Budget Gimmicks and Need for Transparency

by Eamonn Scanlon, Education Policy Analyst, The Children’s Agenda

This is the second of a series of blog posts regarding the current RSCD budget situation.  Click here for the first, Understanding the Rochester City School District Budget in a Nutshell.

“Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.” — Supreme Court Justice Louis Brandeis, 1913

The Rochester City School District (RCSD) is currently looking for ways to save $30.1 million this year to make up for overspending in the 2018-2019 budget. In The Children’s Agenda’s first blog post we explored how we got here. In this post we talk about how a lack of transparency kept the public from knowing overspending was happening, and what budget gimmicks were used to hide the truth.

When news of the overspending first broke, The Children’s Agenda was deeply concerned. Our mission is to drive effective policy and evidence-based solutions to improve the health, education and success of children, especially those who are most vulnerable due to poverty, racism, health inequities and trauma.  To date, we are the only independent group with no vested, institutional interest in the budget (The Children’s Agenda does not accept government funding) who has been monitoring budget decision-making at RCSD over the last two years.

As an analyst and advocate on RCSD’s annual budget, The Children’s Agenda had access to all publicly available budget documents and regularly attended Finance Committee meetings.  But the documents presented by the District’s Finance Department, as well as their verbal statements, misled the public about the potential for overspending and disguised overspending when it occurred.

As of this writing, nobody has taken responsibility for the overspending: not the Finance Department that drafted the budget, the former superintendent who oversaw spending priorities, or the RCSD Board of Education that approved the budget.

Now, there is enough information to indicate knowledge of overspending in the 2018-19 budget by members of the Finance Department by at least April, 2019. How do we know this? The April financial report shows the district was planning to spend $5 million more than the approved budget. In the May financial report the gap grew to $14 million.

Figure 1: Cropped table from RCSD May 2019 Financial Report. The sub total line indicates planned spending, while the grand total line indicates approved spending. Planned spending exceeded approved spending by $14 million.

This was easy to miss because as figure 1 above shows, the sub total is the planned budget, and the grand total is the approved budget. Notice the large discrepancy between the sub total and grand total in the column “Budget as Appropriated of May 31, 2019.” The difference is commitments over and above the approved budget. Though the above figure appears easy to read, it was cropped from a much larger table with many more columns and rows, and buried on page 28 of a 33 page report.

Similarly, 54 of the 65 budget lines for major accounts were revised between the April and May financial reports. There is no column that tracks month to month changes in the report, which would alert the reader to these revisions. The changes are only evident when comparing the two reports and with great difficulty. This means nearly ever budget line was altered, either to move money between accounts or to hide that some accounts had already been overspent.

Table 1: Budgeted amounts for selected account categories that were overspent. These numbers are from the RCSD April and May financial reports, the differences were calculated by The Children’s Agenda. Budget lines were routinely revised upward to show money was still available even if the original budget had been overspent. 54 of 65 budget lines were changed between the April and May reports.

In Table 1 we see the budget line for substitute teachers was revised upward by $1.5 million between the April and May reports. As costs continued to rise the budget was continually amended to show that funds were still available even though the original budget had been exceeded by $5.6 million. Every line that was overspent was amended upward to appear as if there was money still available.

That indicates the creators of the report knew actual spending was well over budgeted spending. Parents and the community deserve full transparency about who knew, and why that information was kept from the public. There should be accountability, but more importantly there needs to be a deep conversation about how to make the budget accessible and transparent for parents. Information is power, and when information is withheld or manipulated it deprives parents and the community of their power.

The biggest challenge in studying the RCSD budget for The Children’s Agenda is that original budgets are routinely ignored, and large amounts of money are moved around to cover the discrepancies. It is very hard to distinguish between real changes and superficial ones. Every budget cycle, dozens of changes will be made in various departments, some benign and some significant. It takes a lot of detective work to tell the difference and the public does not have access to all the documentation that allows us to map the definitive chain of budget changes that leads to the bottom line. As a result, the public, parents and children’s advocates are overwhelmingly dependent on the honesty and transparency of RCSD staff.

At RCSD, budget lines are revised frequently, usually because grants have come in, additional revenue is suddenly available, or because of changing enrollment patterns. It was easy to conclude that the revision to the substitute teacher line was due to new revenue becoming available. Now it is clear that many changes in expenditures were made as desired without any relationship to the income to make those changes.

The school district was able to get around this problem for years because it found ways to pull money from vacant positions, grants, and their savings (fund balance). In 2018-2019 the district maxed out these sources of funding and instead dipped into money that was set aside for future expenses. The current deficit is really for future expenses, as money needs to be found to pay bills that will come due over the next year. This had been building for years as savings were continually spent to prop up spending. With very little reserves in 2018-2019, many dishonest cost projections, and an even bigger than usual use of vacancy funds and savings, the district hit bottom.

Moving forward, any time a budget line is increased mid-year it should be brought to the attention of the Board along with spelling out where the additional revenue is coming from. Spending projections should not be decreased in any area without clear written justification.

An honest conservation about the structural budget deficit needs to take place. There are many board committees and various staff-run initiatives, but no standing group to address the long-term financial challenges of the district which create problems every budget cycle and led to the financial mismanagement that occurred last year. This group should be a partnership between parents, board members, district staff, and outside experts including The Children’s Agenda.

This group should have the authority to make decisions about the budgeting process and be charged with three main outcomes:

1) Make the budget document and budget-making process more transparent and simpler to empower parents and the community; From our first ever report on RCSD’s budget last year, we said:

“The overriding goal of this budget analysis is to increase transparency. The Children’s Agenda met with dozens of RCSD parents during the 2017-2018 school year who expressed confusion and doubts about the school district’s spending priorities. Many of these parents felt disconnected from the process because they lacked clear information, and did not trust that their feedback was taken seriously. The Children’s Agenda believes greater transparency is necessary to strengthen collaboration and trust between all members of the school community. Everyone should know where money is being spent and why.

…parents and the community are the final judge of what is useful and comprehensible…there should be a collaborative process with district parents to reformat the budget for their needs.”

2) Develop concrete plans to address the structural budget deficit; and

3) Create standards for spending that are focused on student outcomes, parent voice, and the best available research.

With a transparent budget-making process and a sustainable financial plan, RCSD can focus on its main goal—the education, wellbeing and success of its students.