City weighs its options on shortfalls
NASHUA – Department budgets across the board should be cut as required by city charter to make up the $2 million shortfall in the school budget for fiscal year 2010, an alderman said Wednesday.
However, some of his colleagues argued the cuts should be made in the school budget, not the overall city budget.
And the bigger problem remains: How to make up the $3.36 million deficit in the school budget for 2009, which ended June 30. The over-expenditure represents 3.7 percent of the school district’s $88.5 million budget.
As for fiscal year 2010, which began July 1, the city charter establishes a clear process for handling the shortfall, Alderman-at-Large Fred Teeboom said.
City residents in 1993 passed a charter provision that requires all city departments to be cut across the board in a case of an actual or projected deficit, Teeboom said, quoting from the provision.
To exempt departments from the cuts requires approval from 12 of the 15 board members, Teeboom said.
“When you find out you have this deficit, that’s when it’s supposed to kick in instead of waiting until the end of the year,” Teeboom said.
The city’s chief financial officer should calculate what percentage should be cut from each department to make up the shortfall, he said.
Other aldermen aren’t so sure that’s the right course of action.
“The first line of attack is for the school department to take a hard look at their own budget to see where the cuts should be,” Ward 7 Alderman Richard Flynn said.
The Board of Aldermen doesn’t have to make cuts in the 2010 budget immediately, Flynn said.
It is possible that after the school department makes reductions, the Board of Aldermen may have to make further across-the-board cuts, he said.
“When that happens, the money is going to be appreciably smaller than $2 million,” Flynn said.
“I think that this is a school issue,” Ward 1 Alderman Mark Cookson said.
The school department, not the other departments, should come up with a solution for the over-expenditure, Cookson said.
Ward 5 Alderman Michael Tabacsko said the school department should first suggest where the cuts should be made.
Making up the shortfall for 2009 will be a bigger problem, Tabacsko said.
“What are you going to cut? It’s already gone,” he said.
Aldermen need to consider various options for handling the shortfall, Cookson said.
“I don’t know the right answer yet,” Cookson said, adding that the boards of education and aldermen, the mayor and the school department have to work to together to find the best solution.
Flynn said he would not vote to override the city spending cap to make up the shortfall.
One issue that likely will be the source of debate in the coming weeks is whether the city should accept the $1.75 million in special education catastrophic aid from the state.
Last month, aldermen voted 7-6 to reject the money because accepting it would mean having to override the spending cap, which several aldermen have pledged never to do.
The school district has typically relied on that funding to balance its budget. Mealey said the district was expecting to receive $1.3 million of that funding, which accounts for roughly a third of the deficit.
Flynn said he would not follow the suggestion of Alderman-at-Large Ben Clemons that the board reconsider the vote. There are other ways for the district to absorb the funding without overriding the cap, and thus increasing the baseline budget for next year, Flynn said.
Flynn was among the many aldermen who attended the aldermen’s budget review committee meeting Tuesday night. Several board of education members also attended the meeting.
At the meeting, Jim Mealey, the former chief financial officer, tried to explain how the district made it through the year without realizing it had a $3.36 million deficit until after the books were closed.
Mealey left Nashua last month for a similar job with the North Andover, Mass., school system.
A significant part of the problem was that the reports being used to track spending through the year – or the “burn rate” – were not giving accurate comparisons to previous years, he said.
Mealey left Nashua at the end of June for North Andover, along with former Superintendent Christopher Hottel, who did not attend the meeting.
It was during the district’s routine year-end accounting last week that the deficit was discovered.
Mealey went through spreadsheets showing where some of the most severe incidents of overspending occurred, among those being areas like special education, severance and salaries.
The school district overspent its budget for overtime by $291,581, more than double what it overspent last year. Part-time pay for teachers was overspent by $328,355 and special education was overspent by $714,868.
Mealey said the financial reports provided by the city showed the “burn rate” for last year’s budget was on a similar pace as in previous years, which is why he didn’t see the deficit coming.
Tracking the “burn rate” – or how budgeted money is spent – is only one tool at the disposal of financial managers, Flynn said. It doesn’t address purchase orders issued or spending that a department is committed to, he said.
Several aldermen said school department officials should have seen the shortfall coming and did a poor job accounting for the effect a new teacher’s contract would have on school spending, specifically in reducing the amount of savings from attrition the district had come to rely on.
In previous years, there was a significant amount of money left over, which was used to offset a projected deficit in attrition among school district employees.
The savings occurred when more experienced teachers retired and were replaced by lower-paid rookie teachers. However, the new contract raised the pay of incoming teachers, whittling away the savings from attrition, aldermen said.
Because the district broke even on payroll last year, it was left with an $800,000 hole to fill.
“Hindsight is 20-20, and I don’t want to throw Mealey under the bus on this,” Tabacsko said.
However, Tabacsko added, “I’m concerned that the process followed was as loose as it appeared.”
Flynn said that spreadsheets Mealey presented showed that school officials should have known trouble was brewing.
“The signals were clearly there,” Flynn said.
“I like Mealey, but it was a complete loss of control,” Teeboom said.
Mealey’s office was short-staffed and lacked someone to track spending on an ongoing basis, Teeboom said.
The city has approved $7.5 million for a new financial accounting system for all departments, but its implementation is five years away.
Even without the system, the school department should have had a better handle on tracking spending, some aldermen said.
“The software has been in existence for the last 30 years,” Cookson said. “I don’t think the software was the issue.”
There was never a mistake like this made during the tenure of the former business manager, Mark Conrad, who is the Nashua School District’s incoming superintendent.
“I think it was human error,” Cookson said.