The Town Council pledges to work with the School Department as much as possible to correct overspending on the education budget in Fiscal 2021 and likely Fiscal 2022.
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CONTACT: Matt Sheley at (401) 842-6500, Ext. 1194 or msheley@middletownri.com
BUDGET ISSUES HIT HOME FOR SCHOOLS
MIDDLETOWN, R.I. (DECEMBER 6, 2021) – Town and school officials pledged to work together to solve “serious” issues with the education budgets unveiled Monday night.
School officials said they would have an action plan by the end of January 2022 about how to address their $326,000 in overspending in the Fiscal 2021 budget and potential shortfalls for the current Fiscal 2022 budget.
The items were before the Town Council for the first time during a meeting from Town Hall, where education officials said chronic underfunding by the Town finally caught up with the schools.
At the same time, Town and school officials said they would work hard to avoid having any reductions or changes impact what happens in classrooms across the district.
“We can’t tell you how to spend (school money), we can only approve the bottom line,” Rodrigues said. “It’s your responsibility. It’s your job to make sure that you’re meeting that bottom line by state law.”
At the same time, Rodrigues said everyone had to work together and not point fingers through the situation.
“Just say ‘Hey guys, we need your help,’” Rodrigues said. “Let us help you. We’re trying to be behind you…It truly doesn’t have to be like this. Just say ‘Hey, we’ve got a problem. Can we sit down and work this out together because we have to work together. We work for the Town. We work for the people. And you know who suffers the most here? The kids.”
“None of us want to see something like this happen,” School Committee Chairwoman Theresa Spengler said. “This is not okay and we know that, but it’s not something we intentionally did.”
The item was before the council at the Rodrigues’ request and the subject of a Nov. 30 memo from Town Administrator Shawn J. Brown. In that four-page memo, Brown wrote the School Department overspent its budget in Fiscal 2021 by more than $300,000.
Brown said based on a review of the available information from the schools, it appeared the education budget has similar — if not worse — concerns in the current Fiscal 2022 budget too.
As a result of the situation and incomplete financial statements, Brown said the Town needed to seek an extension on its annual audit of its books until Feb. 28, 2022. The Town’s audit was supposed to be completed by Dec. 31, something that he said was not possible.
Figures from the Town’s finance office show the current year council approved general fund school budget was $37.9 million, compared to $37.1 million for Fiscal 2021, or an $800,000 hike, or 2.2 percent increase.
A timeline laid out in Brown’s Nov. 30 memo showed the School Department reported an operating surplus of $266,000 in July 2021 for the fiscal year ending on June 30, 2021, a point disputed by Spengler and school Superintendent Rosemarie K. Kraeger.
But since then, Brown wrote the schools posted $1.5 million in spending, which created an operating deficit of $326,000 for Fiscal 2021. Brown wrote the School Department also indicated the deficit could be as much as $1 million. This information was first reported to Brown on Nov. 8.
At the group’s Nov. 18 executive session meeting, School Committee members learned of a plan from school administrators to tap the school’s $1.542 million fund balance to cover the Fiscal 2021 deficit. Brown wrote the latest information indicated there was about $102,000 remaining in the school’s fund balance account moving into the current Fiscal 2022.
Brown wrote that move went against the school’s “Spending Policy and Minimum Fund Balance Policy,” which specifies the schools maintain an undesignated fund balance of at least 3.5 percent of the total general fund budget. In the current Fiscal 2022, figures from the Town showed the approved general fund budget was close to $38 million.
At the same time, Brown wrote the schools haven’t been able to produce finance statements, which makes it difficult to confirm the school deficit for Fiscal 2021 or complete the Town’s audit.
“For example, the School Department budgeted $1,550,000 in unidentified reductions in its spending; however those reductions have never been formally identified by the School Committee,” Brown wrote. “This makes it challenging to complete a meaningful budget to actual variance analysis, which is necessary budget planning when considering FY22 & FY23.”
In response, education officials said they sent notice about shortfalls as early as last February. The problem, they said, was the schools weren’t funded properly for years, resulting in the situation today.
Calling it a “deficit in funding,” school officials said historically, they’ve been able to cover gaps in the budget using fund balance and military impact aid, but those sources have dried up. Combined with the decline of state aid for more than six years and the situation wasn’t getting better, they said.
“As I review our budget for last year and this year, I have concluded that our financial issues do not originate in the expense side of the budget,” Kraeger wrote in a memo. “The issue is that we need more revenue to fund necessary operations from the Town. We need to move forward to address our structural deficit by convincing municipal government to fully fund our needs. The alternative will be continued and mounting deficits and substantial reductions in the services we provide our children.”
Kraeger said staffing shortages in the finance office were to blame for the record keeping issues, something that should be taken care of in the next week or so. She said the schools were in the process of bringing in additional staff to help gather all the necessary information, which is expected to be reported out by the end of January 2022. School finance director Cynthia Brown was not in attendance for the meeting.
Reading from the town administrator Brown’s memo to the council, Kraeger said for too long, Middletown has underfunded its schools to the point of today.
“It is critical that we begin to address all of these issues now to ensure that the Town can meet its obligation to provide quality services now and in the upcoming fiscal year,” said Kraeger, quoting from the last page of Brown’s memo. “I hope that we will come together over the following months to overcome the challenges presented above.”
In order to properly close out its Fiscal 2021 books, Brown wrote the schools must complete all its financial statements and submit them to the Town’s Finance Director Marc Tanguay and the Town’s auditors.
At the same time, he wrote the School Committee must report to the Town Council that it overspent its budget and a corrective action was in place. This step is required under the Rhode Island General Law 16-2-9(f), which mandates the school board report any potential or actual overspending to the council within five days of its discovery.
According to state law 16-2-9, the School Committee must maintain a budget that does not result in debt.
If a budget that results in debt is discovered, 16-9-1 mandates the School Committee must notify the Town its expenditures are more than what was budgeted for that fiscal year.
Section 16-2-9(e) requires the School Committee no more than five working days to tell the Town, council President and Town Administrator of the overage in writing. That notification must include a statement of the School Committee’s corrective actions. The state Auditor General must approve the plan and it must be filed with the state Division of Municipal Finance.
Had the School Committee believed it did not receive enough funding to support its mission to educate children, state law under 16-2-21.4 provides legal recourse to seek additional money if all other avenues with the Town are exhausted. Such a course was not taken by the schools in Fiscal 2021 or the current Fiscal 2022 budget.
With the books not squared away for Fiscal 2021, Brown wrote its likely the current Fiscal 2022 figures will end with another deficit balance for the schools.
He wrote the schools were expected to make $379,000 in cuts that have not been identified or implemented yet. The memo also showed that there was no money budgeted for substitute teachers or maintenance costs even though there is spending in both those areas.
To move forward, Brown wrote the School Committee must identify where true savings and expenses are occurring and take the necessary steps to get things squared away, both for today and the approaching Fiscal 2023. That’s especially true, he wrote, because there’s no fund balance to tap to help fund operations.
Town Finance Director Marc Tanguay said his office – and the council – were made aware of about a $266,000 surplus on the school side over the summer. Tanguay said at the time, the School Department’s spending was within the approved budget.
“There’s no question we want to work with the schools and take a measured approach to get things back on track,” Tanguay said. “With the upcoming Fiscal 2023 budget right around the corner, that’s an excellent opportunity to make sure this situation is corrected so it doesn’t carry forward for another year and compound and become something structural that is much more difficult to fix.”
“I agree 100 percent,” Brown said. “There’s a lot of momentum right now behind our schools and maintaining and improving what we have and we don’t want this to throw cold water on all that hard work and energy. The way I see it and a lot of people see it, we can put this in the past as long as we work together.”
“As administrators, it’s going to be a heavy lift to get this hole plugged,” Brown added. “I do know that this is a workable problem and there’s a desire to not have any of this overspending impact what happens in the classrooms across our community. This isn’t something that should affect our children and it won’t affect our children.”
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