Budget Woes - a note from ESTA

From: Don Mckell [mailto:estapres@pacbell.net]

Sent: Thursday, October 21, 2004 3:42 PM

Subject: Superintendent meeting

ESTA Executive Board:

By invitation, Ralph Giannini and I had a lengthy meeting with the superintendent and the new chief financial officer this morning (Thursday). The topic of the meeting was district finances, and there is little but bad news.

A special meeting of the school board has also been called for next Tuesday at 5:00 p.m. As far as I know, it will have a single topic.

Here's what Ralph and I were told at this morning's meeting:

A couple of years ago, a piece of the District Office property (a little over 2 acres) was sold to VTA for use as a parking lot for the new light rail on No. Capitol Ave. The proceeds from that sale were placed into a special fund, but eventually they were transferred in their entirety to the general fund (I believe in the 02/03 budget year).

In addition, a larger piece of surplus property adjacent to EVHS was sold, and the proceeds from that sale were placed into the now-infamous Fund 17. As we have heard, a significant portion of that Fund 17 has been diverted into the general fund over the last year or so.

On Tuesday of this week, a FCMAT auditor to informed the superintendent that the use of proceeds from land sales for general fund obligations is an illegal practice, and that every penny of that money must be restored to one or more special restricted funds.

It gets worse.

The FCMAT auditor also is reported to have told the superintendent that approximately four million dollars of "developer fees" has been illegally spent on deferred maintenance by this district over the course of the last five years, and must also be restored.

The net result of this news, as it was reported to Ralph and me, is that something like $8.3 million dollars must be taken from the general fund and restored into a series of restricted funds. We were given the impression that this transfer needed to be nearly immediate. Whether it takes place today or next month, it apparently must take place within the current fiscal year, which brings me to the next piece.

As I write this, the sup and the CFO are at the County Office of Education, where they went to amend the budgetary documents recently submitted by this district. The result of that amendment will be a "negative certification" by the County of the current-year budget of this district. The sup explained to me that she was sure that she would be able to keep the County from coming in to take over the District, especially since she (Dr. Z) intended to bring a plan to our school board for adoption in November, that would swing the ending balance plus reserve of the district to an amount which would eliminate the negative certification.

Ralph and I were provided with sketchy details of that draft plan. I imagine more details will follow at next Tuesday's special school board meetings.

In retrospect, the information from this meeting we had with the sup this morning seems to dovetail into much of the "receivership" rumors that have been floating around the district recently, although from what we are being told, it won't be that serious. I asked the sup point blank if she was going to seek a County or State takeover of the district, with the resultant suspension of the current CBAs. She swore that this would not happen.

The sup did share with us a few details of what her thinking is in terms of how to "save" this kind of money. I'll discuss those items at our meeting on Tuesday afternoon.

Following the meeting with Dr. Z, Ralph and I and Jack Mahrt participated in a conference call with the FCMAT auditor who had performed the work and who had delivered the findings earlier this week. His name is Anthony Bridges, and he confirmed (his own opinion) that the district was in violation of (at least) Ed Code sections 17462 and 42603.

Of course, there are many questions which spring to mind in the wake of this bad dream. Why was FCMAT even here? Why didn't Harvey Rose, or KPMG, or the CPA firms that do the regular annual audits, find these discrepancies in previous years, when solutions might not have been so painful? Is there really a payback issue at all? If so, how much time does the District have to effect the payback? Does this have anything to do with the election in less than two weeks? Will news of this leak out and reduce even further the chances that the Parcel Tax will pass?

I don't know the answer to a single one of these questions. But I have engaged our attorney Chris Schumb, and knowing folks here at the office and from the CTA mothership, to help shed some light on the answers and our options.

I intend to work a half day at the office tomorrow (Friday). Then I'm out of here for the weekend. I'll answer phone calls and emails on Monday, but please don't pepper me with too many of those because I'm not likely to know much more on Monday morning than I know now. Please plan to attend the brief special meeting of the ESTA E-Board on Tuesday afternoon. Then, perhaps, a delightful excursion to the 5:00 p.m. special meeting of our talented, hands-on, user-friendly school board.

Don