Ann Arbor Public Schools is facing financial difficulties that will require $25 million in budget cuts for the 2024-25 school year. Interim Superintendent Jazz Parks outlined the financial issues in an open letter to the district on March 13, writing that the budget cuts will necessitate staff reductions.
According to Parks’ letter, issues with the school district’s budget stem from three main causes: a 480-member increase in staff over the past decade, a 1,123-student decrease in enrollment over the past four years and a general increase in staff pay.
Parks wrote that she authorized measures to address the budgetary difficulties, including a hiring freeze, reduction in central office and administrative positions, review of budgets for potential cost savings and renegotiation of contracts with vendors who do business with the school district. The district will also conduct a review of how the issues occurred and will make decisions about staff reductions carefully.
“Board of Education President (Torchio) Feaster has asked for — and I have continued — a full review of how this occurred so that this does not happen again,” Parks wrote. “Despite our best efforts, the magnitude of the budget challenge we are facing will require us to make staff and program reductions. I assure you I will prioritize making decisions with our team in a way that minimizes the impact on classrooms and student learning.”
In November 2023, a routine financial audit of the district showed the AAPS general fund balance — the amount of the fund remaining at the end of the fiscal year — had dropped to 4.06% of the district’s total expenditures. When a Michigan school district’s end-of-year fund balance falls below 5% of its total budget, the state’s Early Warning Legislation is triggered. Feaster told The Michigan Daily the district received a letter from the state with a warning they could be subject to state oversight if they do not improve their fund balance.
“The state, looking at the numbers they have on our district, has sent us a note that we were under 5% last year, and they predict we’re going to be under 5% again this year,” Feaster said. “What the state is asking us to do is to provide a plan to them as for how we’re going to rectify the issue. If we’re under 5% for two years in a row and we don’t provide them with a sufficient plan, the state can come in and (put) an emergency manager in place.”
The district has until April 15 to come up with a plan, according to comments from Marios Demetriou, former AAPS chief financial officer, at Wednesday’s BOE meeting. Feaster said an emergency manager could mean serious changes to the way the district operates.
“That emergency manager can void the union contracts with our teachers,” Feaster said. “They can make the terms that they want to make and make the adjustments that they want to make, and I personally want to protect the character of this district.”
Feaster told The Daily he initially thought they would be on track to meet the 5% threshold for the next academic year. When Parks recruited Demetriou to evaluate the district’s finances after the district’s previous CFO left midway through the school year, Demetriou found AAPS was on track to have a 2% fund balance by the end of the fiscal year.
Demetriou found that a $14 million, one-time state contribution toward the district’s pension fund — which the district had received the previous year — had mistakenly been added to the budget for this fiscal year as revenue. When the BOE made their initial budget in June for the 2023-24 school year, they were aware that they needed to bring their balance up above 5% but was not aware of this mistake or of the fact that they were on track to end the fiscal year with a 2% fund balance. BOE trustee Jeff Gaynor wrote in a Facebook post that the error meant the board was not able to act on the budget issues any earlier.
“While it’s a data error, not a loss of actual money — it listed money we expected to get, but didn’t get — If that $14 Million was not included in the proposed budget, the fund balance would not have looked as promising as it did,” Gaynor wrote. “We would have been alerted and might have acted earlier.”
Michigan Schools Business Officials recommends school districts have an end-of-year fund balance equal to 15-20% of the district’s budget, and AAPS’s board policy requires them to have an end-of-year balance between 6% and 15%. A presentation given by Demetriou to the BOE at their March 13 meeting showed that the district has not had a fund balance above 10.17% in the past 10 years. The presentation also noted the AAPS fund balance has decreased over the same decade, while, on average, school district fund balances have increased statewide.
Lena Kauffman, a mother of three AAPS students and previous candidate for the BOE, said she feels the district’s financial issues stem partly from the trust they placed in former superintendent Jeanice Swift to handle budgetary issues and from a tendency to end fiscal years with a low balance.
“One of the things that I think the community definitely would probably want them to handle better going forward is a little less trust in the superintendent and more critical analysis of the budget,” Kauffman said. “It is sort of astounding that year after year, the trustees said, ‘Oh, it’s fine that we’re running at this very low fund balance,’ and not asking a whole lot of questions about that. A big mistake like this can happen. If you’re only barely above the limit to trigger state oversight, it’s a risky way to run your district.”
The BOE voted at their meeting Wednesday night to offer a permanent superintendent contract to Parks, forgoing a final round of interviews with other superintendent candidates. Feaster said he hopes the decision will allow Parks to focus her attention on solving the district’s budget issues.
“Being able to offer her a permanent contract as superintendent will allow her to focus her attention on our current fiscal crisis,” Feaster said. “She sees all of the details surrounding our problem, and she’s been here long enough to know where we can handle reduction, where we can’t handle reduction and what possible reductions there are outside of people.”
Between 2013 and 2018, AAPS enrollment increased by 1,512 students, even as enrollment in Michigan as a whole decreased, according to a report from December 2023. Beginning in 2020, however, the district experienced a decrease in enrollment by 1,024 students, with the sharpest decreases occurring between 2020 and 2022. State funding for school districts in Michigan is based on the number of enrolled students, meaning a decline in enrollment leads to a decline in funding.
Coinciding with this decrease in enrollment was a 480-person increase in district staff, as well as pay increases. The Ann Arbor Education Association negotiated a 2% staff raise for the 2023-24 school year, as well as an increase by one step in the district’s pay scale for all staff. According to Demetriou’s March 13 presentation, these raises and the benefits that went with them cost the district a total $13.1 million.
At the Wednesday BOE meeting, AAEA president Fred Klein criticized Parks’ decision to list staff raises as a reason for the financial crisis, saying Ann Arbor teachers have not received a cost of living pay increase since 2006. He told The Daily the AAEA has asked the district to decrease staff costs in the past, an action he believes would have prevented the current crisis.
“In the teaching ranks alone, we have about 100 a year that retire or resign,” Klein said. “We thought that’s a natural way to reduce the number of staff, which would then enable the district to be able to pay teachers at least cost of living increases”
Parks’ letter, however, indicates that some layoffs will be necessary, given the magnitude of the financial issues. The BOE authorized the superintendent to send layoff notices to the ASCSA, a bargaining unit who have a contract with AAPS outlining pay for coordinators and supervisors. ASCSA’s contract stipulates that members must receive layoff notices 90 days before the end of the school year. At Wednesday’s meeting, BOE members discussed approving layoff notices for other bargaining units at later meetings. Feaster said he understands the difficulty layoffs will cause for AAPS community members and said he and the board will make budgetary decisions carefully.
“I am sorry that our teachers and staff and families are having to go through this situation,” Feaster said. “When I took this appointment on the board, I did not know this was gonna be an issue. I never anticipated having to deal with a $25 million shortfall. But we’re here now, and I’m going to do everything I can to help make the reasonable decisions for these reductions that are going to be most beneficial to our students, staff and families.”
Daily News Editor Abigail VanderMolen can be reached at vabigail@umich.edu.