An examination of the impact of early retirement incentives on school district financial health

The combination of state controlled school funding in Michigan, rising employee costs and shrinking school enrollments have caused school districts to seek a variety of cost control measures. One of the measures frequently supported by both school districts and employee unions is the use of Early Retirement Incentives (ERI) to incentivize teachers to separate from the school district via a cash payment. The purpose of this study was to analyze how offering or not-offering an ERI impacted on the financial health of a school districts in the State of Michigan. Selected school districts in Michigan were surveyed regarding any ERI's they may have offered during the 2003–04 to 2007–08 school years. If the district offered an ERI, various descriptive aspects of the offered ERI including ERI amount, number of participants in the ERI and replacement percentage of separating teachers was tabulated. The data points collected to determine the financial health of the school district included school district bond rating, the school district fund equity percentage and change in general fund expenditures of school districts. This study used both t-tests and multiple regression analysis to determine if offering an ERI had any effect on the financial health of the school district as measured by fund equity percentage and changes in general fund expenditures. Additionally, a multiple regression analysis was used to determine which various descriptor factors of an ERI might have the most significant impact on school district financial health. This study found that no significant relationship existed between offering an ERI and the financial health of the school district as measured by either fund equity percentage or changes in general fund expenditure. Additionally, this study found that other independent variables including changes in student enrollment were more impactful on changes in general fund expenditures than offering an ERI. While bond ratings of school districts were originally designed to be used as a metric of school district financial health, they were discarded from the final analysis due to their relatively infrequent nature