Committees

Operations and Efficiency Committee

October 29, 2003 Minutes

Committee members present were Chairman Walter Davis, Vice Chairman Dennis Woods, William Hartnett, Thomas Johnson, David Locke, James Mahoney, Barbara Sprague, and David Varda. Other Task Force members present included Task Force Chairman William Wilkins, John Brandt, Paolo DeMaria, and Barbara Shaner.

Presentations:

• Performance Audits Completed in Ohio's School Districts
  (PDF*, 199 KB)
  -James Penning, Auditor of State's Office
• Developing Operational Efficiencies in Ohio's Schools (PDF*, 12 KB)
  -Daniel Wilson, Associate Superintendent, ODE

Chairman Davis called the meeting to order at approximately 10:05 a.m. He introduced the first presenter, Dr. James Penning, Chief Auditor of the Performance Audit Section of the Auditor of State. Dr. Penning was asked to share with the Operations and Efficiency Committee a summary of the key findings of the numerous school district performance audits his section has conducted.

Dr. Penning briefly reviewed the basics of performance audits, including the benefits, impacts, key recommendations and the best practices revealed by the audits. His unit was created in 1996 by then-Auditor James Petro. Dr. Penning noted that many units of local government, including school districts, have requested audits. His office also works closely with districts that are in fiscal caution, watch or emergency.

The Auditor' performance audits follow the General Accounting Office' Yellow Book standards. Dr. Penning noted that there are two kinds of performance audits – economy and efficiency audits and program audits. The first looks at economy and efficiency of organizations and the second examines activities and programs for effectiveness.

The benefits of performance auditing include:

• Independence and objectivity
• Increased accountability through better use of taxpayers' dollars
• Assists governments in addressing and ameliorating fiscal crises
• Helps prioritize and direct resources most effectively
• Provides a review of internal operations for potential savings
• Identifies and serves as a catalyst for positive changes in work methods to improve productivity

Dr. Penning noted that he realizes that not all of their recommendations can or will be implemented.

Also, Dr. Penning observed that audits:

• Help define appropriate service levels
• Identify ways to better match staff deployment to workload distribution and service level requirements
• Analyze the costs and benefits of alternative service delivery methods
• Identify best practices, industry standards and other benchmarking criteria
• Improve financial and strategic planning of an organization

Dr. Penning' unit has conducted more than 50 school performance audits and more than 50 of other local government units. They have issued over 1,700 commendations for best practices and more than 7,300 recommendations for improvement. The performance audits have resulted in $360 million in potential annual savings, $116 million in cost avoidances, $60 million in one-time revenue enhancements, and $34 million in annual revenue enhancements. Dr. Penning noted that about half of these estimates have actually been realized.

Dr. Penning observed that it is amazing what people inside an organization know and what their ideas are for improvement. Outsiders can help facilitate these changes, but ideas for change often originate inside the organization. Dr. Penning noted that their recommendations focus on the support operations of school districts, not what happens in the classrooms. Dr. Penning discussed recommendations that they have made for improving the operations of school districts in five operational areas.

Financial Systems

• Strategic planning is key to efficient and effective operations
• Capital planning is an essential element of the planning process – almost all districts that were in financial difficulties did not have capital plans
• Financial forecasts should include detailed assumptions. They look closely at districts' five-year forecasts. Some districts do not include enough details in these five-year plans.
• Appropriations must be consistent with strategic goals and objectives
• Purchasing consortia, competitive bidding, on-line purchasing and just-in-time delivery are effective means of streamlining the acquisition process.
• Accurate and timely management reports are essential to good budget management. Some districts have good reports but ignore them.
• Automated time and attendance systems and integrated payroll and personnel databases ensure accuracy and reduce demand on staff resources.

Human Resources

• Employee contributions to health care premium costs, increasing annual deductibles and prorating benefits for part-time staff are effective means for reducing insurance costs. It is very costly for employers to pay the full cost of benefits. There should be some cost sharing with employees. This is the most important area in the Human Resources section to examine because of rapidly escalating costs.
• Cash options in lieu of medical benefits can reduce costs.
• Leave-time management can significantly reduce personnel costs. Some districts average 13 to 14 sick days per year. Abuse policies can help.
• Early retirement incentives and generous sick leave severance provisions are costly to districts.
• Carefully defining overtime eligibility and monitoring of its use can result in significant savings.
• Ensuring the ability to manage the workforce is critical to efficient operations. Some contracts have really onerous language, such as prohibiting reductions in force.
• Chairman Davis asked if auditors had encountered ethical conflicts where board members or district administrators had benefited from negotiated contracts. Dr. Penning responded that they had not looked at this issue.

Facilities

• Capital planning and budgeting are essential elements of sound financial management.
• Accurate enrollment projections are key to facility planning, estimating future staffing needs and financial forecasting. Too many districts do not do enough in this area.
• Implementing an effective energy management program can lead to significant cost savings. Monroe School District did this and saved significant funds.
• Standardized custodial and maintenance procedures and supplies can streamline operations.
• A comprehensive preventive maintenance plan can reduce operating costs. This also reduces replacement and repair costs.
• An automated work order system can provide key management information and assist in more efficiently allocating scarce resources.

Transportation

• Computerized routing systems, multiple runs, and staggered school starting times are effective means for reducing operational costs.
• Formal bus replacement plans should be developed and updated regularly.
• Careful management of the parts inventory can reduce unnecessary expenditures. Just-in-time delivery can address this problem.
• Preventive maintenance and record keeping are essential to efficient operations and can significantly extend bus life.
• Transportation eligibility should be established through district policy.
• Transportation personnel should be included in special needs transportation planning and districts should routinely review options for the provision of this service.

Technology Utilization

• Technology-related decisions should be driven by a technology plan.
• Technology steering committees can be an effective means for managing the implementation of technology plans.
• Adequate support is essential to ensuring that technology use is maximized.
• Technology replacement should be a key element of district capital planning.
• Standardization can be an effective means for controlling costs.

One committee member asked if Dr. Penning had a list of best practices. Dr. Penning answered that such a list is included in a report that the Auditor of State made to the General Assembly on the results of the performance audits of Ohio' 21 urban school districts.

A committee member observed that controlling health care costs is one of Dr. Penning' recommendations. He asked if any thought had been given to recommending changes to collective bargaining to address this. Dr. Penning answered that their audits have not covered the issue of the impact of collective bargaining.

Vice Chairman Woods observed that the single biggest cost issue for his district is special education, which is uncontrollable. He asked if Dr. Penning had any suggestions on how to hold down special education costs. Dr. Penning responded that their audits have not really addressed the education delivery system, including special education. He noted that school districts could perhaps negotiate with parents, at least relative to the transportation of children with disabilities.

Pickerington City School District

Pickerington City School District Superintendent Robert Thiede and Treasurer Vincent Utterback briefed the committee on the improvements that their district made in response to an audit by Dr. Penning. Pickerington had requested the audit in an attempt to improve the economy and efficiency of the district' operations. They also wanted to assure the district' taxpayers that they were doing everything they could to make the maximum use of tax dollars. Both noted that there is an element of risk in asking auditors in to review your operations. They had to reassure school district staff that the audit was not an attempt to "nail" anyone. The Auditor conducted two audits of Pickerington, the first audit resulted in general recommendations, the second made more specific recommendations.

The performance auditors found much good about the district that should be emulated elsewhere, especially in the area of financial planning. The positives of the audit outweighed the negatives. It helped that they were proactive in addressing potential financial problems.

The second audit of Pickerington took four to five months. The audit' results were seen as a resource for the district, not a mandate or an absolute solution. The district had the latitude to accept the recommendations fully or partially. Dr. Thiede noted the importance of the independence of the audit.

The most difficult part is implementing the audit' recommendations, which were concentrated in three areas:

• Transportation – Pickerington saved money by reducing its number of bus routes.
• Income tax collection delinquencies – Through more aggressive collection of delinquencies, Pickerington reduced its income tax delinquencies to about one percent.
• Grade reconfiguration – Pickerington avoided costs by reconfiguring grade levels and its facility usage.

All of these changes were challenging to implement due to concern about changes from parents and other members of the Pickerington community. Continuous communication with parents, teachers and the wider community were crucial to the successful implementation of the recommendations.

One committee member asked how much the district has seen so far in actual savings. The transportation and grade reconfiguration changes were implemented earlier this year. Pickerington estimates that reducing the number of its bus routes will save it approximately $450,000 annually. Improved collection of income tax delinquencies has brought in an additional $50,000 to $60,000 so far.

Task Force Chairman Wilkins asked if a statewide health plan would be helpful. Superintendent Thiede responded that he thought it could.

Ohio Department of Education

Associate Superintendent Daniel Wilson was asked to discuss a policy paper that he had prepared that looked at possible operational efficiencies in Ohio. He reinforced Dr. Penning' observation that health care costs are a common problem among Ohio' school districts. Cost avoidance in health care can be very valuable.

Cooperative purchasing of goods can save money. Associate Superintendent Wilson believes that "bigger is better" when it comes to the purchase of health care insurance. Generally speaking, increasing the size of the health insurance pool lowers the cost. He agrees that collective bargaining is an issue, but not an insurmountable obstacle.

Mr. Wilson observed that we need to look at new ways of doing business. He noted that health care costs have several components: drugs, workers' compensation, dental, vision, doctors' visits, and hospitals. We can control health care costs by unit pricing, limiting eligibility, wellness plans, plan design and employees' sharing of health care costs. At the State Teachers Retirement System, the cost of those employees who did not participate in wellness programs was about 50% higher than those who did participate. Wellness programs seem to have a very positive long-term effect on health care costs. Mr. Wilson observed that cash payments in lieu of health care coverage may not be a good idea. Healthy people might opt for cash, whereas those with health problems might be more likely to want health care. This adverse selection could raise health care insurance costs even more.

In Parma in 1999, where Mr. Wilson was Treasurer at the time, the district went through an Auditor' performance audit. The most significant value to the audit was that it gave the district leverage to make necessary changes. For example, when the audit noted that secondary teachers in Parma' peer school districts were teaching six classes instead of five, it gave the district the leverage it needed to require secondary teachers to teach six classes. Parma was also able to close its warehouse to save money as a result of the performance audit. The benchmarking with peer districts was important.

Chairman Davis talked about rankings of the committee' possible work for the rest of the meetings through November. He observed that regionalization seems to be a very hot topic among educators. Representative Hartnett asked if the committee should hear from educators in the field as well as the Ohio Department of Education. Vice Chairman Woods recommended bringing in someone to represent the regionalization recommendations of the Ohio Educational Service Center Association to describe the recommendations this association has made. It was decided that the November 12 meeting of the committee will include presentations on regionalization by the Department of Education and someone who can address the recommendations of OESCA. These presentations will occur in the morning. In the afternoon, the committee will discuss other items of concern relative to school district operations.

Committee members discussed items for future committee agendas. One member wants to examine Ohio' number of school districts, which could possibly include school district consolidation. Several members expressed an interest in looking at what can be done relative to containing the costs of special education, which are of significant concern to many superintendents. If Operations and Efficiency is not the right committee to review special education costs, several members expressed a desire for another committee of the Task Force to review them.

At Vice Chairman Dennis Wood' request, by the next committee meeting Task Force staff will provide a summary of major school district consortia and the types of things they do collectively.

Chairman Davis adjourned the meeting at 2:15 p.m.

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• Building a Better School Funding System
  (PDF*, 1 MB)