Chairman Gray and members of the Committee, thank you for the opportunity to testify today. My name is Ed Lazere, and I am the executive director of the DC Fiscal Policy Institute. DCFPI engages in research and public education on the fiscal and economic health of the District of Columbia, with a particular emphasis on policies that affect low- and moderate-income residents.
The announcement in September of a $40 million-plus budget gap in the DC Public Schools came as a surprise to many DC residents and policymakers. The resulting Reduction in Force process, occurring just a month into the school year, has been disruptive, as any RIF is.
These events naturally lead to questions of what happened and why we didn’t know earlier. While I am not sure that we will be able to answer all of those questions completely, I believe there are important lessons to help avoid similar problems in the future.
My testimony today will focus on three issues. First, it seems that DCPS officials should have been aware of some of the factors behind the budget shortfall before the start of the school year ‘ which suggests the problems could have been addressed earlier. Second, the DC Council action to cut $17 million from the school budget three weeks before the start of school compounded other underlying budget problems. Even if the Council budget cut was not the main factor behind the shortfall, it exacerbated the problem. Third, the DCPS budget, like the budget for many agencies, suffers from an incredible lack of transparency. Improving the transparency of the budget materials and budget process is critical to avoiding future problems.
What occurred this fall is in some ways a standard case of an agency facing “spending pressures,” which means that an agency finds its current operational expenses exceed its allotted budget. This can happen for many reasons, including unanticipated increases in demand for services, higher than expected costs for individual services, or poor fiscal management. Chancellor Rhee has stated that DCPS went into this school year facing $821 million in expenses and a budget of $780 million.
Mayor Fenty’s FY 2010 budget request for DC Public Schools was less than $821 million, as was the budget approved by the Council in June. This raises the question of when DCPS knew that its expenses for FY 2010 would total $821 million, and why they did not seek a budget of that size or propose savings to keep within the Mayor’s proposed budget level. Statements from DCPS indicate that $23.5 million in expenses reflect the costs of paying for teachers who were left without a classroom due to school closings and restructuring but remained on the DCPS payroll ($20.5 million) and leave and severance costs of separated employees ($3 million).
The school system may not have had a precise estimate of the number of teachers without classrooms on its payroll in 2010, since some of them could have been picked up during summer hiring at other schools. Yet it seems that DCPS officials should have anticipated some level of excess employees, especially since many of them had been on the central office payroll for a while. The fact that many of these teachers were offered as so-called “gifts” to local schools over the summer further suggests that this budget problem should have been recognized earlier.
There also are legitimate questions as to why this information was not revealed during the development of the FY 2010 budget this past spring. Again, if DCPS knew it was carrying a number of teachers in its central office budget, this should have been made clear during budget hearings.
It is possible that DCPS officials felt that the steps it took were the only way to reduce the number of excess teachers while also allowing principals to hire the teachers deemed best suited for their schools. If that is the case, it suggests the city needs to find a new way to address the issue of excess teachers.
Moving on to my second point, whatever budget problems DCPS faced after the 2010 budget was approved in June, the DC Council decision on July 31 to cut $17 million made those problems worse. (DCPS documents refer to $20.5 million in cuts, which includes $3.5 million in the initially approved 2010 budget that was set aside until the enrollment audit is completed. Clearly, DCPS officials knew of this cut before the start of the school year and could have addressed it.) Some $8 million was a cut in per-pupil funding, and $9 million was a 50 percent reduction in summer school funding. It appears that DCPS decided to maintain the full summer program and instead allocate the full $17 million cut during the school year, although I have not seen any confirmation of that from DCPS.
Whether the correct figure is $17 million or $8 million, the fact is that the DCPS budget was cut just weeks before the start of the school year. School officials likely had developed budgets for the school year based on the initially approved budget, which means that any reduction would require them to scale back planned expenses. Budget cuts lead to service reductions, something that is especially important to acknowledge in an economic downturn when many cuts are being made. We should not be surprised, for example, that the DC libraries have cut their hours, when their budget was cut substantially. Certainly some budget reductions can be absorbed through greater efficiencies, but to suggest that all budget cuts can be dealt with this way is not accurate.
My final point relates to the issue of transparency. With an open budget process and budget documents that provide clear and useful information, there simply should not be huge budget surprises. Even a cursory glance at the information on DCPS in the city’s FY 2010 budget, however, reveals an unacceptable lack of clarity. This problem is not unique to DCPS, but it appears to be particularly serious.
One problem is that line items in the budget are not very clear and are not well explained in the narrative section. For example, the DCPS FY 2010 budget includes $225 million for “general education” and $10 million for “general education staffing.” The budget narrative says that “general education staffing” covers “teachers for general education,” yet clearly $10 million is not the cost of DCPS teachers, and the line item has zero personnel affiliated with it. In another example, the central office includes $5 million for “management, direction, and oversight,” but this is on top of $71 million for the Chancellor’s office, executive leadership, and administrative and operational support for the schools. It is not clear what this $5 million supports.
Second, the line items appear to change from year to year (many line items show some funding in 2009 and no funding in 2010 or vice versa). Moreover, funding for many individual line items swings dramatically from year to year with no explanation. Why is the textbook budget $2 million for FY 2010 compared with $8 million in 2009? Why is the early childhood budget $41 million in 2010 compared with $59 million in 2009? There may be very good reasons for the changes, but no explanations are provided in the budget document. In the budgets for most agencies in the DC budget, there are descriptions of new initiatives each year. The only initiative explained in the DCPS FY 2010 budget deals with changes to the per-pupil funding level for some groups of students.
Third, the budget includes little performance data to help residents and policy makers to connect dollars spent with services delivered. The performance measures include goals for student achievement on standardized tests, for example, but no information on the levels of various services provided (such as the number of children getting selected services) or on the efficiency of service delivery.
These issues plague other agencies as well, but the problems appear especially egregious in the case of DCPS. It is evident that the budget document is not something DCPS officials use to manage their expenses or meet their goals. I assume that DCPS uses other information internally both to track what it is spending and to measure success in meeting various goals.
A related challenge is that the DCPS budget appears to be revised significantly during the year, yet these revisions are not made available to the public in a user-friendly way. The budget proposal for the upcoming year only shows the current year’s original budget, without reflecting any shifts between programs and services.
The DC Fiscal Policy Institute has long argued that the District needs to revise its budget format, including line items that tie directly to services and programs in a recognizable way, clear narrative descriptions of the line items, explanations of major budget changes from year to year, and performance measures that connect dollars spent with services delivered.
The DC Public Schools budget needs all of these. Given the importance of the public schools to many residents and every neighborhood, a higher level of budget transparency should apply. This could include presentation of a draft budget, as well as regular updates on changes to the budget and actual expenses.
It is difficult to know whether a more transparent budget would have helped identify these problems earlier, but it seems likely that it would. The fact that the central office has had teachers on its payroll is not evident in the DCPS budget, for example.
Thank you again for the opportunity to testify. I am happy to answer any questions you may have.
 See DC Fiscal Policy Institute, Ten Ways to Improve the Transparency of the DC Budget, 2009.