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Hillsborough school district in financial straits, again

Reserves have eroded, as they did a few years ago. Confusion surrounds the true cost of employee pay.

TAMPA — The Hillsborough County school district has again eroded its financial reserves, an ill-timed revelation that angered School Board members when they were told about it late Tuesday amid planning for the expensive task of reopening campuses during a pandemic.

Superintendent Addison Davis told the board that preliminary, year-end numbers show the district’s main reserve account will have shrunk from about $150 million to $100 million when the books close for the fiscal year that ended June 30.

“That is a $50 million deficit,” Davis said. And while that is above legal thresholds, it is a far cry from what the investment community recommends for reserves, which is closer to $200 million.

Related: ‘Disgusting.' What Hillsborough school officials said about the latest financial setback

The reasons for the loss are numerous, but a big one appears to be confusion or a miscalculation over the cost of employee raises. The School Board said that, in a closed session in 2019, they authorized the district to spend $39 million more after negotiating with its employee groups. But expenses grew, and the difference discussed on Tuesday was $25 million, a number district leaders were still trying to clarify on Wednesday.

Then there was more spending, chief financial officer Gretchen Saunders said. The district hired extra staff and paid bonuses to attract seasoned teachers for Hillsborough’s 50 struggling “Achievement” schools. There were rising pension costs and, later, more millions related to COVID-19 and distance learning when the schools closed in March.

Board members were visibly upset to hear the news, using words like “disgusted” to describe the situation.

They lamented that their constituents, who trusted them enough to approve a half-cent sales surtax for infrastructure, will now feel fleeced. Sales tax proceeds can be used only for capital purchases, not ongoing expenses such as payroll. But the miscalculations felt all too familiar: Former superintendent MaryEllen Elia left her successor, Jeff Eakins, with a similar mess when he took over in 2015.

“What other unapproved expenditures are there that we don’t know about?” board member Stacy Hahn asked, shouting at one point. “How do I move forward and trust anything that comes to this board for budget approval? This was a big blow to the trust between the board and the staff. And it’s even a bigger blow to the trust of this community.”

Under Eakins, the district spent years digging out of spending imbalances related to teaching reforms the district had implemented in partnership with the Bill & Melinda Gates Foundation.

In 2013, Elia launched a new teacher pay scale that was designed to reward performance, based on raises of $4,000 every three years for teachers who qualified. District leaders did not know how many teachers would migrate into the new plan.

Two years into the new system, they revealed the reserve had shrunk by $200 million. As is the case now, that fund was still above legal thresholds. In fact, the teachers union said the loss was to be expected, as there were up-front costs built into the new pay plan. But bond rating firms were alarmed, and the district’s credit was in danger.

It fell on Eakins to rein in spending. Even though school air conditioners were falling apart, board members postponed going after the sales tax referendum until they could prove they had a balanced the operating budget.

Along the way, they faced pressure from teachers who had to forego raises they were promised. There were protests outside the board meetings, with bullhorns and cowbells. Competition from Pinellas County and other nearby districts with higher starting pay exacerbated the district’s teacher shortage.

The board on Tuesday grilled Saunders, the finance officer, about who knew of this year’s shrinking reserve, and when. By her description, Eakins was fully aware as far back as October. They discussed the problem numerous times, she said. But nothing happened. By then, Eakins had announced his retirement and the board was searching for a replacement.

Then the COVID-19 crisis happened.

“We had set up a data plan for the students during COVID that we didn’t have projected in the budget so they would be able to access online,” Saunders said. “And then, as Mr. Davis said, we had to order computers and devices. We started ordering cleaning supplies for the schools.”

In typical years, the school district uses existing supplies in the spring months. “We ordered gloves and masks and lights. Everything that we did not have budgeted,” Saunders said.

At one point, Saunders said expenditures increased by $80 million from one year to the next. Later, she said the district might take out a short-term loan to cover costs until property tax revenues arrive in November.

Board members alternated between chastising Saunders for not keeping them apprised and forgiving her. Technically, she reported to Eakins, not them.

As for the difference between the $39 million that the board authorized and the ultimate cost of pay increases, there was confusion Tuesday that continued into Wednesday. When asked for an explanation Tuesday evening, Chief of Human Capital Marie Whelan said: “We were not anticipating that it was going to exceed that amount and we are still working through those numbers, exactly where those salaries are.”

There is also hope that the federal government will reimburse the district for expenses related to COVID-19, although that money will not be reflected in the budget year that is about to close.

Some board members were especially disheartened to hear Saunders recount her conversations with Eakins. By her description, Eakins kept assuring her that new revenue would replenish the account.

“This shell game is not the first time this has happened in the district, right?” board member Steve Cona said.

“I read before I was on the School Board, I know that we had these shells and we moved money around, and all of a sudden, now, we opened the shell and there’s no money in it. And now we are dipping into fund balance. This is not Tallahassee’s fault. This is our fault.”

Reached while he was traveling on Wednesday, Eakins denied hiding anything from the School Board. “I have worked very diligently with the board to get this budget exactly where it should be,” he said. Nor, he said, did he ever count on revenues to bail him out of escalating payroll costs. “Oh my goodness, absolutely not.”

Eakins said he is now working with Saunders and Davis as they try to straighten out the areas of confusion.

Eakins did say he always expected the district to protect its general fund reserve balance by using accounting transfers: For example, charging an employee’s salary to the capital budget if he worked in construction, or to the food service budget if he worked in a cafeteria. That’s something that happens after June 30, as the district is putting its books through the auditing process.

“July 7 is awfully early to start talking about the fund balance,” Eakins said. “There is still a lot of work to do.”

Some of the board members, including Cindy Stuart, are demanding a clear accounting as they will have to answer constituent questions. There was talk of a workshop where all of this can be aired. Since the start of the COVID-19 crisis, the board has cancelled most workshops, and all meetings of its finance committee.

The district also is in the process of scheduling a workshop to discuss its reopening plan and a virtual town hall meeting where Davis can answer parent and teacher questions.