Niles school system faces tough financial decisions

State-mandated fiscal emergency could be a godsend for the economically distressed Niles City School District.

To be sure, there’s a stigma attached to the declaration by Ohio Auditor Keith Faber. The state’s intervention was triggered by the failure of the school board and administration to get the operating budget under control.

But now a financial planning and supervision commission will oversee the district’s recovery and the development of a five-year balanced budget.

While having the district’s purse strings controlled by an independent entity may not sit well with the administration and the school board, there’s a definite advantage: The finger of blame for unpopular decisions can be pointed at Columbus.

In addition, with a statutorily-mandated commission controlling the district’s budget, the argument for a 5.6-mill renewal levy on the May primary ballot becomes even stronger.

When state Auditor Faber declared the emergency in late February, the budget projections revealed six- and seven-figure deficits for the next five years.

Last June, then Auditor David Yost, now Ohio’s attorney general, issued a fiscal watch declaration because of the red ink on the books.

The district was required to submit a fiscal recovery plan, which was approved by the state. But in December, the Ohio Department of Education recommended the fiscal emergency declaration after the Niles district failed to comply with the plan.

“We knew it could come any day now,” said Superintendent Ann Marie Thigpen after receiving the notice from Auditor Faber.

The anticipated deficits exceed $500,000 in the current fiscal year, $1.1 million in 2020 and nearly $3 million in 2021.

There is a silver lining in this dark cloud: The superintendent and members of the board of education do not have to go very far for advice on how to weather the storm.

Disagreements

For 4 Ω years, Niles city government was under fiscal emergency and it seemed for quite a while that the shackles would never come off. That’s because the various parties involved in developing a recovery plan couldn’t get their act together.

The financial planning and supervision commission reviewed eight versions of the plan.

Finally, earlier this month, state Auditor Faber attended the commission’s meeting and announced the lifting of emergency.

“This is a good day, a bright day and it’s setting a new tone for the future,” he said.

The red ink that soaked the budget in October 2014, including a $2.7 million deficit in the water department fund, was erased by a combination of spending cuts and a boost in revenue.

In 2016, residents approved a 0.5 percent increase in the income tax rate after rejecting a 0.25 percent hike.

In the water department, rates were raised and other charges for services increased. Thus, the five-year financial forecast reflects a $4.3 million surplus in the water department by 2023.

“That’s a $7 million turnaround,” said Tim Lintner, one of two state-appointed financial supervisors.

What Niles city government learned, and what the Niles school district will soon learn is that eliminating a deficit in an operating budget is never easybecause more than 70 percent of the spending is on employee wages and benefits.

Hence, a reduction in the payroll and cuts in other employee-related spending are inevitable.

In Niles city government, the cost of health care was slashed by $2 million, while income tax collections were increased by outsourcing them to the Regional Income Tax Agency.

The city has also greatly improved the financial accounting and reporting system, which was virtually nonexistent at the time fiscal emergency was declared.

In the case of the Niles school district, state auditor Faber said, “Their books and records were nearly unauditable.”

It is encouraging that the district will have the same two financial supervisors, Lintner and Nita Hendryx, who guided city government to fiscal recovery.

At the heart of any public agency’s economic challenges is the lack of discipline on the part of the keepers of the public purse.

In the Niles school district, the hard work of erasing the red ink and developing a balanced annual budget for five years is just beginning.

But there is light at the end of the tunnel, as City Hall found out – after everyone set aside their personal agendas for the common good.