The Virginian-Pilot
                             THE VIRGINIAN-PILOT 
              Copyright (c) 1995, Landmark Communications, Inc.

DATE: Thursday, September 7, 1995            TAG: 9509070435
SECTION: LOCAL                    PAGE: B1   EDITION: FINAL 
SOURCE: BY ALETA PAYNE, STAFF WRITER 
DATELINE: VIRGINIA BEACH                     LENGTH: Long  :  102 lines

BEACH SCHOOL BUDGET DILEMMA RAISES RED FLAGS ABOUT THIS YEAR

A striking moment during Tuesday afternoon's School Board budget session provided a glimpse into why so many people are flummoxed by the division's financial problems.

Chief financial officer Mordecai Smith and his supervisor, Associate Superintendent for Administrative Services Donald Peccia, sat side by side - but their answers to the same question were miles apart.

And that didn't sit well with board member Tim Jackson, who was trying to make sense of some murky budget matter involving school supplies.

``Let me ask you a question, Mr. Smith,'' Jackson said. ``I'm listening to Dr. Peccia and I'm listening to you. Dr. Peccia says the items were not delivered. You said they were.

``Our goal is to have everything out on the table so we know what we're dealing with. What's causing the two different things being said here? Please clarify this for me.''

When the people most familiar with the numbers cannot agree, confusion over the worst financial crisis in the school system's history - a $7.4 million shortfall at the end of the last fiscal year - seems unavoidable.

And red flags are already popping up about the current year's budget, reminiscent of past practices: concerns that federal money was overestimated again, that money already must be transferred to cover programs created but not funded last year, that the board already has spent $98,000 of the $100,000 budgeted for legal services for this entire year.

``We've got to scrub it down still,'' interim Superintendent James L. Pughsley said of the 1995-96 budget. ``And we've got to do it now.''

Pughsley has vowed to the board not to spend money the district doesn't have.

Smith told the board that, barely two months into the fiscal year, it already appears that revenue could come up about $500,000 short and that impact aid projections need to be adjusted. Impact aid, federal money given to school divisions that serve large numbers of military dependents, has been overestimated by the district for at least the past two years and was a critical reason for the shortfall, which became public less than two weeks ago.

Smith and others say the practice of overestimating the federal reimbursement began under the direction of Sidney L. Faucette, who resigned as Virginia Beach superintendent of schools in June to head a Georgia school district. Faucette apparently wanted to end a local tradition of low estimating for impact aid and then turning over any extra money to the city.

Speaking by phone Wednesday from Georgia, Faucette declined to discuss specifics, but said, ``It's certainly easy to talk about someone when they're three states away. I have absolutely nothing to hide from the four years I was superintendent.''

The division never has received more than $11 million in impact aid, but the 1995-96 budget assumes the system will receive almost $13 million - about the same as predicted last year.

During their regular meeting Tuesday night, the board members found themselves transferring money from one fund to another. Transfers made by the administration in previous years, some without board approval, are blamed for some of the problems the school district is wrestling with now.

Measures are in place to prevent administrative transfers of more than $10,000 and, indeed, the document presented to the board to show where money was coming from and where it was going was clear on how the money would be moved.

The board voted to move almost $30,000 from elementary supplies, where school officials expect to have a surplus, and other line items to buy equipment to set up the new Kemps Landing Magnet School office, a project some board and city council members questioned at its inception. In April, the board approved the magnet program even though the district had identified no source of funding and the city refused to pay for renovations for the building.

Tuesday, the board also voted to transfer more than $50,000 from the currently vacant deputy superintendent's post and other accounts to pay for the search for a new superintendent and interim changes.

And among the transfers - from a pot of money saved by an administrative reorganization under Pughsley - was $75,000 for legal expenses.

The transfers clearly did not sit well with the board members, who asked numerous questions.

``It concerns me, starting off the year making all these transfers,'' board member Ulysses Van Spiva said at one point.

All of the transfers that went to a vote passed, however, in part because the board had committed to the items earlier.

``Before we got into all of this meltdown over the deficit, we put some programs in place that have to be funded,'' board member Elsie M. Barnes said.

The board members questioned expenditures minutely, re-examined their internal audit process and discussed the possibility of an external audit, if they could afford it.

Still to be dealt with are items such as the lease for Celebration Station, a former mall that will be used to house Princess Anne High School students displaced by fire.

While insurance money will cover the cost while students are there, the division has no money budgeted to pay the remainder of the $900,000-a-year lease, which - until last week - it had been trying to break. Although Celebration Station provides some much needed space for now, the financial obligation will remain after the insurance money is gone.

``In effect, what has happened, we have bought some time,'' Pughsley said. ``Quite frankly, Celebration Station was a convenience relative to the emergency. We've taken advantage of it.'' by CNB