Lozeau wants to take $3.3m from reserve for shortfall
NASHUA – The Board of Education on Wednesday endorsed the mayor’s plan to transfer $3.3 million from the school capital reserve account to cover the shortfall in the fiscal 2009 budget.
After a unanimous voice vote that followed a presentation by Mayor Donnalee Lozeau, the school board turned its attention to the projected $3 million deficit in the 2010 budget.
The resolution to cover the fiscal 2009 deficit now goes to the Board of Aldermen.
Fiscal 2009 ended June 30, and city officials hope to cover the deficit, discovered two weeks ago, before closing the books on the fiscal year. School administrators said the deficit caught them by surprise and attributed it to over-expenditures in salaries and special education.
“While I do not like to see that money come from the cap reserve fund, I do not see any other place to take it. We’re between a rock and a hard place,” said school board member Sandra Ziehm.
The capital reserve account is for saving for improvements to buildings such as heating and air conditioning systems and roof repairs.
Currently, the school capital reserve fund totals $7.8 million, including $2.2 million for a school security system that the mayor vetoed after the shortfall was discovered.
If two-thirds of the Board of Aldermen vote to override the veto, then $5.6 million would remain, from which the $3.3 million would be transferred.
When Ziehm questioned Lozeau about her veto, the mayor said she was prepared to let a resolution passed 12-1 by the Board of Aldermen go forward without her signature. While admitting she hadn’t looked into details of the security system, Lozeau said she thought the system was too expensive.
While the system might prevent an armed intruder from entering schools, Lozeau said it wouldn’t prevent the main threat to students – from other students within the school.
Speaking to Telegraph reporters earlier Wednesday, Lozeau and Michael Gilbar, the city’s chief financial officer, outlined the proposal to transfer money from the school capital reserve account.
The $3.3 million would cover a share of the school debt principal payment that the city budget already paid for, Lozeau said.
“We would actually spend it on like-to-like kinds of things – capital expenses – because that money’s been put aside for that,” she said.
The city would then transfer $3.3 million of city dollars to the school district operating budget to allow for the deficit to be covered.
Officials don’t want to take $3.3 million from school capital reserve and move it directly into the school-operating budget, bypassing the second step, because they worry that action might hurt the city’s bond rating.
The bond rating is much like an individual’s credit score, in that it impacts how good a percentage rate the city gets for borrowing money.
“There’s a couple of things I want to make sure don’t happen,” Lozeau said.
One is that she wants the bond-rating agency to see actions that make financial sense, she said.
“I want them to see that the city is sound financially and that we make sound financial decisions,” Lozeau said.
Part of that is not inappropriately using operating dollars or tapping into the year-end surplus, she said.
“The other reason is, the school needs to take some responsibility for (the shortfall),” Lozeau said.
“They have done that. I’m glad that they have, I think it’s the right thing to do. By taking their dollars and using them on some of their existing expenses, it crystallizes that message,” the mayor said.
If the school board supports the option, the plan is to bring in a single resolution that would require approval by a majority of the Board of Aldermen.
Taking the shortfall from the undesignated fund balance would mean overriding the spending cap and would require support from 10 of the 15 members of the Board of Aldermen.
The solution to cover the shortfall by transferring money from the school capital reserve account “came from a group of us that were all working together,” Lozeau said, adding the group included school board members, school administrators, city administrators and city legal staff.
“We have a limited window of time here to close our books for ’09. It’s important to make sure we’re not closing them with a deficit,” she said.
Lozeau delivered much the same explanation to the Board of Education in presenting the proposal.
“I don’t think this gets us off the hook,” said school board member Robert Hallowell, who made the motion to transfer the $3.3 million.
“We spent $3.3 million more than the citizens said we should,” Hallowell said.
The school department now must find a long-term plan for replenishing the capital reserve account out of the school budget, Hallowell said.
A resolution now will be presented to the Board of Aldermen for its approval. The board is next scheduled to meet Aug. 11.
After a first reading, the resolution will likely be assigned to the aldermen’s budget review committee. The earliest it could come back to the full board for final approval is Aug. 25.
City officials said they hope the shortfall is resolved by the end of August to allow time before the annual audit in September.
Reached by phone after the meeting, Alderman-at-Large Benjamin Clemons said he would need to take a closer look at the proposal before he decides whether to support a resolution to transfer the money from the school capital reserve account.
“I’m not prepared to comment on it, because I haven’t seen the details,” Clemons said.
Alderman-at-Large Fred Teeboom called the proposal a bad plan and said he wanted to see other options.
“The problem I have is, I haven’t heard any alternatives. This is the easy way out,” he said.
“It’s a (rob) Peter to pay Paul type of plan,” Teeboom said.
The Board of Aldermen should consider other options, including whether to take part of the money from a city escrow account or to take it from the undesignated fund balance, an action that would require overriding the city spending cap, Teeboom said.
Of the mayor’s proposal, Teeboom said, “It’s certainly a better option for the city’s side of the ledger, but it’s a terrible option for the kids.”
That’s because it robs an account established for school improvements such as heating and air-conditioning systems, he said.
Earlier Wednesday, Lozeau said she hoped the aldermen support this option even if they don’t think it’s perfect.
“Out of negative options, I really can’t think of a better one,” Lozeau said. “We had to think of everything that we could think of,” she said.
“At least we have last year taken care of,” Bob Sherman, president of the Nashua Teachers Union, said after the Board of Education’s vote.
“The problem now is, what they’re going to do about this year,” Sherman said.