,000.
- The School Board also agreed to identify an additional $1.9 million to lower both the proposed deductibles and the employee cost of employee health care. In fact, the total additional cost of the health care subsidy will be $3.8 million on a full-year basis.
- This plan includes the sunset of Project X-CD, a middle school program for at-risk students, since the longitudinal data did not validate a long-term impact in the three middle schools where it operated. The Board allocated the $1.6 million annual cost of this program to system-wide improvements that should have a positive impact on more schools.
- The state of the Capital Improvement Program (CIP) remains a concern. At $316.6 million, the CIP is less than half of the approved $635 million it totaled five years ago. The elimination of all state support, including lottery funding and the inability to allocate operating funds to the CIP calls for another funding source for the school system’s inventory of 85 schools. At this pace, the school replacement cycle has slipped to a century and a half. However, there are important projects included in the CIP. A consolidated Kemps Landing Magnet-Old Donation Center is now under design. In addition, modernization plans for John B. Dey Elementary School will get under way as well.
The School Board-approved operating and capital budgets will be reviewed by City Council. City Council will vote on a municipal budget, which will include a schools’ expenditure plan, on or before May 15.
- Chief Financial Officer Farrell Hanzaker noted that city revenue projections indicate the school system will receive an additional $7.2 million through the city-schools revenue sharing policy. These additional funds are the result of a projected increase in tax collections.
- Mr. Hanzaker recommended that the additional monies be allocated toward improving the 1.34 percent employee salary increase that was originally recommended in the Superintendent’s Estimate of Needs. Specifically, he recommended that all eligible employees receive a 2.79 percent salary increase (which includes the original 1.34 percent proposed). As a reminder, 1 percent of the 1.34 percent recommendation would be allocated toward the employees’ share of the required contribution to the Virginia Retirement System (VRS). This is the third year in which employees are required to pay an additional 1 percent of their base salaries into VRS. The state has required that employees pay 5 percent of their base salaries into VRS by the 2016-17 fiscal year. Virginia Beach City Public Schools has been phasing in that requirement at the level of an additional 1 percent per year.
- In other compensation news, Hanzaker informed the board he had set aside almost $900,000 to be applied toward making equity adjustments on the unified scale. This money will help address adjustments for approximately 1,699 of the 4,807 employees on this scale. An equity adjustment represents the monetary difference (increase in pay) needed to correct a pay disparity between employees on the same grade with the same comparable years of experience.
- The School Board and administration also agreed to set aside $197,000 to institute a reclassification of school bus drivers, moving them up from a grade 8 on the scale to a grade 9.
On Project X-CD
The School Board spent considerable time discussing the possible sunset of Project X-CD. This program has an annual cost of about $1.6 million. At a previous School Board workshop, Board members had posed some additional questions about the possible sunset and subsequent reallocation. In response, Assistant Superintendent for Planning, Innovation and Accountability Dr. Donald Robertson presented a brief summary of academic performance results for Project X-CD. Among his points were:
- The results for the Project X-CD students were compared with the results of a matched group of non-Project X-CD students who had similar academic histories
- A total of 28 comparisons were made on course performance, SOL test performance and SRI performance in middle school.
- Fifty percent of those comparisons indicated the Project X-CD students performed better than those not in the program.
- When looking only at the standardized assessments in middle school such as the SOL and SRI assessments, 31 percent of the comparisons favored Project X-CD students, whereas the students not in the program outperformed Project X-CD students in 69 percent of those comparisons
- In looking at high school data, higher percentages of non-Project X-CD students enrolled in honors English. Further, there was also evidence that non-Project X-CD students were more likely to be enrolled in more advanced math course sequences.
- Based on 37 specific comparisons of high school performance levels, the Project X-CD grade 9 students performed better than the comparison group 52 percent of the time. At grade 10, 50 percent of the comparisons favored Project X-CD students. Overall, across both grades, 51 percent of the comparisons favored Project X-CD students.
Dr. Robertson noted in his presentation that administration would have expected Project X-CD students to perform better on a higher percentage of comparisons if the program were having a systematic effect on student outcomes. In addition, Executive Director for Differentiated Academic Programs and Professional Learning Dr. Veleka Gatling noted that the current budget proposal recommends reallocating those funds from three Project X-CD middle schools (Plaza, Corporate Landing and Larkspur) in a broader manner. New strategies would include implementing AVID at Corporate Landing Middle, Larkspur Middle and a school yet to be named (Plaza has an AVID program); adding a .5 reading teacher to each middle school (except Kemps Landing Magnet and Renaissance Academy); providing literacy professional development for 21 middle school reading teachers; providing a pool of substitute days for collaboration and professional development centered around math and literacy; adding one full-time math coach creating full-time positions at all three X-CD schools; providing a summer reading program for rising first and second grade students at 12 non-Title I schools; and providing professional development for 300 K-2 classroom teachers in research-based instructional strategies for effectively teaching struggling readers.
In Other Action
The School Board agreed to earmark an additional $1.9 million to help lower the cost of employee healthcare. In actuality, the total additional cost of the health care subsidy for employees will be $3.8 million on a full year basis.
It was noted the School Board and City Council will participate in a joint discussion on new health care recommendations March 4. The School Board is also scheduled to adopt the 2014-15 operating budget and capital improvement program budget that same day. City Council will vote on a municipal budget, which will include a schools’ expenditure plan, on or before May 15.
The School Board, in both its Feb. 11 and Feb. 18 budget workshops, discussed alternate approaches to health care recommendations for the 2015 plan year. As a reminder, recommendations were originally presented to the School Board and City Council in December 2013 and details were outlined for employees and participating retirees in a Jan. 9 Benefits e-Bulletin. Employees may want to revisit this information as a basis of comparison with the new options.
In the ensuing months, the School Board and City Council have received considerable feedback from individuals and employee groups. As a result of that feedback, the Benefits Executive Committee (BEC), which shaped the original recommendations, was asked to develop options that would help mitigate the financial impact on employees.
Chief Financial Officer Farrell Hanzaker, who chairs the BEC, and Director of Consolidated Benefits Linda Matkins made a presentation in the Feb. 11 workshop. While both cautioned that specific details will need to be resolved, highlights of possible changes were shared. These included:
- Lower deductibles in two of the three plans. For the PPO Plus Plan and the PPO plan, the new deductibles would be $1,000 (individual)/$2,000 (family) and $1,500 (individual)/$3,000 (family), respectively. In comparison the original recommendations were $1,500/$3,000 and $3,000/$6,000. The POS plan would remain as recommended: $500/$1,500.
- Lower out-of-pocket maximum amounts. The highest amount an individual subscriber would pay under the new plan would be $3,500 or $7,000 on the family plan. The previous recommendation had set those limits at $5,000 per individual and $10,000 per family.
- Lower monthly premiums in two of the three plans. Employees can access a chart on these estimated monthly rates here. However, please note that these rates have not been finalized and are subject to some change.
- The $750 additional cost for not participating in Wellness for Life is recommended to be lowered to $500.
- Effective Jan. 1. 2015, spouses would not be allowed to enroll in the school system’s health plan if they have access to group insurance through their employers.
- The recommendation to increase the years of service required to 30 for eligibility for health care in retirement was revisited. Twenty-five years would continue to be the benchmark for providing employees with eligibility and a school system contribution to the retiree health plan.
- New employees hired on or after July 1, 2014 would not be eligible for a school system contribution toward their health care upon retirement. Employees hired on or after July 1, 2014 with at least 15 years of service may stay on the school system’s health plan upon retirement but would be required to pay 100 percent of the cost of the premiums.
- All plans will cover chiropractic, hearing aids and routine eye care.
- None of the plans will cover acupuncture, cosmetic surgery, non-emergencies outside the U.S., private duty nursing, infertility treatments, bariatric surgery or child dependent obstetrics (dental and long-term care available through separate plans)
What is the next step? When will employees know what changes are going to take place on health care plans?
Recommendations will be formally presented to City Council and the School Board during a joint meeting scheduled for March 4. From there, a more definitive time line for implementation will be determined and communicated.
In other budget workshop action
Chief Human Resources Officer John Mirra gave an update on compensation issues. He outlined how the 1.34 percent recommended salary increase would affect the instructional pay scale and the unified pays scale. He noted that the entry level salary for teachers would increase .67 percent to $40,624 while other experience steps would increase 1.34 percent (based on current funding). For example, this would add another experience step to the instructional salary scale, making the top of the salary scale $69,835.The recommended FY 2014-15 budget sets aside $900,000 for experience-based equity adjustments for the unified scale. Mirra said that 1,706 employees have been identified as eligible. He also noted it would take $7 million to complete an equity adjustment of the entire scale. More discussion on compensation will take place in future budget workshops and will be reported on this page.
The School Board also received a proposal that would reallocate $1.6 million in Project X-Cd funds that are currently targeted for three middle schools (Corporate Landing Middle, Larkspur Middle and Plaza) in a broader manner. Recommended programmatic changes include:
- Allocating $386,766 toward the implementation of AVID at Corporate Landing Middle, Larkspur Middle and a third school yet to be named (Plaza is already implementing AVID)
- Adding a .5 reading teacher to each middle school (excluding Kemps Landing Magnet and Renaissance Academy); estimated cost, $503,524
- Providing literacy professional development for 21 middle school reading teachers through the University of Virginia’s Struggling Readers Academy; estimated cost, $21,000
- Providing a pool of substitute days for collaboration and professional development centered around math and literacy; estimated cost, $16,778
- Adding one full-time math coach position for the three current Project X-CD schools; estimated cost, $72,000
- Provide a summer reading program for rising first and second grade students at 12 non-Title 1 schools; estimated cost, $300,000
- Providing professional development for 300 K-2 classroom teachersin research-based instructional strategies for effectively teaching struggling readers; estimated cost, $300,000
At the Tuesday, Feb. 4 School Board meeting, Superintendent Sheila Magula and Chief Financial Officer Farrell Hanzaker presented the proposed operating budget for 2014-15 known as the Superintendent’s Estimate of Needs (SEON). Below is an overview of that proposal:
About the Proposed 2014-15 Operating Budget
The proposal stands at $697.8 million, which is $12.9 million more than the current operating budget. However, this additional funding will be needed to address higher Virginia Retirement System (VRS) costs and health care costs as well as increased personnel costs. These increased personnel costs are associated with adding positions to cover increases in student enrollment and increased building square footage.
- To ensure adequate funding in this budget proposal, the superintendent recommended the transfer of $16 million from the special school reserve fund and $2 million from the Sandbridge TIF into the operating budget.
- The VRS increase is projected at $6 million and the health care plan increase is projected at $1.3 million.
- The proposal recommends a 1.34 percent salary increase for all eligible employees. This increase will help offset the additional 1 percent VRS contribution employees must pay next year. As a reminder, the state mandated three years ago that school divisions and municipalities begin requiring employees to contribute 5 percent of their base salaries into VRS. However, the state allowed localities and school systems to choose their implementation methodology for employees. They could either require the 5 percent contribution in one year or address it through a phased approach. The school system has been phasing this requirement in at 1 percent annually, until the contribution reaches the required 5 percent in fiscal year 2016-17.
- The gross cost of the 1.34 percent employee raise to the school system is more than $6.5 million. However, the school system’s net cost for this raise is reduced by $4.3 million. This reduction in cost is possible because employees must pay another 1 percent into VRS next fiscal year. In addition, $900,000 is being set aside to address equity issues on the unified pay scale.
- Cuts recommended to address projected expenditures include: Allowing Project X-CD to sunset, thus saving $1.6 million, and trimming the baseline budget by $9 million. Adjustments to that baseline were made by recouping savings from turnover and the subsequent hiring of personnel who, for the most part, have salaries that are lower than the individuals they are replacing.
- Dr. Magula noted progress will be maintained by strategic replacement of monies within resources. For example, $1 million has been set aside to provide a pool of funds for all middle schools to address the needs of students who are struggling with literacy. One important aspect of that plan will be to provide 13 schools with a .5 reading specialist (excluding Kemps Landing Magnet and Renaissance Academy). This funding will allow an expansion of literacy strategies beyond the current three Project X-CD schools.
- The budget proposal also allocates $600,000 for two other literacy programs at the elementary level. Three hundred kindergarten through second grade teachers are recommended to receive extensive professional development in instructional strategies for meeting the needs of struggling readers. In addition, a summer reading program would be developed to serve the 12 neediest, non-Title I schools.
- Dr. Magula noted the city’s time line for submission of the SEON means that the proposal is due prior to the state’s determination of the revenues schools will receive next fiscal year. In addition, the City of Virginia Beach will not have finalized revenues due to the school system under the revenue-sharing agreement. Consequently, there is a possibility that more funding may become available than what is being addressed in the SEON now.
- Dr. Magula told the board there were a number of important projects or initiatives that could not be accommodated in the 2014-15 proposal. These run the gamut from major infrastructure replacements to class size reduction efforts.
About the Proposed 2014-15 Capital Improvement Budget
Mr. Hanzaker presented details of the proposed six-year Capital Improvement Program (CIP) to the School Board. Below are highlights of that presentation:
- The CIP has one project under design – a consolidated Old Donation Center/Kemps Landing Magnet.
- The proposed modernization of John B. Dey Elementary School has been delayed from a 2018 completion to 2019. This school was originally proposed for a modernization that would have accommodated a 2016 opening.
- Thoroughgood Elementary School also has been delayed from 2017 to 2020.
- Full funding for Princess Anne High School has been delayed beyond the six-year CIP.
- The school system approaches its modernizations in the framework of a Long-Range Facilities Master Plan that was adopted by the School Board in 2007. Phase I of the plan addressed nine schools. Projects completed/started to date in that first phase are: College Park Elementary School, Kellam High School and Old Donation Center/Kemps Landing Magnet School.
- The proposed six-year CIP is $316 million, which is less than half of the approved $635 million total five years ago.
- The proposed CIP for 2014-15 is $35 million. This proposal marks the fifth consecutive year the school system has not had the benefit of state capital funding. In addition, it has been unable to provide PAYGO funds for the CIP. PAYGO funds are monies that are transferred into the CIP from the School Board Approved Operating Budget.
Schedule for Adoption of These Budgets
The School Board must adopt operating and capital budgets by March 4 and submit them to City Council. City Council will approve a final municipal spending plan, which includes funding for schools, no later than May 15. To view the PowerPoint presentation Dr. Magula and Mr. Hanzaker used to brief the School Board click here.