HAVERHILL — Crisis averted.
The city will give its schools $1.35 million to plug an 11th-hour budget shortfall. In exchange, the School Committee will hire an outside company to perform a management audit of school finances and accounting methods, according to a deal reached at an emergency City Council meeting last night.
Superintendent James Scully also agreed to provide detailed budget updates on a monthly basis to the council and Mayor James Fiorentini.
City officials have known they were facing a large school budget shortfall since the beginning of the month, but Fiorentini said school administrators were able to tell him the exact amount only a few hours before the meeting. The late notice and uncertainty drew sharp criticism among councilors and the mayor.
Councilor Michael McGonagle said Scully told councilors two weeks ago that the schools would likely end the fiscal year with a deficit in the $400,000 range.
“In the private sector, people would lose their jobs with a last-minute deficit like this,” McGonagle said.
State law requires cities and towns to reconcile their annual operating budgets and pay all their bills by the end of the fiscal year, which is Sunday.
“This shortfall and the late notice is completely and utterly unacceptable on so many levels,” Fiorentini told the council. “The schools, like everyone else, has to live within their budget. It’s unacceptable for them not to give better updates and reports. The special education overrun is the heart of it, but it’s also inappropriate accounting and poor oversight.”
Scully said the deficit was primarily the result of 18 special needs students who moved to Haverhill since August, including one whom has cost the district $329,000 since October. A second student has cost $141,000 since January, according to information provided by school officials.
The superintendent said the total special education overrun was more than $2 million, but that he reduced the deficit by freezing non-essential spending months ago. He said superintendents across the state are dealing with surging special education costs.
“These unanticipated special education costs created a perfect storm that we couldn’t have planned for,” Scully said. “But I agree we need better controls and monitoring methods. The way we issue and track bills needs to be improved.”
Scully told councilors he wanted to hire a company in May to audit the budget when he realized there was a problem, but that no firms were interested at the time.
Councilor William Ryan said the state Department of Education and the Legislature are to blame for the financial mess.
“This is going to repeat every year until something is done about these unfunded state mandates,” Ryan said. “They tell us what to do but they don’t give us the money to do it. ...It’s hard to say no to (special education) children, but I’m not sure the city and state can afford this. There’s just not enough money. The problem isn’t in this room, it’s in Boston.”
The council voted unanimously to approve the mayor’s plan to cover the shortfall with funds reserved for emergency expenses — $802,000 from the stabilization reserve and $550,000 from the “free cash” account. The transfers emptied the free cash account and left about $2 million in stabilization, the mayor said.
In a subsequent move, the council cut $500,000 from next year’s school budget. Scully said he is developing a plan for where to cut the money and that he will make a proposal to the School Committee at a future meeting. The $500,000 from the schools is to go back into the city’s stabilization account.
The mayor planned to take $900,000 from the city’s health insurance trust fund, which is used to pay for medical care for workers in the city’s health insurance program. But he said Haverhill’s financial and health care advisers convinced him tapping the stabilization fund was a better alternative.
The council also approved Fiorentini’s request to form a panel of School Committee members and city councilors for the purpose of developing a proposal to consolidate the school and city finance operations. But the School Committee rejected that idea at its meeting later last night. Several members said they would consider the merger in the future, after the management audit of school finances is completed.
The mayor and school superintendent, along with City Auditor Charles Benevento and new school business manager Leighton O’Connor, will review proposals from companies to do the audit and eventually make a recommendation to the School Committee. O’Connor is set to replace 17-year school finance chief Kara Kosmes on Monday. Kosmes is leaving for a similar job at Whittier Regional Technical High School.
The financial review, which is to be paid for by the School Department, is expected to cost at least $100,000. Paying for it will result in further cuts to the school budget, Scully said.
For that reason, Ryan argued to allow Scully and O’Connor to develop their own plan for improving the School Department’s accounting procedures.
“This is a political vote and a foolish vote to take money from the schools for an audit that is going to make classes larger and hurt students,” Ryan said of hiring an outside accounting firm, which passed 6 to 1.
The mayor countered that hiring an outside agency to review the school budget is the only way to satisfy bond-rating agencies that the city has a handle on school spending.