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Published in Print: January 8, 2003, as Budget Errors Leave Schools Feeling Pinch

Budget Errors Leave Schools Feeling Pinch

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In Colorado, employees of the St. Vrain Valley public schools are starting the new year with across-the-board pay cuts. In Baltimore and in Birmingham, Ala., hundreds of district staff members face possible layoffs. And in Oakland, Calif., school leaders are in desperate need of a state loan to close a two- year, $80 million budget gap.

Signs of a sagging economy?

Not entirely. In each case—and in many others like them this school year—at least part of the blame is being pinned on the district's own budget practices. Among the alleged culprits: outdated information systems, communication breakdowns between central-office departments, and poor planning by senior staff members.

Even simple bookkeeping mistakes have cost some districts dearly. In California's El Dorado Union High School District, an error that left some employees off the balance sheet helped lead officials to believe they had $2.3 million more to spend than they did. Correcting the problem meant raiding funds in the $46 million budget that had been set aside for raises.

"I had to call my five board members that afternoon to inform them that our world had changed dramatically," Bob Ferguson, the superintendent, recalled of the day in August when he learned of the problem.

Despite a number of high-profile budget glitches, school finance experts hesitate to say if such cases are on the rise. And in a period of state cuts, it's often hard to tell mere victims of circumstance from those that contributed to their own predicaments.

But what is clear, say many experts, is that lean times make it difficult to gloss over any mistakes in budget management. Their analogy is from personal finance: A poorly balanced checkbook is a crisis only when the savings account runs low. Given the grim outlook for school spending in the near future, the coming months may bring even more stories of districts' financial missteps.

"We haven't seen this for a while because we've had 10 years of expansion," said William D. Duncombe, a public administration professor and school finance expert at Syracuse University. "Now, districts really are facing hard times again, and all these less-than-ideal financial practices are going to come to the front."

'The Perfect Storm'

Even in the best of times, school finance is tricky business. Districts usually draft spending plans before knowing exactly how much state funding they'll get for the coming year. Indeed, it's only after approving a budget that they typically learn how many students and employees they'll have—the two factors that most determine revenue and expenses.

"It's all kind of reading the tea leaves," said Joel Montero, an official with California's Fiscal Crisis & Management Assistance Team, an agency that intervenes to straighten out district budget problems.

When money is tight, there's less room for error. Mr. Montero's agency now is deeply involved in five districts, a record year for the decade- old office. The causes of the current cases, he said, range from serious mismanagement to "just plain old bad luck."

"At the very least," he added, "you could chalk some of it up to poor planning or the inability to do multiyear projections accurately enough."

That was part of the problem in the 50,000-student Oakland district, which faces by far the most dire situation the fiscal-crisis team is wrestling with. In 2000, Mr. Montero said, the district agreed to hike salaries by more than 24 percent over three years, largely to aid teacher recruitment.

But much of the cost-cutting needed to help pay for that increase over time didn't take place, according to Mr. Montero. In statements, Superintendent Dennis Chaconas has said that inaccurate revenue estimates led Oakland officials to believe they could afford the pay increases.

With California now in a fiscal crisis, the result for Oakland's $550 million budget is what Mr. Montero calls "the perfect storm."

To avert catastrophe, Oakland needs a loan from the state that could top $100 million. California lawmakers, who are likely to consider the bailout when they reconvene this month, are talking about state oversight measures that would consign the local school board to an advisory role.

Oakland Mayor Jerry Brown, who appoints three of the 10 board members, agreed "regime change" is inevitable. "I don't think they spent this money on Hawaiian vacations. It was spent on important education programs," he said, adding, "you've got to live within your budget."

Allegations of poor planning also have been leveled at the 37,500-student Birmingham district, whose deficit could top $42 million by the end of fiscal 2004 unless drastic cuts are made. The system's annual budget is $205 million.

The district's leadership team, which took over after a school board election last spring, maintains that former leaders failed to rein in spending after Alabama's governor made midyear budget cuts two years ago. Though plans to cut the district's budget were approved, the system's new managers claim they were never fully implemented.

The previous officials "went on as business as usual, and then we end up in 2002 in a serious financial condition," said Phyllis Wyne, the school board president, who also says district reserves turned out to be far smaller than the new board was initially told.

At the board's urging, the Alabama Examiners of Public Accounts, the state's independent legislative audit agency, is doing a "forensic audit" of the district. Several staff members have been put on leave, and interim Superintendent Wayman B. Shiver has asked the City Council for a $25 million loan.

Johnny Brown, the former Birmingham superintendent who is now the schools chief in DeKalb County, Ga., has meanwhile pointed fingers elsewhere. He returned to Alabama in November to defend his record at a press conference and to say that the state cuts were the real culprit. He also suggested that the district's new regime didn't listen as he tried to explain the system's financial plight in his final weeks there last spring.

Head Counts

Although individual officials are often faulted for districts' financial missteps, several recent cases have involved a broader breakdown in key central-office systems. Part of the problem, many district leaders say, is that the information technology they depend on for financial tracking is antiquated—a big liability when staff turnover in the budget department depletes the office's institutional memory.

Particularly nettlesome is the challenge of tracking the exact cost of all employees—something called "position control." When position control breaks down, it's often because the human-resources department is paying more people than the budget office knows about. The cause might be poor communication or a simple clerical error.

In Englewood, Colo., the school district's initial 2002-03 budget of about $28 million failed to account for a handful of positions, the total cost of which was $478,000. With a new budget employee checking the numbers, the anomaly wasn't found until the year's first paychecks were prepared, said Larry Nisbett, the chief operations officer. "There's no replacement for history," he said.

Position control also tripped up the 7,000-student El Dorado high school district in California. Superintendent Ferguson said the school system had been using two software programs for tracking money and people, and "they didn't talk to one another."

He estimated that most of the district's financial-control infrastructure dated back 10 or more years, and said it had worked well when the schools served about half as many students. As of mid-November, the district has a single software system.

"The thing that really bothers me the most is that innocent people— teachers and classified staff—really had to share the consequences of some mistakes that people in the district office made," said Mr. Ferguson, who met with people at each school to explain the problem.

Student counts can be another weak point, as the Seattle public schools learned recently when the double-counting of youngsters in a vocational education program added $7 million to the balance sheet. That and other errors in the district's $443 million budget this past fall prompted calls by some parents and the local teachers' union for the ouster of Superintendent Joseph Olchefske. ("Budget Shortfall Fuels Dissension in Seattle Over Superintendent," Nov. 13, 2002.)

"When you're dealing with people costs in a school district, you don't have to make too many errors for it to be a big number," Mr. Olchefske said.

Similarly, the Jenks, Okla., school district recently found that it owed the state $500,000 after counting its half-day prekindergartners as full-day ones. The system has a $44 million annual budget.

As districts upgrade their financial-tracking systems, some are discovering the true scope of past problems. Oakland Superintendent Chaconas has said he learned the size of his district's troubles only recently, when the district began using new software.

In an ironic twist, Baltimore's financial woes—a $31 million deficit in a $900 million budget—are complicated by a spending plan that failed to show expenses for a $10 million human-resources computer system that might have caught other financial problems the 95,000-student district is now trying to sort out.

Mr. Duncombe of Syracuse University guesses that some districts are overdue for such retooling because the expense involved is a hard sell with school boards. He said: "It's unjazzy stuff."

Call for Training

"I think it's time for states to really evaluate how much financial training these people are getting," he said of district officials. Last year, for example, Alabama began requiring that superintendents take a course in school finance.

School boards are also revisiting their procedures. Kathy Hall, the school board president in St. Vrain Valley, says her board must shoulder much responsibility for a financial mess that has left the 22,000-student Colorado district looking down a $14 million hole in its $122 million budget.

Amid allegations that district officials inflated estimates of reserves, the Boulder County district attorney has opened an investigation. Two business officials have resigned, and a former superintendent has been rehired to figure out what went wrong.

"What we found is that we need to be micromanaging more," she said, "not being in the office all the time, but on a monthly basis looking at revenues and expenditures and forecasts."

Vol. 22, Issue 16, Pages 1,11

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