East Lansing School Construction Issues and Trade-offs for Community Consideration

Below is a copy of a document that provides an overview of the financial tradeoffs associated with ELPS configuration. I have also attached a pdf file containing the information below as well as the three appendices (which are not copied below).

Complete Document Including Text, Images, Charts, and three appendices - TO PDF

All Charts - TO PDF

This document contains the following:

1. An overview of the tradeoffs associated with the selection of capacity and school configurations.

2. A description of the current configuration, that which was proposed on the February 28th ballot and two alternative proposals. These alternatives are among a large set of proposals we would support if implemented in a fair manner.

3. Three appendices explaining: (1) why operating costs do not depend on whether or not a school is closed, when holding overall capacity constant; (2) the capital cost estimates of the alternative configurations proposed; and (3) the capital ELPS can raise for a November 2012 or February 2013 bond election along with the different funding sources.

We both believe that an intelligent investment of capital in the elementary schools could improve educational outcomes. The main means to achieve this, in our eyes, is to reorient the district towards lower operational and transportation costs, and higher average per-pupil revenue. Our goal is not to achieve lower instructional and student service costs. In fact, we believe understanding the tradeoffs can lead to an improvement in teacher-student ratios.

We also believe that the lessons of past capital investments should not be lost. Since 2000, the district has invested over $65 million to build and renovate High School and Middle school facilities that are significantly larger than needed for resident school-age children in the district. In fact, we currently cannot fill these facilities with resident and school of choice students. We would like a plan that not only avoids this mistake for our elementary schools, but lowers the cost to the district of the existing excess capacity. While buildings do not educate children, they can affect the average per pupil expenditure and revenue in the district.

Based on the information provided by the ELPS administration to the K-8 Facilities Committee and to the Michigan Department of Treasury, the current district capacity is between 3,600 and 3,700 students. While the initial bond proposal voted on February 28th proposed increasing capacity to over 3,900 students, the two alternatives we discuss involve a decrease in capacity. We do this to 1) avoid expensive unused capacity that costs the district teachers and 2) increase the incentives for nonresident families to move into the district and current resident families to stay in the district, since ELPS’s general fund receives over $1,000 more in state and federal funds for resident students as compared to nonresident students.

During the previous bond election campaign, the debate was focused on the pros and cons of one specific plan. We would like to move the discussion towards comparing several possibilities across the key dimensions so that we can maximize the educational return on any community capital investment. Specifically, we believe it is important to be clear about the likely tradeoffs (costs and benefits) associated with choosing school district capacity and different school configurations. We welcome others to propose alternatives in the hope that a set of reasonable proposals can be compared across key dimensions such as revenue per student, student-teacher ratio, student-administrator ratio, etc. The main reason we present the two alternatives is to demonstrate the detail required to effectively compare alternatives.

1) Capacity

FACTS:

· The current capacity in the entire district is either 3,594 or 3,704 students (based on information provided to the K-8 Citizen Facilities Committee or in the bond qualification application). Most elementary schools are “over” the calculated capacities (by approximately 6%) because the general fund determines class sizes – which are much larger than those used in the capacity calculations.

· The initial bond proposal voted on February 28th increased district capacity to 3,919 students.

· ELPS resident student enrollment has decreased steadily from 3,898 in 1995 to 2,640 in 2011. Total student enrollment has dropped from 3,603 in 2000 to 3,478 in 2011 due to the fact that school of choice enrollment has increased from 10 percent to 24 percent over this time period.

· The pessimistic 2016 ELPS total enrollment prediction is 2,954 students, the “most likely” prediction is 3,272 students, and the optimistic prediction is 3,624 students. Assuming school of choice enrollment at 22.7%, the “most likely” 2016 resident enrollment prediction is 2,519 students.

a) Resident students and capacity
One of the most basic questions of any renovation and rebuilding plan is: For how many students are we building space? In the face of declining resident enrollment over the last decade, maintaining a district capacity of around 3,650 K-12 students or increasing capacity to over 3,900, increases the risk of not being able to fill the schools with students and decreases the proportion of the capacity filled with resident students. This will lead to both higher per-pupil costs and lower per-pupil revenue (see below). Alternatively, reducing capacity would not only decrease per-pupil costs and increase per-pupil revenue (resulting in an improvement in teacher-student ratios), it would also decrease the capital required for renovation/rebuilding. The cost associated with reduced capacity is a slightly smaller high school class resulting in potentially a small reduction in elective course offerings. However, high school enrollment could still be kept above the 911 (2012/2013 MHSAA cut-off) required for Class A designation.

b) Nonresident students and capacity
As ELPSs increase the proportion of nonresident students, the amount of revenue per pupil the district receives declines. This occurs because ELPS’s general fund that pays teacher salaries receives over $1000 less in state and federal funds for a non-resident compared to a resident student. In addition, only residents in the school district pay the millage associated with the construction bond. Keep in mind that even with a modest reduction in capacity, ELPS will still have room for some non-resident/school of choice children. School of choice children provide an important way for East Lansing to make use of space that exists as class sizes fluctuate. Reducing capacity also increases the incentives out of district families have to move to the East Lansing district to attend ELPS. At the current district-wide capacity, school of choice families have a very good chance of entering the East Lansing schools without moving into the district. In fact, several grade levels in the 2009/2010 school year were not able to find enough school of choice students to fill the seats made available, resulting in those families that did apply having a 100 percent chance of getting into the district. The probability that a school of choice parent who applied for a place in Kindergarten was admitted in 2009/2010 was over 80 percent (see ``Community Forum #3 December 8, 2010’’ slides from K-8 Facilities Committee Final Report on ELPS website).

2) School Configuration

a) School closings and operating costs
A school closing only saves significant operating expenses if there is unused space in other schools to locate the displaced students. This does not hold for East Lansing elementary schools. (See Appendix A for a detailed explanation as to why the administration’s calculations are incorrect.) If one assumes that principals, teachers and other employees can be easily shared across schools, there are practically no savings. The slight reductions in utility, janitorial and secretarial costs associated with closing a school are offset by an increase in the transportation/busing costs. Even if one thinks that it is impractical to have a single principal responsible for multiple schools, the operating cost savings associated with a school closing are very minimal and rely upon reduced student services.

b) School closings and resident students
A potential cost of school closings is the incentive it provides for families to send their children to another district because they no long live near an elementary building or discourages families considering where to live in the Lansing area from moving into East Lansing. The decision to close a school cannot ignore this potential cost of reducing the number of neighborhood schools. Replacing the loss of resident students with school of choice students is not an even tradeoff because ELPS receives fewer dollars in operating expense for school of choice students.

c) School closings and construction costs
Fixing overall capacity, small neighborhood elementary schools would result in slightly greater construction costs. However, if district capacity was decreased per our alternative bond proposals, the construction costs associated with renovating/rebuilding all six elementary schools and building a small addition onto McDonald would be significantly less than those incurred if the February 28th bond proposal passed (see Appendix B). This cost savings is attributable to the fact that the February 28th bond proposal increased district-wide capacity to over 3,900 students, while our alternative involving six elementary schools proposes a moderate decrease in district-wide capacity.

d) School closings and Grade level configuration
How to configure the grade levels in the schools also includes a set of tradeoffs. More grades in a set of smaller schools mean more uncertainty about filling classes with appropriate number of students. For example, if the schools were to be configured as K-5 or K-6 and at least five neighborhood schools remained open, each school would potentially have just a couple of classes in each grade and in some years it might be challenging to get even class sizes. For example, if there are 34 students in 2nd grade in a school, classrooms of neither 34 nor 17 are attractive, but if you could make one class of 22 and another w/ 12 2nd graders and 10 3rd graders in the same class, this allows flexibility in class sizes without school reconfiguration. To avoid this split grade issue, ELPS could have certain elementary schools designated for Grades K-2 and others for Grades 3-5 or Grades K-3 and Grades 4-6 (different size schools is also a possibility). This would minimize the possibility of having too few students to fill a classroom, but add more frequent school transitions and busing costs. This configuration may also reduce the neighborhood feel of the schools. Similar to the initial bond proposal voted on February 28th, the alternatives we propose will result in classes with students in multiple grades.

e) 6th graders at the Middle School
A benefit associated with moving the 6th graders to McDonald is that it will increase their access to computer and science labs. Another advantage is that McDonald is overbuilt in terms of capacity. Currently, the Department of Treasury estimates McDonald’s capacity at 743 and there are only 521 students attending McDonald in 2011. If the 6th graders are moved to McDonald, it would only require adding a few extra classrooms because some of the existing capacity can be used to accommodate these 6th grade students. The two alternative bond proposals both involve having 6th graders located at McDonald. The cost of moving the 6th graders to the middle school is having 6th graders in a larger building with 7th and 8th graders, thus increasing the scale of the transition from 5th to 6th grade.

3) Other Issues


a) The High School, like McDonald Middle School, is overbuilt in terms of capacity. As noted, running excess capacity is expensive in that those operational dollars used to heat, clean and maintain that space could be used to hire instructional and educational support for students. Since ELPS has placed their offices at Timberlane up for sale and will need space, operational expenses could be reduced by moving their administration into the high school.


b) The ELPS should first identify the amount of money necessary to accomplish their goals, and then identify the lowest cost way of raising funds for capital updates. Once a feasible plan that meets the capacity needs of the district is identified, ELPS should consider a range of financing options. One option is the Michigan School Bond Qualification and Loan Program (SBQLP) that was considered in the February 28th vote. The ELPS administration received a letter from Tower-Pinkster stating that the district’s bonding capacity using the SBQLP is $36.5M if a bond is passed in November 2012 or February 2013 – based on maintaining a millage rate of 7. Assuming these figures are correct, ELPS has access to $36.5M+$6.43M= $42.93M using the SBQLP and the sinking fund money (perhaps slightly more because the amount in the sinking fund will increase). Alternatively, potentially cheaper sources include extending and borrowing against the sinking fund (perhaps using the Qualified Zone Academy Bond program, which can save interest costs) or obtaining a market rate bond and determining if the existing capital in the sinking fund or the proceeds from the sale of Timberlane can be used to facilitate a constant millage rate.


Current Situation and the Initial Bond Proposal


The table below identifies the current number of teaching stations per school and the corresponding “capacity” determination for each school (obtained from the loan qualification application the district submitted to the MI Department of Treasury).[1] In the table, the “capacity” calculation is followed by a column indicating the number of students per school in 2011. Notice that most elementary schools are “over” the calculated capacities (by approximately 6%) because the general fund determines how many teachers are able to be hired which in turn determines class size – which are much larger than those used in the capacity calculations.[2]

CURRENT TEACHING STATIONS - TO PDF


The initial bond proposal voted on February 28th had the teaching stations per school noted in the table below with the last column containing the “capacity” which were calculations in a manner identical to the above, Current Teaching Stations, table. While the actual capacity may be larger because of larger class sizes, we only present these conservative capacity numbers.

PROPOSED TEACHING STATIONS ON February 28th SCHOOL BOND REFERENDUM - TO PDF

There are three things worth noting on the above tables.

1. The proposed “capacity” in the entire district increases by 3919-3704=215 or 3919-3594=325 depending on whether the current “capacity” is based on information in the bond qualification application or that provided to the K-8 Citizen Facilities Committee. The picture below depicts the existing plans for McDonald with the separate 6th grade wing. It should be noted that If the current “capacity” is 743 and the 6th grade wing only contains 990-743=247 seats, then the district’s plan to stuff all the 242 6th graders into that wing and then have the existing part of McDonald with the 7th and 8th Graders at 70% capacity does not reduce excess capacity in absolute terms.


2. The probability East Lansing will ever be able to fill this capacity is basically zero. The “most likely” enrollment predictions provided in East Lansing’s loan qualification application suggests there will be over 600 “empty seats” in 2016. Assuming a non-resident enrollment of 23% (it is currently 24%), the 2016 “most likely” resident enrollment prediction results in slightly over 60% of the (conservatively estimated) capacity being occupied by resident students.


3. The number of stations per each elementary school will result in several grades having two classrooms per school. This in turn could lead to classes with students in multiple grades. This occurs even if one assumes East Lansing will be able to fill the schools to capacity. When East Lansing is unable to fill this capacity, this will only increase the need for classes containing multiple grade students.


Two Possible Alternatives


We are agnostic in terms of renovations versus new construction because we do not have sufficient knowledge of the tradeoffs associated with this decision. That said, we are uncomfortable with Tower-Pinkster and Clark Construction having a large influence in this decision because this decision will have significant financial implications for these firms. We recommend the district hire an outside consultant, without a stake in the outcome, to quantify these tradeoffs.

Alternative 1 - TO PDF

Alternative 2 - TO PDF


The basic tradeoff between the alternatives is that Alternative 1 has greater construction costs and risks building unused capacity (although much less than the previous bond proposal), but will likely lead to an increased number of resident students. Alternative 2 has lower construction costs and lower risks of unused capacity, but an increased risk of losing resident students when a school is closed. Further, closing a school should be based on objective and verified data including information on both the location of students and each building across each possible alternative. (To be specific, there are 6 possible 5-building elementary configurations that would need to be systematically compared.) If trends over time are utilized, then consistent criteria must be used at each point in time, for example, previously closed schools would need to be included in calculations if they were open at the relevant time.

We hope others will propose alternatives so that a set of reasonable proposals can be compared across key dimensions such as revenue per student, student-teacher ratio, student-administrator ratio, etc. In order to obtain a set of reasonable proposals, people need to understand the capacity/school configuration tradeoffs. There is significant economic analysis required in order to quantify the differences between the alternatives. Prior to choosing any alternative, the first step should be to approach stakeholders in the community, such as the City of East Lansing and Michigan State University because of their vested interest in our schools. These discussions should obviously affect the optimal capacity and school configuration chosen by East Lansing Public Schools.

Comments on Both Alternatives:

1. The construction costs for both alternatives would be significantly less than those associated with the initial bond proposal voted on February 28th. The table below identifies the construction costs for each school based on the initial bond proposal. The table does not include the $6.4M in expenditures from the sinking fund. Relative to the initial bond proposal, we expect capital expenditures to be between $8-11M less for Alternative 1 and between $10-13M less for Alternative 2. The reason it is less for Alternative 1 is that even though ELPS is renovating/rebuilding 6 elementary schools instead of 5, the elementary schools are much smaller and the addition to McDonald is also much smaller. Alternative 2 renovates/rebuilds the same number of schools but the schools, as well as the McDonald addition, are much smaller. In Appendix D, we describe how we estimate a range for the capital costs of Alternatives 1 and 2.

Construction Costs from bond proposed this past February 28th. - TO PDF


2. As stated above and explained in Appendix A, fixing capacity, there is little to no reduction in operating expenses associated with a school closure if there is no unused space in other schools to locate the displaced students. If Alternatives 1 and 2 had the same total capacity, the operating costs would be similar. The operating costs per student are similar for the two alternatives so operating costs do not belong in the discussion when considering the pros and cons of the two alternatives. What does belong is a discussion of likely operating revenue per pupil. It is possible, if not likely, that our six school alternative will both retain and attract more resident students as compared to the five school alternative. The greater the number of resident students we have in the district, the higher the revenue per pupil. Additionally, providing incentives for families to stay in or move to the district improves the tax base in the district.


3. Similar to the initial bond proposal voted on February 28th, both alternatives result in classes with students in multiple grades. To avoid this issue, we could have certain elementary schools designated for Grades K-2 and others for Grades 3-5. The tradeoff is that this type of grade designation does not decrease the number of student transitions, increases busing costs and may affect the “neighborhood” aspects of the school. We would welcome an open discussion about these tradeoffs.

4. The transition from a district with a capacity of 3,594 or 3,704 and enrollment of 3,458 to a capacity of 3,459 or 3,334 will result in a slight decrease in enrollment. If there continues to be a decline in resident enrollment, this will result in no less non-resident (school of choice) students. If resident enrollment stabilizes or slightly increases, this means that there would be a decrease in the future proportion of non-resident student in the district. This can be easily achieved over time by reducing the number of non-resident students accepted into East Lansing Kindergarten classes and slightly decreasing the number of new teachers hired. It can also be achieved by the relatively high attrition of non-resident students across years.[3]

5. While the alternatives propose a capacity significantly less than the 3,919 student capacity in the initial bond proposal voted on February 28th, we acknowledge that not decreasing the capacity a larger extent does expose the East Lansing Public School taxpayers to risk in terms of paying for/maintaining unused capacity and the possibility of closing an elementary school in the future. We further acknowledge that a nontrivial portion of this capacity may be filled with nonresident students which results in larger class sizes, relative to an even smaller proportion of nonresident students, because ELPS’s general fund receives over $1,000 less in state and federal funds for non-resident compared to a resident student. The question is whether this risk is worth taking because it allows East Lansing to keep potentially all of its six neighborhood elementary schools and maximize the chances of retaining and attracting resident students in the district. It is possible that in conjunction with a slight decrease in capacity, these renovated/rebuilt neighborhood elementary schools will increase the number of resident students attending East Lansing Public Schools. Specifically, by decreasing capacity slightly, this increases the incentives for out-of-district parents to move into the district to ensure their children will have a space in the new/renovated schools. If capacity was increased instead, there would be fewer incentives for families to move into the district, since they would virtually be assured a space in-district even if they continued to reside out-of-district, most likely continuing to pay a lower property tax rate.

We hope this document help people understand the tradeoffs associated with capacity/configuration alternatives and results in a February bond proposal that will improve educational outcomes for our children. Mike Conlin and Michael Colaresi


[1] The application indicates that Donley has nine Grade K-2 teaching stations/classrooms and five Grade 3-5 classrooms and the Dept. of Treasury requires that, when calculating “capacity”, the district assumes 20 students per K-2 classroom and 25 students per 3-5 classroom (9*20+5*25=305). The Dept of Treasury requires the district to assume that there are 22.5 students per Grade 6-8 classrooms which results in a Glencairn “capacity” of 4*25+4*22.5=190. The 33 teaching stations at McDonald results in a “capacity” of 33*22.5=743 and the 59 teaching stations at the High School results in a “capacity” of 59*21.25=1,254. When defining the number of teaching stations, the application does not classify art, gym, music and specialty rooms as teaching stations for the elementary schools. For McDonald, the science, gym and specialty rooms are classified as teaching stations but the specialty rooms are not.
[2] Also notice that the utilization rate for McDonald is 521/743=70% which is much less than the 83% the administration had previously claimed when they identified the capacity of McDonald as 653.
[3] Some have mentioned cash flow issues associated with a reduction in total enrollment. It is easy to demonstrate that cash flow issues are not a concern with this transition.

Complete Document Including Text, Images, Charts, and three appendices - TO PDF

All Charts - TO PDF