McDonald schools facing specter of fiscal emergency

By Mary R. Smith

The district was placed in fiscal caution Sept. 28.

McDONALD — The village school district learned Thursday from state auditors that the district faces a $2 million deficit in June 2010 and has been in a deficit since 2007.

The district is likely to hear from the state auditor in the “very near future” about being declared in state fiscal emergency, Barbara Mattel-Smith, associate director of the department of education told the school board and residents at a special meeting requested by the auditors.

She said state auditors are compiling the results of an audit now.

She added the district will not be able to make its three payrolls in October but will be given a loan against its state foundation funds — which must be paid back within the year — for about $150,000 to meet that payroll, until the state determines the district’s fiscal status.

Nita Hendryx, chief project manager for the Local Government Services Division of the state auditor’s office, noted that the state had placed the district in fiscal caution Sept. 28, which triggered the special audit by the LGS. At that time, the district had a projected deficit of $271,000, the figure reflecting the deficit as of June 30, 2009.

The district has been found to be at a deficit of 32 percent of its operating funds, with a projected 2010 budget of $6.296 million. Auditors noted that salaries and benefits in McDonald coincidentally make up 32 percent of the total budget.

She told the board she met with the superintendent and then treasurer Thomas Radabaugh in July and said the numbers for the district “looked odd to us.”

She said the board was given a forecast in May that showed a considerable increase in funds.

“The amount you saw in the forecast was not correct,” she said.

Superintendent Michael Wasser asked why the district didn’t know it was in a deficit in 2007 and 2008. Hendryx replied that it was because that is when a $250,000 loan was taken to cover expenses. “It started right there in 2007.”

Wasser noted new employee contracts were approved in 2007, adding, “We could not have done that with a deficit.”

Auditors said books were purchased and other expenditures were made that should not have been.

The loans that were taken or were not paid back in the year they should have been will compound to make up $1.3 million of the projected deficit in 2010, because they must be paid back.

The district took out $800,000 in loans in 2008, when it had a deficit of $100,000, auditors said.

Auditors said that tax income will drop $138,000 in 2010 because of tax delinquencies, and the treasurer also took a transfer on taxes in 2009 on 2010 taxes. A $600,000 loan due this year was not paid back but rolled over.

Mattel-Smith said, “You cannot borrow to avoid a deficit. It’s not allowed by state law.”

Within 15 days of a fiscal emergency’s being declared, a Financial Planning and Supervision Commission must be appointed, and it has 120 days to adopt a recovery plan. The school district already has a 4.9-mill emergency-operating levy on the November ballot; that issue would raise $260,000 annually.

The board already has applied to obtain funding through the Solvency Assistance Fund of the state, which allows borrowing a two-year interest-free loan against the district’s state foundation payments.

The loan requires State Controlling Board approval, and the state department of education has already requested the McDonald loan issue be scheduled for the Controlling Board’s next meeting.