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Government Leadership in Challenging Times: Summer 2011

Welcome to the summer issue of the Government Leadership in Challenging Times newsletter. Alvarez & Marsal (A&M) joined the fight for education reform eight years ago, when I was asked to serve as the interim Superintendent of the St. Louis Public Schools System. Since then, the A&M team has been honored to work with heroic educators and administrators in some truly difficult circumstances. With this email, we hope to share some of what we've learned along the way, as well as our views on what still needs to be done.

In this issue, we are excited to bring you the insights of our friends and colleagues. Mike Casserly, the Executive Director of the Council for the Great City Schools, a coalition of the 67 largest urban school districts, was there to help us understand urban education from our very first assignment in St. Louis. He was on the ground with us days after the flooding in New Orleans with a team of highly qualified Building Superintendents from the largest school systems in the country to help us assess the damage post-Katrina. I am honored to share his opinions in this A&M newsletter focused on education.

David DeSchryver, VP of Education Policy for Whiteboard Associates, works with both public and private sector clients, providing them counsel on federal programs, regulations, budgets, legislation, administrative actions and how this all shapes the challenges of education entrepreneurship. —Bill Roberti

In This Issue:

• Leading Education in Challenging Times: Mike Casserly
• Summer Reading: EDGAR and Local Procurement
• A&M Perspectives: Leading School Districts through Challenging Times
• Aligning Education Resources to Student Outcomes

Leading Education in Challenging Times: An Interview with Mike Casserly

Alvarez & Marsal Public Sector Services (A&M PSS) recently interviewed Mike Casserly, Executive Director of the Council of the Great City Schools, to discuss the impact of the recession on city school systems and the surprising similarities between the skill sets of strong operational and academic leaders.

Alvarez & Marsal Public Sector Services (A&M PSS): How did the recession and the resulting financial pressures of debt-laden state and local governments affect the institutions that the Council of the Great City Schools (CGCS) represents? What are successful states / districts doing to creatively address deficits and become financially strong?

Mike Casserly (MC): It's no surprise that the recession hit schools very hard. There is typically a lag between the actual economic downturn and a decline in the property tax receipts that support school budgets. This means that this year, school districts nationwide are going to be down $4 billion to $5 billion with a similar shortfall next year. Adding to this financial distress is the pending expiration of stimulus funds originally appropriated by Congress in 2009.

While it is hard to address this issue on a state level, we know that local school districts are dealing with the impact of the recession in two ways, with the caveat that there is a limit to how well creativity can solve budget problems of this size. First, districts are furloughing people, starting with central office and administration staff. Unfortunately, budget issues are so severe that most are forced to dip into the classrooms.

The second way school districts are working to address deficits is to use the automatic Key Performance Indicator tool that CGCS developed. This tool allows school districts to gauge their performance against other schools across the country, at a glance. For instance, the public school district in Albuquerque, NM used this tool to discover that they were overpaying for internet access. After renegotiating with their vendor, they saved hundreds of thousands of dollars. Another example is Rochester, NY, which learned that it had too many bus routes. After re-engineering their transportation plan, the city saved more than $1 million.

A&M PSS: The American Recovery and Reinvestment Act (ARRA) law provided a great deal of stimulus funds for school districts. How are urban schools preparing, or not, for the impending end of these funds?

MC: ARRA has been very helpful to all school districts, but particularly urban ones. Most people don't know this, but there have actually been two sources of funds from the federal government: ARRA and monies included in the second stimulus passed last fall. Additionally, there have been dollars from the "Race to the Top" program in the system.

A good deal of this money will expire this fall, but there was an extension granted in the second stimulus. This allows school districts to spend money over a number of years rather than have to return it. However, schools districts are using the funds to cushion the shortfall from the drop off in ARRA and the impact of the recession on normal revenue.

A&M PSS: This year, the tenth edition of the CGCS's Beating the Odds report examined student achievement in mathematics and reading. Can you give a summary of the results? Do we have room for optimism?

MC: Over the past 10 years, we've been publishing this report and examining math and reading scores from both school districts nationally and urban ones, more specifically. Mainly, we do this to see where the gaps are between different student groups. Scores from urban schools have been moving upwards over the last decade, which is good news. Math scores have seen an 83 percent improvement in urban districts. Reading scores are two-thirds of the national average at the 4th grade level, as well as at the 8th grade level.

What does this mean? Well, 20 percent of city schools are at their state wide scoring averages; 10 years ago, that number was below 10 percent. That's a big improvement. Moreover, city schools are improving at a faster rate than the nation at large.

Figuring out why these numbers are increasing is tricky, but it is probably due to a combination of factors. First, at the strategic level, better leadership from the superintendent has been exemplary to districts in demonstrating how to run them. Second, on a more tactical level, instructional systems are being developed and implemented that are based on goals, hold people accountable, use data and are cohesive and integrated with a professional development program.

A&M PSS: Describe the tie between operations and academics. How can it be strengthened?

MC: The connection between operations and academics is important. We can see how strong operations support good academic performance. Of course, some districts see this connection better than others. At the very least, city school districts need to set institutional goals, and then link strategic and tactical plans for both sides to those goals. This will keep both aspects of the district committed and accountable.

A&M PSS: Based upon your experience, what management strategies have the greatest impact on school district financial health and / or student achievement?

MC: Like the private sector, a strong sense of direction from the top is critical to enabling an urban district's financial health and student achievement. Also, it's important to create a sense of ownership for those goals amongst the staff and other actors. And, as we said earlier, it's critical to align goals so that everyone is clear on where they are headed.

If you would like to discuss the unique challenges facing city schools, please contact A&M Public Sector Services.

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Summer Reading: EDGAR and Local Procurement

September 30, 2011 is fast approaching. The date is significant, as it's the "funding cliff" the Obama administration warned us about—that's when funding obligation authorities will expire for many of the programs under the American Recovery and Reinvestment Act (ARRA) and states and districts will lose access to critical funding. For many, this marks the end (or at least the beginning of the end) of 27 months of schizophrenic management, of trying to spend quickly but wisely, and of finessing fiscal rules that were not designed for such scenarios. The coming months will demand extra focus for states and districts with significant balances still on the books. There are two issues, in particular, that seem to be emerging with greater frequency.

First, what does "obligation" really mean? On the surface, the definition is straightforward. Yet, there may be a difference between the federal definition of an obligation and state practice. The Education Department General Administrative Regulations (EDGAR), 34 C.F.R. 76.707, identifies when "obligations" are made. If an obligation is for acquisition of real or personal property, then the obligation is made on the date on which the state or district makes a binding written commitment to acquire the property. But if the obligation is for personal services by a vendor, then the obligation is made on the date on which the state or district makes a binding written commitment to obtain the services.

On its face, it would appear that a district would meet its responsibility to "obligate" ARRA funds by signing a contract for vendor services that extend beyond September 30, 2011. Yet, some states do not want the headache of having any ARRA dollars on their books October 1, so they are requiring all services to be performed by September 30, regardless of whether a private contractor or employee of the district performs it. In such states, there is tension between the federal regulation and the state practice, but it appears that the United States Department of Education is deferring the matter to the state management, so long as it does not result in a more lenient requirement. As a result, for those with ample unobligated ARRA funds, the pressure of the forthcoming September 30 deadline may be greater than anticipated.

Second, tight deadlines and restrictive procurement procedures are a bad mix. This combination presents high risks to the obligation and those responsible for federal funds. EDGAR Part 80.36(a) allows states to follow the same state policies and procedures for procurements using federal funds as they use for non-federal procurements. EDGAR 80.36(b) allows districts to use their own procedures that reflect the applicable state procedures. Process and documentation really matter. It is critical to assure that competitive and open procedures conform to the basic and critical federal and state standards. For example, an accelerated summer procurement that cuts the time the RFP was held open or shortcuts the safeguards for non-competitive bids would be a disaster for two reasons. First, the process obstructed the timely obligation of ARRA funds. Second, the failed obligation will likely end up as political fodder—in time for next year's election cycle.

All this, of course, can be avoided. If you are in a state or district affected by these changes, reach out to counsel or experts now, while there is still time. EDGAR and local procurement rules may make for terrible summer reading, but they are much better than reading (or sending) panicked emails in the fall.

— Melissa Glynn, Managing Director, Alvarez & Marsal Public Sector Services, and David DeSchryver, VP of Education Policy for Whiteboard Advisors.

If you would like to discuss your district's funding options, please contact A&M Public Sector Services.

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A&M Perspectives: Leading School Districts through Challenging Times

Today, public school systems across the U.S. are facing enormous challenges. Now more than ever, it takes great courage for educational leaders to make the commitment necessary to implement measurable and sustainable change. At A&M, we strongly believe that fiscal discipline is a necessary component of driving educational reform. Here, our seasoned professionals, who serve large public school systems, share their perspectives on how to navigate these challenging times.

Nancy Zielke, A&M Senior Director:

Above all, public school systems need to increase transparency, ownership and accountability. These basic tenets create the foundation of any successful organization. Through my experience as a budget director, I found there are three critical components school districts must address to drive operational and financial performance. First, they need to engage in fiscal reform. In many cases, it is necessary to financially restructure the school system. But we are not talking about restructuring on the scale of large corporations on the brink of bankruptcy. Rather, we start by looking at the school system's financial processes, how decisions are made and how data flows throughout the organization. Then, by developing robust financial models aligned to streamlined financial processes, leadership can vastly improve the decision making process and focus on outcomes. Second, school systems should address transformation. Decisions cannot continue to be made in isolation. Rather, silos should be removed and decisions made in light of how they impact all facets of the organization. Finally, communicate.

It is important for school districts to build a bridge that will not only get them through the current crisis, but also create room for reform. It is always easy to identify short-term wins, but school districts will not achieve sustainable success unless they invest in and pursue long-term wins as well. A great way for school districts to ensure sustainable success is to provide a long-term financial model that facilitates future change. Financial and operational models also serve as a key component for measuring accountability and success and should be used by decision makers to make informed decisions.

Chris Foley, A&M Senior Director:

It's never been politically responsible or sustainable to cut education services. As we've seen time and again, administrators are being asked to do more with less. In my work with public school systems, I've seen similar struggles when it comes to providing special education services. Operationally, it is often one of the most challenging parts of public education. Services for special needs students must be tracked and provided on a nearly one-to-one basis.

Much of our work has focused on delivering mandated special education services even as the district undergoes rapid changes, including huge declines in enrollment. When we started our analysis, the A&M team identified significant waste. But it's not simply about spending cuts; it's about how you shift around a workforce and build enough data to drive efficiencies. It's important not to focus on the cuts, but on the operational and educational gains.

Tom Shaffer, A&M Director:

The key to building a sustainable school system is to ensure that building leaders, especially principals, are trained to manage to both academics and fiscal outcomes. Virtually all principals are former teachers, making them effective classroom managers. But managing school budgets, particularly in a time of cost-cutting and increased public scrutiny, is also paramount to a school's success. To make the appropriate decisions for the well-being of their students, leaders must understand the trade-offs between various academic options, which require thorough cost-benefit analyses.

Capable leaders able to make those trade-offs at a building / school level are even more critical in large, urban school districts with a great deal of data and multiple systems. In my capacity as an adviser to an Emergency Financial Manager in a large urban city for more than 18 months, I have seen first-hand the difficulty in managing a district with 80,000 students and more than 100 schools. The most effective way to help principals manage their buildings' financial positions is to ensure that they have available financial models to help them understand their budget, as well as the incentives to provide the most effective academic programs that fit within their fiscal context.

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Aligning Educational Resources to Student Outcomes

Federal, state and local school mandates create increasing pressure to perform while rising costs and funding cuts make it difficult for schools to meet not only these growing expectations, but also the needs of the students and communities they serve. These challenges are most acute in school districts' special education division. Unfortunately, it is the very students who require and deserve the greatest attention from the system who are most impacted by the hard-fought decisions made to balance school budgets.

How can the administration of special education be redesigned to deliver services more efficiently?

The key to aligning educational resources with student outcomes, delivering special education services more efficiently and effectively, is a fact-based and implementation-driven approach focused on achievable results. Understanding special education's political and legal risk helps to manage dependencies between mandated services, budgeted resources and key stakeholders. The following strategies have proven successful in large, urban public school districts:

1. Align the many facets of special education services to student outcomes
2. Streamline operations by integrating data and best-practices from the public and private sectors
3. Reorganize supervisory roles to develop a culture of service versus compliance
4. Create performance outcomes for service providers

These strategies require detailed analysis of the current performance model and a commitment to making changes to that model based upon fact-based analysis. Leadership at the district level with state support is critical to drive changes to historic contractual relationships, changing roles and responsibilities and increasing performance transparency. Driving change has led to improvement in student outcomes, cost savings and sustained change through system improvements.

For additional information, please contact A&M Public Sector Services.

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