Taking $3.4m from reserve backed

NASHUA – Though a “bitter pill to swallow,” the Board of Aldermen’s Budget Review Committee voted to recommend taking $3.36 million from the city’s school reserve fund to erase a deficit in last year’s school district budget.

The recommendation was unanimous among the members in attendance at Monday night’s meeting.

Just as universal was the feeling of reluctance among the aldermen, along with a clear warning that district administrators must work toward making sure what happened last year doesn’t repeat itself.

“I think this solution stinks,” said Alderman-at-Large Brian McCarthy, “but it stinks marginally less than every other solution we have before us.”

The committee’s recommendation to approve the plan proposed by Mayor Donnalee Lozeau now moves to the full Board of Aldermen, which will consider it at a special meeting Thursday night.

The need to pull money out of the reserve fund came after school district officials realized last month that the district overspent its $86.3 million budget by $3.36 million.

Former Superintendent Christopher Hottel has faulted the city’s “antiquated” accounting software for not being able to catch the deficit before it was too late.

Adding to the deficit was the unwillingness of aldermen to provide $1.3 million in special education reimbursement money from the state to the school district, Hottel has said.

Hottel has accused aldermen of withholding the money for “political reasons.”

Hottel and former chief operating officer Jim Mealey both left for similar jobs in North Andover, Mass., at the end of June. Last year’s shortfall came to light shortly thereafter in July.

Currently, the school capital reserve fund, which is used to pay for large-scale maintenance projects, has approximately $7.8 million and would be cut nearly in half if the proposal goes through.

Part of that money was going to be used for a $2.2 million security systems upgrade in city schools, but Lozeau vetoed the project after learning about the deficit.

A vote to override Lozeau’s veto failed last week.

McCarthy, chairman of the committee, said while he doesn’t want to take the money out of the school capital reserve fund, there are no other options he can see that wouldn’t impact the tax rate.

He added he is trying to set up a meeting with incoming Superintendent Mark Conrad and Board of Education members to get an update on what is being done to address what got the city into this predicament.

Whether it was the analysis of the new contract with teachers or special education costs, “something we’ve been told in the last year was grossly incorrect,” McCarthy said.

Most other aldermen at the meeting echoed McCarthy sentiments.

“Liquidating this account is a bitter pill to swallow,” said Alderman-at-Large David Deane, especially considering there is still a need to replace the boilers in several elementary schools.

Ward 5 Alderman Michael Tabacsko said it’s an “ugly problem,” but said he would support the proposal.

“I don’t know of any other alternative,” he said.

Deane said the school district’s real problem is this year’s operating budget, which covers the upcoming school year.

Conrad has estimated that because not enough had been budgeted for this year in areas such as severance and special education, another $3 million shortfall is projected for this year.

Conrad has already decided to leave 53 full- and part-time positions vacant to make up $1.6 million of that shortfall. He is still working on finding other areas of the budget to make up the rest.

“I just hope we’re just not asked to dip back into this fund to cover this year’s budget,” Deane said.

One member of the board who won’t support Lozeau’s proposal is Alderman-at-Large Fred Teeboom. Teeboom isn’t a member of the budget committee, but was at Monday night’s meeting to voice his disagreement.

He accused Lozeau of “taking the easy way out.”

There are other solutions, Teeboom said, such as tapping into the city’s year-end surplus, taking the money from a city escrow account or from undesignated fund balance.

Teeboom also suggested the city reopen its contract with teachers and “start pulling back some of these raises.”

“That’s what caused the problem in the first place,” he said.

For the upcoming school year, the cost of teacher salaries went up 6.98 percent. This is the fourth year of a five-year contract. In the last year of the contract, the cost of salaries for teachers will go up 5.55 percent.

At the time the contract was approved in the spring 2008, Mealey said enough money was in the budget to pay for the changes made in the teacher salary structure.

There has been no public discussion by the Board of Education about reopening the contract with the teachers union to help save costs this year.

Later in the meeting, Lozeau responded to Teeboom by saying that the decision was far from easy, but it was the best option available.

Ultimately, Lozeau said the money should come from the school’s side of the ledger, not the city’s. She also applauded the Board of Education for taking responsibility for the situation.

Mike Gilbar, the city’s chief financial officer, explained that the current year-end surplus has already been factored into next year’s tax rate. Dipping into that would mean the tax rate would increase, he said.

Also, taking the money from undesignated fund balance could increase the city’s bond rating, he said.

“The more you deplete the undesignated fund balance, the chances of increasing the city’s bond rate go up,” he said.

Technically, the proposal takes the money from school capital reserve and transfers it to cover a share of the school debt principal payment the city budget already paid for.

The city would then transfer the $3.36 million to last year’s school district budget. Transferring the money directly would hurt the city’s bond rating, Gilbar said.