THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Friday, September 1, 1995 TAG: 9509010483
SECTION: LOCAL PAGE: B1 EDITION: FINAL
SOURCE: BY ALETA PAYNE AND KAREN WEINTRAUB, STAFF WRITERS
DATELINE: VIRGINIA BEACH LENGTH: Long : 111 lines
The school district's chief financial officer believed - until just days before the books closed on the past fiscal year - that he could save the division from a multimillion-dollar deficit.
Mordecai L. Smith said Thursday that a technical change in the way the City Council allocated a small pot of money to the district made the difference between a $400,000 surplus and a $7.4 million deficit.
``I really did feel justified and confident in my approach to getting us out,'' Smith said.
But city finance officials say that the money was never there and that Smith misunderstood the nature of the fund.
While both sides struggle to sort out exactly how the district overspent its $340.4 million budget, two things are evident: School and city officials had vastly different understandings of budget operations, but both say the financial problems started years ago.
One disagreement stems from enterprise funds that Smith said were previously allocated as a lump sum. He thought he could use a surplus in one to offset a deficit in another as long as the total was not overdrawn.
Smith said that when the City Council allocated money in August 1994 for textbook, athletic and self-insurance funds by restricted category instead of as a block, all that changed. He was unaware of the change, however, until late last month, when the city's finance director wouldn't let him make an accounting maneuver he said would have balanced his books.
City Finance Director Patricia A. Phillips said this week that the school district misunderstood how the funds could be used. It would never have been possible for Smith to use the surplus of one fund to cover the deficit of another, she said.
City officials said they doubt there would have been enough money in the four funds to eliminate the red ink anyway. Even if the district could zero out all four funds, according to city accounting records, that would provide only about $1.9 million - far short of the $7.4 million needed.
No one disputes, though, that the root of the district's problem was that it spent too much money.
It had developed a pattern of deficit spending that was covered at the end of each year with a patchwork of money transfers.
In 1993-94, the school system incurred several large unbudgeted expenses. At the end of that fiscal year, the district tapped several sources to balance its books, including a combined $1.5 million from the textbook and self-insurance funds. The district also collected more federal money than expected and carried over $2.8 million in purchase orders to the next fiscal year.
The annual audit by an independent accounting firm found that the district's dip into the special funds to balance the 1993-94 budget set a bad precedent.
Hal W. Canary, who was put on administrative leave in August 1994 and later fired as the schools' chief financial officer, said this week from his home in Memphis that the district had had problems balancing its books at least since the 1992-93 fiscal year. He could not speak to the division's financial health before then.
``I didn't last long enough to go back very far,'' Canary said.
He refused to discuss who was at fault for the budget problems.
``I did not have a pleasant experience in Virginia Beach. I'd rather forget about it,'' he said. ``I know what I was doing was right. I can't say that about everybody.
``I'm glad the council and the board are dealing with it.''
Sidney L. Faucette, the Virginia Beach superintendent from 1991 until he left in June to head Gwinnett County schools in Georgia, has not returned repeated phone calls to his Beach home, his temporary residence in Georgia, his office or the office of the Gwinnett school's public information office.
But he told the Atlanta Journal and Constitution this week that he had been given bad information by his financial staff.
``The whole thing is incredible to me,'' the Georgia paper quoted him as saying. ``It would be interesting to roll up my sleeves and reconstruct the budget with the information provided us by the staff.''
But the shortfall didn't come as a complete surprise. As recently as May, Faucette said the district would have to make up more than $12 million, but promised a modest surplus by June 30. Stringent spending measures had been in place since December, and more restrictions were added.
When news broke late last week that the division needed millions more from the city, School Board members were stunned and angry; City Council members were livid.
The council has refused to give the schools the money to close the books until its members feel confident that the problems will never be repeated. The city and district have promised thorough investigations into the reasons behind the crisis. Interim Superintendent James L. Pughsley, who came into that job after the end of the fiscal year, already has put measures in place to make sure that the schools do not spend money they do not have.
Within the central office, the sense of relief is almost palpable. Administrators say that they are glad the problem is finally out in the open.
``We've been dealing with the whole budget problem since November, December. To manage (everything) so closely,'' Pughsley said. Now, he said, there is at least some sense of closure.
``This is a tremendous school district in the types of things it's accomplished in the past and in the potential for the future,'' Pughsley said. ``It's hard to do (such work) with this sort of thing hanging over you.'' ILLUSTRATION: Photo
Mordecai L. Smith, Virginia Beach School District's chief financial
officer.
Graphic
SPECIAL SESSION
The Virginia Beach School Board will hold a special budget session
from 4 to 6:30 p.m. Tuesday before their regular 7 p.m. meeting at
the School Administration Building in the Municipal Complex.
KEYWORDS: VIRGINIA BEACH SCHOOLS BUDGET by CNB