THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Saturday, August 26, 1995 TAG: 9508260378
SECTION: LOCAL PAGE: B1 EDITION: FINAL
SOURCE: BY KAREN WEINTRAUB, ALETA PAYNE AND ELIZABETH THIEL, STAFF WRITERS
DATELINE: VIRGINIA BEACH LENGTH: Long : 101 lines
The School District was $7 million in the red for the fiscal year that ended June 30, city leaders said Friday.
And that debt, apparently the result of overspending and funding shortfalls, puts school officials at risk of having broken the law.
On Friday afternoon, as the city prepared to close out its financial books for 1994-95, Mayor Meyera E. Oberndorf said she was told that the city would have to bail out the district. The city waits until late August to finish balancing its books for the year so late bills can be submitted and paid.
School officials would not confirm the shortfall Friday, saying they needed to discuss the matter with School Board members first. Four members said they were unaware of the fiscal problems.
Both the School Board and the City Council have called emergency meetings for Monday morning.
Oberndorf and City Councilman Louis R. Jones said Friday that the city has enough money to make up for the district's shortfall. But Oberndorf said she was appalled that the district apparently did not realize the seriousness of its financial problems.
``It's like thinking the sun's out and walking outside and finding out you're in the middle of a hurricane,'' she said. ``I will look forward to their explanation.''
Oberndorf said she was told that about half the deficit is due to overspending by the district and the other half to lower-than-expected funding from the state and federal governments.
The deficit represents 2.05 percent of the school system's $340.8 million budget for last year. And while $7 million is just a sliver of what it takes to operate the schools, it is roughly enough money to build a new elementary school or operate all the city's libraries for a year.
It is against the law in Virginia for a school board to outspend its fiscal-year budget without the consent of the city council that appropriates its funds. Any board member, superintendent or other school officer who is found to violate that rule is guilty of ``malfeasance in office,'' or wrongful conduct that affects, interrupts or interferes with the performance of official duties.
The legal ramifications of the deficit and the council's bailout were unclear Friday. The Virginia Beach School District has never before registered a major debt at year's end.
And the financial crisis has angered Oberndorf, Jones and several other council members.
Oberndorf said that she and Councilman W.D. Sessoms, who serve as liaisons to the School Board and the superintendent, have ``asked at every single meeting, `Are there any troubles? Do you have any concerns about the finances? Is everything OK?' '' she said. ``And the answer has always been an unequivocal `absolutely everything is fine.' ''
The first public signs of trouble for the School Board's finances surfaced last August when then-chief financial officer Hal W. Canary was suspended.
Superintendent Sidney L. Faucette gave no reason for the suspension, but privately officials said a large budget deficit had accumulated on Canary's watch.
In December Faucette put the brakes on hiring and spending; he told the board there was a $7.4 million budget shortfall to make up. In May, he said the figure was as high as $12.4 million.
At that time, Faucette blamed most of the apparent debt on problems from the previous fiscal year and on the failure of the state and federal governments to provide as much money as he had expected.
Faucette and his new chief financial officer, Mordecai L. Smith, assured the board, City Council and the public that the books would be balanced by the end of the year.
In April, Smith projected the district would make up the shortfall and close the year with as much as $3 million to spare. In recent weeks, Smith predicted a $1 million surplus.
Board members took Faucette and Smith at their word.
``We have been assured by Mr. Smith that. . . we are going to be in good shape and that the steps that need to be taken have been taken to ensure that the budget is sound,'' Chairwoman June T. Kernutt said at that time. She could not be reached Friday.
Faucette, who now heads the Gwinette County school system in Georgia, did not return telephone calls. Acting superintendent James L. Pughsley would neither confirm nor deny the deficit.
``I have a responsibility to let my board know before I go public,'' he said. ``It is our intent to have full disclosure of this matter on Monday.''
Board member Joseph D. Taylor, reached late Friday afternoon, said he was not aware of any deficit and had yet to be notified of Monday's meeting.
``I'd probably be one of the first to know being chairman of the budget committee,'' he said. ``(This is) not the sort of thing I want to hear at 5:30 on a Friday.''
As recently as last week, Taylor said he had been assured that the school budget would show a $400,000 surplus.
In May, the council increased its oversight of school board funding by allocating money in smaller, more clearly identifiable sums. The council has also criticized the district's spending on school construction and its lease of a former mall on Virginia Beach Boulevard.
Oberndorf and city council member Robert K. Dean said the deficit underscores the need to merge the district's financial department with the city's and hire a new superintendent who is skilled at money matters. Faucette resigned in June. by CNB