The Wisconsin Policy Research Institute today released a new article by me, titled “MPS’ Looming Fiscal Crack-Up.”  The basic point is that the Milwaukee Public Schools (MPS) face a near impossible fiscal challenge over the next ten years.  The problem is that retiree health benefits costs are growing at a faster rate than the district’s capacity to raise revenue through state aid and property tax.

In English, this means MPS as an entity will be receiving more public support, but will have less money to spend in the classroom.  The scariest aspect of this situation is that there is little MPS can do to fix the problem.  A few points:

First, this article is not meant to be anti-MPS by any means.  In fact, today’s quote from MPS superintendent Greg Thornton shows he gets the problem.  From the Milwaukee Journal Sentinel:

“The cost of doing business for Milwaukee Public Schools and Wisconsin is relatively high,” Superintendent Gregory Thornton said. “But because of legacy and structural costs, we were not geared toward driving those dollars back into the classroom.”

To Thornton’s credit, he has done more than any previous leader I can find to slow the uptick in committed revenues.  He took action to freeze salaries, instituted furlough days, increased employee benefit contributions, and ended a sweetener pension.  These moves improve the situation, but do not fix the structural problem.

Second, this article does not assign blame.  Frankly, fault is irrelevant.  The rising cost of health care is a major culprit, the actions (and inactions) of previous boards and state legislators are culprits, and paradoxically teachers that did nothing more than retire with the benefits they were promised are the culprit.  The point I hope to get across in this piece is that the problem is not going to go away no matter how much we assign blame or clamor for tough decisions.

Third, the future revenue and cost estimates are reliant on informed assumptions.  I assume MPS’ per-pupil revenue limit growth mirrors the previous decade, and that district enrollment declines continue at a steady pace.  I also take district five-year estimates of health and second pension costs (from MPS board documents) out an extra five years.  Finally, I assume pension cost trends (which are under control, to MPS’ credit) hold over the next ten years.

All of these assumptions could be off, hence I ran a few alternate scenarios where revenue limits increase at a higher rate, and enrollment declines slow.  Even then, the structural problem remains.  My point is things may be marginally better or worse, but my assumptions would have to be completely off the mark to reverse the basic problem.  I suppose all current MPS fiscal and enrollment trends could change, or a national health care system could be instituted, removing the district’s major cost-driver, but both seem extremely unlikely.

Fourth, I focus on state and local property tax because that is the district’s primary source of revenue, and the one that is driven by enrollment.  MPS does receive federal and state categorical aids that may temper some of their fiscal stress, but both of these have declined in recent years and it is unlikely that program specific revenue can save the district.

Lastly, I offer no preferred solution.  I detail what MPS appears to be doing, which is educating more kids in non-MPS seats in order to generate surplus revenue for the district.  Though currently being done a small-scale, on a large scale it could make the district sustainable long-term.  Another solution is a state bailout; taking a $2 billion dollar health liability off of MPS’ books would put the district in a better position long term.  One option I do not think is viable is bankruptcy.  Even with a change to Wisconsin law allowing municipal bankruptcy MPS is unlikely to become insolvent anytime soon.  As long as the district has students, it has a source of revenue.

I am hopeful that the article will serve as a wake-up call for those with a preferred solution.  If you have one, it is time to start advocating for it.  Though there is no fiscal cliff, annual budget challenges and continued fiscal deterioration are likely to continue until something dramatic is done.