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The Deficit in the Arlington School Budget

Ten days ago, the Arlington School Department issued a press release saying that the 2010 fiscal year, which had closed on June 30, was $1.5 million in deficit.  This deficit is illegal by state law, and the town has to resolve that.  Otherwise the town can’t do things like set the tax rate or send out tax bills.

I was absolutely shocked by this press release, and so was virtually everyone else.  The Finance Committee had no idea there was a deficit.  The Board of Selectmen didn’t know.  Even the School Committee was surprised.

The School Committee had a meeting that night (8/26), and I attended so that I could learn more.  There was a general presentation by Superintendent Kathy Body and CFO Diane Johnson about the revenue shortfalls of FY10 and how to handle it, but there was essentially zero discussion about how there could be a hole this big, identified this late, and surprise so many people.

Since that meeting I’ve been calling and emailing people, trying to put the story together.  I think I’ve largely succeeded.

I think there are at least four big-picture questions worth discussing.  If you think I’m missing one, please let me know.

  1. What the heck happened?
  2. What errors were made?
  3. How can we avoid this in the future?
  4. How do we get out of this mess?

1. What the heck happened?

Here’s an abridged timeline, factually accurate, but omitting some details in the interest of clarity.  Skip down to the Late June section if you’re bored already.

  • Fall and Winter ’09 – The school department learned of a number of things that negatively affected the budget.  They’re loosely outlined in the presentation given on 8/26.  We could explore the nitty-gritty of these for ages, but this discussion is best served by skipping that detail.
  • April/May ’10 – The School Committee, Finance Committee, and Town Meeting debated and ultimately voted a school budget for FY11.  Each of those debates included some discussion of the FY10 budget performance and the large gap that had opened between expected revenues and expected expenses and how to manage that.  At none of those debates was it suggested that the FY10 budget would be in deficit.  During this period (on 4/30), the School CFO Diane Johnson requested a reserve fund transfer from the Finance Committee of $250,000.  FinComm Chair Al Tosti said that kind of money wasn’t available, but the committee would consider the request.
  • Early June ’10 – This is where the paper trail gets thin.  What is clear is that on June 11 the school department withdrew their request for the reserve fund transfer.  What is also clear is that FinComm chair Al Tosti believed that to mean that the deficit had been managed through cost controls, grants, and transfers.  Clearly other town financial officials, paid and volunteer, shared that understanding; they never would have permitted an illegal deficit to occur.
  • Late June ’10 – Some anticipated revenues did not appear before the budget deadline.  Apparently the Superintendent and CFO both knew that there was a deficit coming, and they thought they had a plan.  Every year, a large number of teachers elect to be paid their salaries over 12 months (rather than the 9.5 months of the school year).  Every year, some money is rolled forward from the previous fiscal year to the new fiscal year to cover those salaries, i.e. the teachers’ salaries for July and August ’10 are paid from FY10 money that is rolled forward to FY11.  What the Superintendant and the CFO planned was to roll forward as much money as they could (approximately $1.5 million) from FY10, and then pay the rest of July and August salaries (approximately another $1.5 million) from FY11 money.
  • August ’10 – the town’s independent auditor noticed that only $1.5 million was rolled forward and started asking questions.  It was determined that it was not possible to pay those FY10 obligations with FY11 budget.  Thus, the FY10 budget was in deficit.

2. What errors were made?

There’s a bunch.

  • In an ideal world, the CFO and Superintendent should have know that their plan was not viable.  They should have known that they can’t pay FY10 bills with FY11 money.
  • The CFO and Superintendent should have shared their plan with a wider set of town leaders, who would have identified that the plan was not viable.  This is the error that drives me crazy.  The Superintendent and CFO had been to the Finance Committee twice in March and April, and it was clear that we all needed more communication.  FinComm hadn’t heard about all of the budget problems that had accumulated in the previous 8 months.  I even took the Superintendent aside and said as much at Town Meeting, asking her for more updates to FinComm in the coming year.  She and the CFO should have been banging the drum in June about the bad news as it came in. If the communication had been better, this could have been avoided.
  • The School Committee should have been more aggressive in its supervision of the FY10 budget.  They had asked for more frequent reporting, and were told that it was difficult/impossible because of charts of accounts, accounting practices, and other technical challenges.  They shouldn’t have taken no for an answer.
  • I’m curious why the Comptroller didn’t notice this earlier.  The $1.5 million roll-forward was much smaller than in the past, and it seems like that should have raised a flag.
  • In retrospect, I wish I had asked harder questions about the FY10 school budget.  By April we all knew there was a problem.  In June, when I heard the problem was resolved, I should have asked harder questions about how it was resolved.

3. How can we avoid this in the future?

Most of these are pretty obvious once the errors are spelled out.

  • When you know there is a problem, say something. Keep saying it until there’s a consensus and a plan.
  • Improve budget reporting so that everyone – Super, CFO, School Committee, FinComm, Comptroller, Town Manager, everyone knows how the school budget is doing.
  • The School Committee needs to learn to ask the hard questions, and keep asking them until they get the answers they need.
  • Change our accounting procedures.  Encumber the summer salary money earlier in the year, not at the end.

4. How do we get out of this mess?

There are a number of technical things that need to be done, but I don’t know what they are yet. Clearly we need a Special Town Meeting, and we need to appropriate some money to make FY10 no longer be in deficit.  There are a lot more details to be worked out.

Besides the actual financial mess, there’s a mess in terms of public trust.  Anyone who reads a headline about a surprise $1.5 million deficit is going to have serious questions about the competency of the town’s management.

It is easy to talk about the various factors that caused the budget to be out of balance.  They are largely external and out of the control of the school department.  The management of the financial problem, how we react to these challenges,  are things that are entirely within the control of the school department. This is the part that was screwed up.

My advice to the School Committee and the Superintendent and CFO is that they need to be transparent about the problem management.  They need to write a narrative (not unlike the one I have), they need to talk about what went wrong, and they need to talk about how they’re going to avoid it in the future.  No one can do this for them.  They need to do it themselves.

That is the first step towards rebuilding the trust that is required.  We need to believe that we have the skills to manage the problem.  Then, and only then, can we have a Special Town Meeting and unwind the financial problem.

Comments

Comment from DDA
Time: September 7, 2010, 1:21 pm

I’m moving into Arlington in the near future and so had the basic level of trust that I’ve had for town governments (in general) and school committees (in particular), which is to say, not much. Even so, I find this entirely less-than-optimal; rebuilding my trust in the town and its administration of both its budget and its school will require a lot more than you’ve mentioned here. This coupled with the on-going lawsuit and the Mass Ave redesign seriously makes me question whether I *want* to live in Arlington!

Comment from Denise Burns
Time: September 7, 2010, 1:37 pm

Dan, thanks for outlining this. But I think you should look back to last year when the superintendent told Town Meeting that the audit didn’t show discrepancies when it did and when she submitted an altered document to Town Meeting and took no responsibility for it…it was not what was voted on by the committee to be included in the budget package. I specifically requested that the budget be put in a package (they didn’t want to do that) before we voted and what I got myself in quite a state trying to call attention to for the past 3 years.

There are some instances when I requested information for oversite when the committee actually voted against me having access to the information.

I am encouraged that others are starting to sit up and take note that we are not getting good information and when we ask questions we are getting a dance instead of good solid answers to questions.

This was the case for the entire 3 years that I served and it was so disturbing to me that part of the reason I decided not to run (and look for a house elsewhere) is because we were asked to make decisions on inaccurate and incomplete information and I could not in good conscience operate that way.

I am encouraged by Jud Pierce and Kirsi Ampe..and as always by Joe Curran. Jud and Kirsi are asking good questions. They just need to lean on the rest of the committee to insist on good answers.

Comment from John
Time: September 7, 2010, 2:04 pm

Because I am not very knowledgeable in budgets, finances and local government, I am confused by this recent budget defecit problem in Arlington (where I live). And unfortunately, your article didn’t really clear it up for me (perhaps I need to re-read it a bit more carefully!). But I’d like to add one question to your list:

– Who, specifically, is responsible (names) and why haven’t they been replaced because of this blunder?

Comment from Len Kardon
Time: September 7, 2010, 2:18 pm

Hi Dan,
This is very helpful, esp. the part about the summer teacher salaries, although I don’t understand why that was not discussed at either the 8/26 school committee meeting or 8/31 budget subcommittee meeting. Once again it is like they are trying to hide their mistake. One question for FinCom though is whether we can have greater public visibility into the requets for and decisions made regarding the FinCom reserve funds. For example, for the 6/14 meeting at which most of these decisions were to be made, it would have helped to have an agenda come out with the proposed transfers. Also, the minutes posted are deficient as they state “VOTED to approve the other transfers as shown on Chapdelaine’s spreadsheet” but Chapdelaine’s spreadsheet is not included.
Thanks.

Comment from Barbara C. Goodman
Time: September 7, 2010, 2:41 pm

Dan, Thanks for this cogent explanation of what seemed to have occurred.
It is extremely difficult to develop a school budget during these tough fiscal times. I believe other towns and cities have also had deficits. The worrisome part is that our deficit seems to have come as a surprise. Your right: not knowing and/or not communicating and not being transparent are the real issues.
As a long time supporter of education and of our schools, I feel like i have just been kicked in my gut. bg

Comment from nora
Time: September 7, 2010, 2:50 pm

Dan, this is very helpful and starts to tell a fuller picture. Thank you so much.

While you’ve done yeoman’s work here, I think that there are still many things we have yet to learn and I hope that folks reading this will keep that in mind.

What is most clear to me is that there was a dreadful lack of communication and even when folks were in the same room, they appear to have heard or understood different things.
Part of restoring faith may be that we work together to review the processes under which the school budget is developed. We have done so with respect to the town-side budget over the past year and, to a lesser degree relative to the school budget. Perhaps its time for wholesale reassessment of how this is done and, at the same time to increase the sense that there isn’t a separate Town Side and School Side. In difficult financial times, indeed in all times, we are one town.

Comment from Stephen Harrington
Time: September 7, 2010, 8:27 pm

Dan,

Nice spin, especially the part about FinCom not knowing what was going on until August 26. Fact is, the information was common knowledge by August 13 and yet Arlington signed bonds on August 23 for the capital budget.

I was vaguely aware of the budget deficit when I made a public records request of the APS asking for their FY11 budget on August 20. I was sure that something was wrong on that same day when the CFO, Diane Johnson responded poorly to a routine request. By that Monday, and before the bonds were signed, it was established fact.

How could I know, a mere citizen and yet you claim the 21 members of the Finance Committee, the most connected and politically aware group in Arlington remain in the dark.

I don’t believe it.

From where I sit, FinCom has done a piss poor job of providing financial oversight of the Arlington Public Schools. The fact that FinCom allowed bonds to be issued in Arlington’s name without any due diligence is almost as bad as what the APS management did.

Unfortunately, you left that gaping hole out of your story. When all is said and done, the State will at most tell Arlington that it was poor management, but no real consequence; hey we live in a one party State and the AG would cover up Marzilli’s indiscretions, what’s a few million in malfeasance between fellow Democrats?

The real fall out will be for the Town’s bond ratings. I’d be surprised if S&P does not knock down Arlington’s ratings for this. I’d also expect that the Bond underwriter, Southwest Securities will be less than pleased with the chair of FinCom and their former employee, Al Tosti, your boss. Finally, all investors who bought those bonds will probably have the right to demand recourse from Arlington, if those bonds happen to lose relative value anytime while they remain outstanding, over the 10 years or so.

Comment from dunster
Time: September 7, 2010, 9:03 pm

@DDA – Every town has it’s drama. The nice thing about Arlington is that, with a few exceptions, there are nice, smart, kind people who are working together to improve it. I think you’ll enjoy it when you get here.

@Denise – I agree that there have been warning signs that the school budgeting has been in trouble for a while.

@John – I think that if the answer to “how can we avoid this in the future” ends up being “find new personnel,” then that’s the choice that I’ll put there. I’m not yet convinced that it is.

@Ken – I was at the 8/26 meeting, not the 8/31, and I was similarly surprised that the teacher salaries part was not discussed. I agree that they need to be more transparent than they are now.

Tracking the reserve fund is a bit of an art. During the spring when FinComm is meeting with all the departments, we’re asking “how is the current budget doing?” and reporting back on general health. In some cases, we KNOW that a given department is in trouble because of overtime or retirements. We’re also watching the snow-and-ice expenditures. There are a lot of conversations with departments and the Town Manager about ways to manage whatever is going on. The Town Manager’s recommendations get a lot of weight.

As it gets closer to the end, there’s a whole bunch of moving pieces – retirements, resignations, late bills, last-minute minor disasters (like a culvert washing out or a spring storm or a house fire). I think by May we generally have a broad idea of what we’re going to do, but events require changes up to the last minute.

Thank you for pointing out the missing spreadsheet. I’ll track that down.

Comment from dunster
Time: September 7, 2010, 9:26 pm

@Barbara – We are in strong agreement here. The problem isn’t the deficit; the problem is in how it was handled.

@Nora – I agree that there are things as-yet unlearned. This blog post is not, I’m sure, the last word. I’m not sure that I agree with you on the budgeting process, however. I’m happy to take a look at the process. But the restoration in faith needed here is in the management, not in the budget.

Comment from Leanne R
Time: September 7, 2010, 11:00 pm

I’ll ask the question: Was the deficit purposely hidden by the Super/CFO/Comptroller in order to pass a struggling budget, with knowledge that the town would have to pony up and pay the 1.5MM deficit without discussion of additional cuts? There is a big difference between lack of transparency and purposeful deception, regardless of the intent. And if it wasn’t purposeful then at the very least it was irresponsible.

When Jack Welsh left GE, he commented that anyone could steer an ocean liner for a while without doing much harm. Unfortunately with a ship this size, it’s difficult to correct the path quickly. How confident are we in the current crew? (And I am certainly NOT suggesting that Nate Levenson was Arlington’s Jack Welsh…)

Comment from Eric Berger
Time: September 7, 2010, 11:51 pm

Dan,

Thanks for your information. However, you left out a key step that must be taken no later than October 1..

The Superintendent and the CFO should each be written up for the record by the SC, and those reprimands should be placed in their personnel folders. Those reprimands should state in crystal clear, unvarnished prose exactly what were the inappropriate behaviors of each individual. Each such official reprimand should also explain in specific behavioral objectives language exactly what must be done in the future to avoid this problem. Each reprimand for the record should also include the consequences if these objectives are not met.

I am a retired public school educator. I served as the principal for Suffield High School in Ct and the principal of the Locusy Valley Jr-Sr High School in NY. I also served Locust Valley as an asst. supt. I had the pleasure of serving one great superintendent and several first rate Boards of Education. Based on my experience, there is no way a problem of this magnitude should leave the Superintendent and CFO unscathed for their personnel records, merely handled with kid gloves and a gentle reminder please not to let this happen again. What happened was inexcusable, and the SC has to serve notice on the Superintendent and CFO with no nonsense reprimands. If the SC needs help in writing such fair reprimands, I am sure the SC can receive such from the MA Boards of Education Assn.

The SC can’t look the other way or fail to get tough on this issue of mismanagement, dereliction of duty, and serious failure to communicate. The actions of the Superintendent and the CFO have put the Town at risk financially. Their failure to be up front and honest is more than a failure to communicate. They must be held accountable for the record, or else we’re playing games and offering lip service of concern.

Take good care,
Eric Berger

Comment from Linda Braun
Time: September 8, 2010, 9:05 am

As a former School Committee member who recently served on the Supt Search Committee, I have a very bad feeling about all of this. On the search committee, it became clear that the chair, who is a school comm member, was firmly in the camp of the acting supt. In addition, there was a certain lack of transparency even on that committee. When asked by the co-chair of the committee (who had been left out of the process) how it was decided that a new member of the committee was chosen to replace someone who had resigned, the answer was “murky” at best. The job of a School Committee member is to represent the public, to ask questions and to use good independent judgment – not to be an apologist for the administration. That’s how it worked when I had the privilege of serving on the SC so I know it’s possible.

Comment from Eric Berger
Time: September 8, 2010, 12:37 pm

Linda,

You’re right! The members of the School Committee above all represent the public who elected them. As you stated so well, those members are not there to serve as an apologist for any employee of the multi million dollar enterprise for which they are accountable. They are to function independently for the best educational interests of the students they serve.

They hold the Superintendent and his/her administration accountable, and when the Superintendent and her CFO mismanage the enterprise, they must be held accountable and evaluated with a no nonsense and clear reprimand for the record. The public should expect nothing less. This is not a time for weakness.

I expect any employee of the Arlington Public Schools who seriously transgresses, violating his/her professional responsibilities, would be reprimanded accordingly. What’s appropriate for any employee should be appropriate for the Superintendent and the CFO. There should not be one standard, for example, for teachers, and another for the Superintendent. That double standard corrodes.
Eric Berger

Comment from Bob Sprague
Time: September 8, 2010, 1:54 pm

Fears about the effect on Arlington’s bond rating appear overblown — so far. See http://www.yourarlington.com/finances/3164-deficit-da-sept810

Bob Sprague

Comment from Herb Yood
Time: September 8, 2010, 4:48 pm

Bob: You sound like the man falling off the top of the Empire State Building. As he plummets, people yell out the window, “how are you doing?” And he answers, “so far, so good.” The Nate Levenson effect on Arlington has been dismal. What else is the school department hiding?

Comment from dunster
Time: September 8, 2010, 10:57 pm

@Leanne – The draft plan on how to manage the deficit put forward by the Superintendent doesn’t use additional non-school money, so it seems unlikely.

@Eric – I’m inclined to agree. I’m continuing to hope that there is a good narrative about the past and a plan for the future coming from the school department, something that talks about how to avoid this in the future. I hope that any personnel actions are a part of that.

@Linda – Thanks for the comment. Can you drop me an email at dunster@dandunn.org?

@Bob – I’m not willing to call the fears overblown. Way too early for that to be validated.

@Herb – I don’t think bringing up past Superintendents helps the discussion. I have, and will continue to, evaluate the SC and the Super and the CFO on their actions, not on the actions of someone who left town years ago. It’s like judging me on the basis of the guy who lived in my house before I bought it.

Comment from Herb Yood
Time: September 9, 2010, 1:58 am

You are perfectly correct in that the school committee should be focusing on the current superintendent and her staff. However, as Shakespeare’s Mark Antony remarked, “The evil that men do lives after them.” In this case, the current superintendent came during Mr. Levenson’s tenure, and was appointed by the same school committee which enabled Mr. Levenson to mishandle his personnel decisions which in turn led to the firing debacle. That does impinge on the town’s freedom of maneuver, and has proven costly no matter how the case is settled. And there will be more cost as the arbitration and court costs mount.

Comment from smerls
Time: September 10, 2010, 5:37 pm

Dan,

You may have mentioned it and I just missed it but in April when the initial request for the $250,000 from the reserve fund was made, was it clear to the fincom what the request was for?? Maybe I am going down a wrong path here but it does not sound like anyone really questioned what the request was for which could have been a tip off that the budget was in trouble…

Comment from Dana Ansel
Time: September 11, 2010, 10:16 am

Hi Dan,

Thanks for putting this post together. You raise a number of important questions. However, you may be incorrect in your analysis of who knew what when. At the SC budget subcommittee meeting, the Superintendent said that she and her CFO had a meeting with the town manager in June to discuss the deficit. While I certainly agree that the SC and the Administration were remiss in their responsibilities, it also appears to me like they were not alone in their mishandling of the deficit. It is wrong to claim that it was a complete surprise to everyone else. Other key players were informed before the end of the fiscal year.

Comment from dunster
Time: September 11, 2010, 10:35 am

@smerls – In April the finance committee knew that the budget was a problem. In general, when a budget is having a problem, the first thing you try to do is manage it within the budget. That means things like finding budgets that are UNDER that you can use the surplus, making mid-budget cuts, things like that. We thought the $250,000 request was one element of the plan. We certainly knew there was budget stress; there’s a big leap, though, from budget stress in April to a deficit in June, to press release in August.

@Dana – I heard the Super say she told the manager, however I have not yet heard the Town Manager confirm it. I have heard more than one version of what was said at that meeting. I didn’t feel confident enough about what did/didn’t happen to include it in my recap.

Comment from NewResident
Time: September 11, 2010, 7:28 pm

New Resident to Arlington with young children and we may leave. This is no way to run a town or schools. We made significant investments in our home, which is what the town should attract — families who want to renovate, make investments in the community and increase the home values in the town. And now I’m nothing but saddened and disappointed about what has evolved with the school budget and school committee. 18 months ago I was positive about moving in, and raising kids through at least the elementary schools here. That feeling has changed.

Comment from A sad state of affairs
Time: September 14, 2010, 9:58 pm

This whole mess is unbelievable. Why does the school committee, the CFO and superintendent get away without open financial records? These are PUBLIC monies, not your personal stash.

I am shocked to read that the School Dept doesn’t want to, or is unable to (BS) provide detailed budgets and expense reporting on a regular basis because “it was difficult/impossible because of charts of accounts, accounting practices, and other technical challenges.”

Get over yourselves.

This in not YOUR MONEY. Provide the information as directed to do or get another job. I hope the AG’s office gets to the bottom of this….. I bet we can all guess what that report will say…..”lax accounting practices that do not meet the standards for public accounting”

What do you have to hide? You don’t want everyone in town to know that there are huge sums of money wasted on an annual basis? I’m sure those responsible for the school committee and budget are steaming if you haven’t already stopped reading…..if these wild guesses aren’t true…. PROVE IT. Get the budget, the expenses, the costs, EVERYTHING out in the open….by the way, how much are those lawsuits costing the school, the town and the children who attend Arlington schools?

Public trust? HA! That’ll be the day. No one trusts the school committee, the superintendent or the CFO to do anything right now. We’ll just all be happy when the AG clears those involved of outright theft so we know it’s just gross incompetence.

Comment from A sad state of affairs
Time: September 14, 2010, 10:00 pm

One last thing. Thanks Dan for the narrative on this issue.

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