Former school district official grilled on shortfall
NASHUA – The school district’s former chief financial officer returned to the city Tuesday night only to face the brunt of frustrations from city officials over how the district ended last year with a multimillion dollar deficit.
Jim Mealey, now the chief financial officer for the North Andover, Mass., school system, 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.
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.
“I was as shocked as anybody when I got the call last week,” Mealey told the group, which included most of the Board of Aldermen and several members of the Board of Education.
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.
It was also determined last week that the district is now projecting a $2 million deficit for this year.
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 that 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.
While Mealey did not lay all of the blame on the city’s financial accounting systems, he indicated that it played a major role in the miscalculations.
“I relied on a report that was not a proper report to be using,” he said.
The reports compared spending rates from previous years to the current year, but Mealey said, “that report is not apples to apples, which I thought it was.”
One of the most significant differences in last year’s budget to previous years was that the district finished the year having spent all of the money budgeted for payroll.
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. Because the district broke even on payroll last year, it was left with an $800,000 hole to fill.
Despite Mealey’s explanation, several aldermen said they still could not understand how no one saw it coming.
Steve Bolton, president of the Board of Aldermen, said part of the problem is that the district has been allowing certain areas of the budget to run in the red, assuming there would be money left over elsewhere at the end of the year.
“It strikes me as a better practice that no accounts be allowed to run in the red,” Bolton said. Instead, the district should be monitoring when accounts are running a deficit and transfer the necessary funds, he said.
Several aldermen said the fact that the city’s financial accounting system may be outdated is no excuse for the shortfall.
“The software is as good as the data that’s put into it,” Alderman-at-Large David Deane said. “It just seems like a lot of assumptions were made.”
Alderman-at-Large Fred Teeboom likened the district’s budgeting practices to a “Ponzi scheme” that fell apart.
He also accused the district of not properly planning for the added expense of the teachers contract, which increased salaries by an average of 6 percent to 7 percent last year.
Whatever the reason for last year’s deficit, the city still needs to find a way to meet its budget for the 2009 fiscal year, which ended June 30.
Michael Gilbar, the city’s chief financial officer, told aldermen Tuesday night that the issue would likely need to be resolved by the middle of August.
One issue that will likely 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.
Alderman-at-Large Ben Clemons urged his colleagues to reconsider that decision and provide the funding to the school department to help meet the budget.
Incoming Superintendent Mark Conrad was also at the meeting. Conrad is splitting time between Nashua and his current job in Bedford before taking over full time in Nashua at the end of August.
Conrad said his immediate concern is ensuring that the projected $2 million deficit in this year’s budget is addressed as soon as possible.
Conrad described trying to come up with such a substantial cut after the fiscal year has started as “uncharted territory.”
The first action would be to put together a list of vacant positions that the district will have to leave unfilled for the year.
Conrad said every vacant position is on the table right now, including, teachers, secretaries, paraprofessionals as well as the district’s chief financial officer position.
The district will put together a list of positions to present to principals and the Board of Education next week, he said.
“We’re going to approach it as our problem and do what we need to do to solve it,” he said.
Conrad said leaving positions open would likely only cover so much of the projected deficit. Other areas such as supplies, overtime and substitutes would also have to be scrutinized, he said.
While there would certainly be an impact on services, Conrad stressed that schools would open in September and that students would continue to receive a quality education.
Conrad, the district’s former business administrator, has also said he plans to review the district’s budgeting practices.
About a dozen members of the public showed up for the meeting.
Robert Sullivan of 12 Stoneybrook Road suggested that Mayor Donnalee Lozeau put together an oversight committee made up of aldermen, school board members and city officials to monitor this year
Former Board of Education President George Farrington asked whether the district ran projections on the changes to salaries and severance included in the teachers contract. Board members assured him they were run.
Several school board members expressed regret for not seeing the deficit coming.
Board member Steve Haas said he would constantly ask Mealey whether they could afford expenditures whenever they were brought before the board. He was assured they could, he said.
“It’s not like we had our head totally in the sand,” Haas said.
The city has approved $7.5 million for a new financial accounting system, but its implementation is five years away.
Lozeau has already vetoed a $2.21 million schools security project in response to the deficit, saying all options should be on the table.
Teeboom said he disagreed with the mayor’s decision.
“Why should we penalize the safety of the kids because the school department overspent on its budget?” Teeboom asked.