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Hillsborough schools raided reserves, endangering bond rating

TAMPA — The Hillsborough County School District has eaten into more than half its $360 million reserve fund in the past two years without the knowledge of school board members, they say.

The rapid drawdown threatens the district’s top bond rating and could scare off investors, forcing the district to pay higher rates of interest when it borrows money.

To rebuild the fund, the district is instituting cost-cutting measures including a reduction in travel and challenging principals to find new ways to justify any spending.

The school district’s fund balance had sat at $360 million since about five years ago. But when new Superintendent Jeff Eakins sat down to familiarize himself with the budget this summer, he said, he made a startling discovery: It’s now only about $152 million.

The school district’s newest bond ratings from Moody’s and Fitch Group credit agencies, released last month, were changed to a “negative outlook” because of the depleted reserves, Eakins said Tuesday during a meeting with the Tampa Tribune editorial board.

A negative outlook means the credit-rating agencies are considering downgrading the school district’s credit rating, now an “AA1” from Moody’s and an “AA+” rating from Fitch Group. Standard and Poor’s gives the district a “AA” rating and has kept its outlook at stable.

The news had some board members pointing fingers at Eakins’ predecessor and former boss, MaryEllen Elia, was was fired from the job in January by a 4-3 vote amid criticism of her communication with the board and leadership style.

“The school board had no idea,” chairwoman Susan Valdes said. “We instructed the former superintendent not to touch the fund balance.”

Elia, selected by her peers as one of the top four superintendents in the country, was hired as commissioner of education for the state of New York. Her office said Tuesday she is traveling and could not be reached.

The reserve fund, a combination of state money and local property and sales tax revenues, still meets the state’s legal minimum requirement of at least 3 percent of the overall budget and the district’s goal of keeping at least $95 million.

“But it’s time for stabilizing and figuring out what we want long-term,” Eakins said.

“We’re not in a financial crisis, but we do have to arm and equip everyone in the organization.”

Still, school board member Cindy Stuart called the situation “very disturbing and frustrating and very annoying and somewhat disheartening.”

“It validates the reasons for terminating MaryEllen and her contract because the relationship was clearly broken and there was a lack of trust,” said Stuart, one of the four board members who voted to fire Elia. “For me it’s proof that there were serious issues with our previous superintendent. I couldn’t put my finger on them, but I knew something was wrong and it makes me very confident in the decision I made.”

Eakins pointed to several possible explanations behind the rapid drawdown of the district’s reserves.

Some of the money was used to cover recurring costs during the recession or to make up for revenue lost from the many short-term grants procured by the district. The biggest factor, though, is a new teacher salary schedule that went into effect halfway through the 2013-2014 school year.

In 2013, the school district was heading into the fourth year of a seven-year grant from the Bill and Melinda Gates Foundation to help raise the bar among its teaching staff — a major factor, the foundation maintains, in student success.

Under its partnership with the foundation, the district needed a new salary schedule that tied raises more closely to a new system of evaluations — a change adopted statewide soon afterward.

Teachers in their first, second or third year on the job automatically switched to the new scale, which ties raises to evaluations, and those on their fourth year or higher chose whether to move to the new scale or stay on the old one. Because those changes were made mid-year, after the school board receives its yearly budget presentation, the school board never saw the financial effect of moving thousands of teachers to a new pay schedule, Eakins said.

About 10,000 school district employees moved to the new schedule, which meant their paychecks increased from $5,000 to $15,000 that year. The new scale averaged out to a 4 percent raise for each teacher. Last June, the school district used money in the reserve fund to make payroll several times near the end of the school year, Eakins said.

“That payroll increase has hit the fund balance in the last three years, and we’ve seen a drastic reduction,” Eakins said. “We have a plan moving forward that is going to stabilize everything ... but it’s not going to happen overnight.”

In the next three to five years, Eakins said he hopes to save at least $75 million and build the reserves up to $200 million to $220 million – an amount kept in savings by school districts similar to Hillsborough and about 15 to 20 percent of the overall budget.

One month of school district salaries amounts to about $95 million and best practices is to keep enough money on hand to pay all salaries for two or three months, he said. The projected overall budget for next school year is about $2.8 billion.

Taxpayers shouldn’t see property tax rates go up to increase revenues, and teachers and students shouldn’t notice any changes when they return to school Aug. 25, Eakins said. The school district hasn’t had any layoffs or pay cuts for several years, and ideally that trend will continue, he said.

Student achievement is still the first priority, he said.

Principals have been instructed to look at their schools’ spending through the “lens of a CEO,” and separate needs from wants with the understanding that they are responsible for making sure their school is fiscally responsible, Eakins said. They are being asked to analyze how many resources, like basic school supplies, they already have and then determine if each expense is an actual necessity. The school district is also putting a hold on all travel unless the cost is covered by a grant or “directly related to a function of their job,” like a required Department of Education meeting, Eakins said.

On the operation side, the school district is studying fuel costs, renegotiating contracts for better rates, and even looking at how much electricity is used. The next three months will be spent studying the return on investment for “all programs” in the district, from software to classes that may require lots of materials or staff. District officials will hold biweekly budget meetings.

Payroll will also be analyzed to make sure teachers are allocated efficiently throughout schools. Construction and maintenance costs are covered out of the district’s capital budget and don’t effect the general revenue fund that includes the reserves.

“We have to meet class size laws, but we don’t have to over-allocate,” Eakins said. “The school board wants to see report cards on everything.”

The school board’s next budget meeting is Sept. 29. The agenda includes looking into the cost-cutting measures and identifying other goals, Eakins said.

This year, the school district is getting more money from the state but must also cover higher insurance costs for employees.

Next year is the final year of the $100 million Gates Foundation grant, called “Empowering Effective Teachers.”

The money wasn’t earmarked for salaries but did pay for some bonuses. Some state funding will also be diverted to the growing number of charter schools in the district — about $12 million, Eakins said.

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