THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Tuesday, August 29, 1995 TAG: 9508290290
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: BY ALETA PAYNE AND KAREN WEINTRAUB, STAFF WRITERS
DATELINE: VIRGINIA BEACH LENGTH: Long : 147 lines
The school district ran up a $7.4 million deficit last year by spending money it didn't have, overestimating how much it would get and carrying over debts from the previous year, school officials said Monday.
The district's leaders said they were looking at the 1995-96 budget to make sure the mistakes are not repeated.
If not corrected quickly, the school's fiscal problems could hurt Virginia Beach's credit rating, forcing the city to pay more for every road, building and school it constructs, the city's financial adviser warned by letter Monday.
By Monday evening, a watchdog group had announced plans to demand the resignations of nine of the 11 School Board members at next week's meeting. John Early of Kids First said, ``Their defense probably is they didn't know. We feel they had the duty to know.''
The School Board and the City Council called separate emergency meetings Monday morning. They learned the extent of the budget crisis Saturday morning after last year's financial records were completed.
The board, after an hour of grilling the system's top staff members, asked the City Council to pay off the deficit. But grim-faced council members, who repeatedly had been assured that the schools' finances were fine, balked.
``I'm unwilling to accept the request to bail them out of a $7 million hole member W.W. Harrison Jr. said.
The council said it had the money to cover the deficit but did not want to correct the problem until its members fully understood the causes and could make sure the trouble doesn't recur. The city told the company that performs its annual audit to carefully examine the school district's financial situation and recommend ways to increase fiscal restraint and accountability.
The School Board was equally frustrated. Members were angered and surprised to learn of the deficit from administrators who had insisted 10 days ago that the district would end the year with a $400,000 surplus.
``We have serious egg on our faces as a board,'' said budget committee member Joseph D. Taylor. ``A lot of this information here we should have been aware of two or three weeks ago. I'm just embarrassed.''
Interim Superintendent James L. Pughsley, who took office two months ago, promised a thorough investigation.
``I am disappointed to have to stand before you with regard to this deficit situation,'' Pughsley told the City Council. ``But I'm glad we're getting it on the table. We can deal with it.''
Board member Susan L. Creamer, an accountant, said she had been questioning the district's financial position since October and was repeatedly told that the board was taking the necessary measures to balance its budget.
``I received a memo late last (Sunday) night telling me that we are in a deficit situation,'' said Creamer, who had been out of town. ``I want to know why I had to wait until yesterday to find out we were in a deficit situation. It could not have happened overnight.''
State law forbids a district from running a deficit without the consent of the city council that appropriates its funds. Any official who violates that rule is guilty of malfeasance in office, a misdemeanor punishable by a $250 fine.
Early said his group would push for malfeasance charges against all School Board members except Karen O. O'Brien and Donald F. Bennis, who were appointed to the board in March.
No one else was talking about potential criminal actions Monday, although the School Board hired an attorney for legal advice. Joseph L. Lyle Jr., a lawyer with Kaufman & Canoles, assured the board and acting superintendent that if anyone had violated the law, it wasn't them.
``We don't think there's any suggestion of any commission of any crime,'' Lyle said. ``They're not supposed to micro-manage a $350 million budget. They could never do that.''
The deficit accrued during the tenure of former Superintendent Sidney L. Faucette, who left town two months ago to take a job heading the Gwinnett County school system in Georgia. He did not return repeated phone calls.
Several board members implied that the previous administration was responsible for the district's financial mess.
``I think the people who need to be held accountable are gone,'' said board member Elsie M. Barnes.
Several times during questioning by the board and council members, Pughsley, Associate Superintendent Donald A. Peccia and Chief Financial Officer Mordecai L. Smith said they could not answer questions because some events occurred before they took over.
Among the things that went wrong:
The district had never gotten more than $11 million in federal impact aid, but predicted it would receive $15.6 million from the government last fiscal year. It received $10.7 million. School officials said they are concerned that the same overestimates were made in this year's budget.
The district underestimated its personnel costs by nearly $3.3 million.
It underestimated the cost of janitorial services by nearly $1.4 million.
The administration spent nearly $9 million without board authorization, including rolling over $2.8 million in purchase orders.
The district has publicly struggled with its finances since late 1994, when the administration imposed stringent spending controls. At one point, estimates suggested that the district was as much as $15 million over budget.
J. Chester Johnson, chairman of Government Finance Associates, the city's financial advisers for debt and credit management, said in a letter dated Monday that fiscal crises like the school district's have hurt the bond ratings of other cities.
The bond rating determines the interest rate at which the city borrows money. If it goes down, the interest rate - and therefore the cost of construction - goes up.
Internal and external audits of the district will take several months to track precisely what happened and accurately assess blame, district and city officials said.
City Council member W.D. Sessoms Jr. said the council probably would have to act before it receives the audit, but he hoped one or two more weeks of fact-gathering would make him feel more comfortable about bailing out the system. ILLUSTRATION: Color staff photo by D. Kevin Elliott
Interim Superintendent James L. Pughsley, who took office two months
ago, promised a thorough investigation.
Graphic
BUDGET STEPS
Acting Superintendent James L. Pughsley said some measures
already are in place and others are in the works to correct the
budget problems:
Rules for budget management have been written into a document to
ensure discipline among administrators and provide accountability
for expenditures.
Cost-effective systemwide staffing guidelines have been developed
and instituted.
Schools will receive their money in two installments instead of
one lump sum. The first 70 percent will be based on enrollment
projections. The rest will be awarded on actual attendance figures
taken on Sept. 30, to ensure that the money follows the students.
The administration is being reorganized to ensure better
supervision on financial matters.
Any budget transfer of $10,000 or more requires approval by the
School Board.
Budget managers are being trained to use the district's central
computer to check the status of financial accounts.
Financial reports to the School Board soon will be improved to
include information on accounts used for buying textbooks, paying
for school lunches and employee insurance plans.
The city and school finance departments will begin quarterly
joint meetings. This year's budget will be analyzed
periodically, and, as needed, adjustments will be recommended to
balance revenues and spending.
The district and city will search for better computer programs to
manage school finances.
Source: Virginia Beach School District Administration
KEYWORDS: VIRGINIA BEACH SCHOOLS BUDGET DEFICIT by CNB