District scrambles after uncovering $3.3m shortfall
NASHUA – A $3.3 million deficit in last year’s school district budget, which came to light last week, is being described as an extremely serious situation among both school and city officials.
To put that figure into context, the overexpenditure represents 3.7 percent of the district’s $88.5 million budget for the 2009 fiscal year, which ended June 30, and covered the 2008-09 school year. The school department represents the largest portion of the city’s budget.
In a memo sent over the weekend to the city’s chief financial officer, Mayor Donnalee Lozeau said initial estimates show the deficit is a result of “overexpenditures in salaries, special education expenses and accrued leave payouts for retirees.”
The deficit came to light as the district is in the process of completing its year-end accounting, which ended June 30.
The immediate impact on the district, as far as the upcoming school year and whether staff or programs will have to be cut, is yet to be seen.
It’s also not yet known how the district over spent by so much and why it wasn’t caught until nearly a month after the fiscal year ended.
Interim Superintendent Ed Hendry said those are questions that will need to be addressed in the coming weeks.
In the meantime, Hendry said all nonessential expenditures are being curtailed, with only essential positions such as teachers and other staff being filled.
“We have to make sure we can open school and have essential people there,” Hendry said. “But we’re going to have to put some other things on hold.”
Hendry, who was appointed interim superintendent after Christopher Hottel left for North Andover, Mass., at the beginning of the month, said he first heard of the problem Monday of last week.
The district is also without its chief financial officer Jim Mealey, who also left for a similar position in North Andover. Hendry said it was interim business director Julie Simons who brought the shortfall to his attention.
“From my perspective, it’s pretty serious,” Hendry said. “The district has taken full responsibility for this.”
Lozeau said she was made aware of the deficit last week and has spent the weekend working with school officials to address the problem.
“It’s a significant number and we are certainly not going to end the city fiscal year in a deficit,” she said.
Lozeau expressed certainty that the budget will be met.
“I don’t want to give the impression that it’s going to be easy, but it’s going to get done,” she said.
One of her first actions will be to veto the $2.21 million approved by aldermen last week to pay for a security systems upgrade across the school district, she said.
The money was going to come from the city’s school capital reserve fund, but Lozeau said given the circumstances, it doesn’t make sense to fund such a substantial project until last year’s budget can be met.
“We need to make sure we have as many options as possible on the table,” she said.
A meeting between members of the Board of Education and the Board of Aldermen is scheduled for Tuesday night at Nashua High School North at 7 p.m. Lozeau said she would be at the meeting.
In the event of a budget deficit, there is a spending cap provision in the city charter that requires an “automatic, equal and across-the-board percentile cut” among all departments, unless overridden by the aldermen.
A Board of Education special meeting that had been scheduled for Monday night to discuss the budget has been rescheduled for Wednesday, board President Tom Vaughan said.
Vaughan said the district has been in contact with Hottel and Mealey, both of whom Vaughan said were taken aback by the news. The city and the school district issued separate press releases Sunday morning announcing the deficit.
According to the district’s release, “two-thirds of the deficit is attributed to salaries with the remaining balance coming from severance for retirees and Special Education expenditures.”
Also in the release, the district states that “the board is moving aggressively to address similar issues in the FY2010 budget, which if not addressed could result in a budget deficit in excess of $2 million.”
Vaughan said because of the magnitude of the deficit and the fact that it never came to the board’s attention until last week means that there are flaws in the budgeting process that need to be fixed.
Vaughan said the board never any indications from Mealey or Hottel that the district was running a deficit last year.
“From what we know at this point, there is no hint of improprieties,” Vaughan said.
Vaughan said he was “embarrassed” and “upset” at the situation and personally apologized. Vaughan he has informed the rest of the board.
Incoming Superintendent Mark Conrad has also been involved in the discussions, since learning of the deficit last week.
Conrad is splitting time between Nashua and his current job in Bedford before taking over in Nashua full time at the end of August. He worked for 10 years as Nashua School District’s business administrator before leaving in 2006.
“Any time you have a deficit of $3.3 million, that’s certainly significant,” he said.
Conrad said during his time in Nashua, there was never a deficit, but usually a surplus that ran anywhere from a few thousand dollars to $800,000. Conrad said the most pressing questions are what caused the deficit and why it wasn’t spotted sooner.
He said he would be forming a committee to explore those questions, and to make sure it doesn’t happen again.
Both Vaughan and Conrad brought up the district’s antiquated financial reporting technology, but neither put the blame squarely on that as the cause of the deficit.
Lozeau said the city is working on improving those systems, specifically in the form of a $7.5 million bond that would upgrade the city’s financial database.
The city has already approved an $87.6 million budget for the upcoming school year, a 1.5 percent increase.
In that budget, the district would have a net loss of two teaching positions, but that is after taking into account positions being cut and others being added. The district would also lose 33.5 paraprofessional positions.