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District 15 is publishing misleading financial information

District 15 started publishing misleading financial information this month.

The problem is caused by including transfers between funds in total Expenditures and Revenues, which results in both Expenditures and Revenues being overstated.

The impact of the problem can be seen in two main areas. First, it distorts both revenue and expenditures, which makes year-to-year comparisons invalid. Following are the expenditures as reported by District 15 in the 5-year forecast presented this month along with the corrected amounts. This mistake is most obvious in 2013/14 where Expenditures are overstated by $8.9 million.

TOTAL EXPENDITURES ($ millions)
2011/12 Actuals 2012/13 Actuals 2013/14 Forecast 2014/15 Forecast 2015/16 Forecast 2016/17 Forecast 2017/18 Forecast
Incorrect District 15 Totals $140.6 $145.3 $158.1 $151.2 $154.1 $156.3 $160.5
% Change vs. Prior Year +3.3% +8.8% -4.3% +1.9% +1.4% +2.7%
Corrected Totals $140.3 $143.2 $149.2 $148.8 $151.6 $153.8 $158.0
% Change vs. Prior Year +2.1% +4.2% -0.2% +1.9% +1.5% +2.7%

Second, the incorrect calculation of total expenditures affects the Fund Balance % of Expenditures calculation. This ratio is used by the Board to evaluate whether there is a sufficient fund balance to weather any financial surprises. The numbers presented by District 15 are shown below along with the correct numbers.

FUND BALANCE % OF EXPENDITURES
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
Incorrect District 15 Calculation 39.5% 39.3% 33.9% 34.8% 34.2% 34.5% 33.9%
Corrected Calculation 39.5% 39.9% 36.0% 35.3% 34.7% 35.0% 34.4%

I am publishing this information because of the importance of adhering to accounting principles for financial reporting, particularly from the perspective of accurately communicating information that is used for decision making by the Board. The Board uses this information for decisions on property tax levies, budgets, capital project funding, etc.

It is also important that financial reporting standards be followed from the perspective of District 15′s credibility in explaining financial decisions.

Background

I reported this mistake to Superintendent Scott Thompson as shown in the email below before the last Board meeting. His initial response was that he wanted this to be as clear as possible. But then a few hours before the Board meeting he informed me that he decided to go forward with the incorrect method of calculating Fund Balance % of Expenditures. This new Administration practice distorts key financial information including revenues, expenditures and fund balances as a percentage of expenditures.

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From: Scott Herr
Sent: Monday, October 07, 2013 9:59 AM
To: Scott Thompson
Cc: Michael Adamczyk

Subject: Mistake in Fund Balance % of Expenditures Calculation

Scott:

I wanted to alert you to a mistake in the “Fund Bal % of Expenditures” calculation due to double-counting as expenditures both transfers out of funds and also the actual expenditures in the transfer-to fund.

The consolidated revenues and expenditures page is also misleading in that Total Expenditures show both actual expenditures and also the double-counted transfers out. This is also true for revenues.

This problem has occurred in the past so I wanted to elaborate on this a bit. The standard practice is not to count interfund transfers as either revenue or expenditures. You can see this standard practice in the Annual Financial Reports that the District files with ISBE. The AFR financial statements are broken into three parts: “Receipts/Revenues,” “Disbursements/Expenditures,” and “Other Sources/Uses of Funds”. Transfers into and out of funds are categorized into “Other Sources/Uses of Funds” and not as revenue nor expenditures.

As a simple example, let’s say someone transfers $20,000 from a savings account to a checking account and then writes a check for $20,000 to buy a new car. It wouldn’t be correct to say that you’ve spent $40,000 (the $20,000 transfer out plus the $20,000 check). The transfer is simply moving money from one fund to another and isn’t an expenditure.

I’ve copied Mike on this because I understand that you are at jury duty and wanted him to be aware in case he wants to correct this before the packet is posted on the website.

Best Regards,

Scott Herr

Why I voted No on District 15 administrator salaries and Superintendent contract

I voted against District 15 administrator salary increases ranging from 1% to 6%. I also voted against a new contract for Superintendent Scott Thompson that included a salary increase of 2.25% and replaced six goals in the old contract with two new goals.

The salary increases and new contract were approved by the District 15 Board by a vote of 4 Yes (Babcock, Bokor, Ekeberg, Seiffert) to 3 No (Herr, Iannuzzelli, Sriram) at a special meeting on September 25th.

Following are my remarks from the meeting (edited for clarity). See video of the September 25 special meeting starting at 00:05:29.

ADMINISTRATION SALARY INCREASES

I don’t support the 2.25% salary increase from $223,773 to $228,808 as proposed for the Superintendent for two main reasons: there are at least three incomplete goals and there were other issues during the year. I’ll elaborate on my reasons for opposing the 2.25% increase when we talk about the proposed Superintendent contract.

For other administrators a salary framework was expected to be established last year. This work wasn’t completed and as a result the raises aren’t justified as presented. They are also not consistent with the raises given to other employee groups.

Also, the salary recommendation posted in the Board meeting attachments on the website had limited information, which made it difficult to understand the increases.

As I looked at the more detailed data provided to the Board I noted the following:

- There are four administrators in the retirement incentive program who receive annual 6% raises

- The other administrators receive raises ranging from 1% to 5% with the average raise being 3%

- This is only Total Salary and doesn’t include other benefits

SUPERINTENDENT CONTRACT

I understand there is reluctance by some Board members to go into closed session to discuss the contracts that are on the table. As a result I asked Board legal counsel for advice on whether personnel matters should be discussed in open or closed session. He said “Closed session is best practice for discussing personnel matters. … There are legal considerations that dictate closed session as the best forum for addressing personnel issue[s].”

While I’m a strong advocate for openness and transparency, I believe the wisest course of action would be for the Board to go into closed session to discuss these contracts as recommended by our attorney.

With this in mind, I make a motion to go into executive session to discuss: ”The appointment, employment, compensation, discipline, performance, or dismissal of specific employees of the District or legal counsel for the District, including hearing testimony on a complaint lodged against an employee or against legal counsel for the District to determine its validity.” 5 ILCS 120/2(c)(1)

[This motion failed on a vote of 3 Yes (Herr, Iannuzzelli, Sriram) to 4 No (Babcock, Bokor, Ekeberg, Seiffert) and the meeting continued in open session.]

With regard to the proposed Superintendent’s contract I have four main concerns.

The 1st concern is: There is a discrepancy between the proposed contract and the status of the Superintendent’s job goals for last year. There are at least three goals that have not been completed. However, the proposed contract says the “Superintendent has met the [2012-13] performance and improvement goals.” What is the direction of the Board? Declare the incomplete goals null and void and remove them from the contract? Or are the incomplete 2012-13 goals still expected to be completed and to be included in the contract?

The three goals that are incomplete are:

1. Presentation of a plan allocating resources to schools and programs based upon need;

2. Identifying future programs that would enhance children’s educational experiences; and

3. Development of a administrative merit pay system including salary bands for specific job categories.

The new 2013-2017 contract as drafted includes two new goals. This new contract replaces the previous 2012-2017 agreement, which included six goals as listed in the Superintendent’s 2012-2013 Performance Goals. Our attorney told the Board it has two options: either (a) remove the “findings statement” saying the 2012-13 goals are complete thus keeping the incomplete goals in the contract along with the two new goals, or (b) to leave the “findings statement” in the contract thus replacing the six 2012-2013 goals with the two new goals in the new contract.

[In the end, the Board didn't make any changes to the draft contract and the 2012-2013 goals are no longer part of the Superintendent's contract. It remains unclear whether the Board's intention for the incomplete goals is for them to be canceled, added back to the contract, or completed outside the contract.]

The 2nd concern is: The cart is before the horse on setting Superintendent job goals. The Illinois Association of School Boards makes the common sense recommendation that Step #1 be a review of current district goals. Step #3 is deciding on goals to be written into the Superintendent’s contract. The action item we’re discussing now is the end of Step #3. Later this evening we’re having another special meeting for a first discussion of District goals for this year, which is Step #1. See Performance-Based Superintendent Employment Contracts: A “How To” Guide.

The 3rd concern is: The board hasn’t completed discussion of the two new goals that are included in the proposed contract and I have some questions about them.

The main questions are about the first goal that states “Increase the number of students meeting their MAP growth targets.” It isn’t clear to me how the three indicators listed do this. Also, the way the goal is written seems to indicate that if only one more out of our 12,000 students meets their MAP growth targets then the goal has been met.

The 4th concern is: There have been recent issues that affect the collaborative and effective operation of the Board. I believe this should be taken into account as the Board considers the contract and salary increase proposed for the Superintendent. For example,

a. There was no communications to the Board about the progress of ESPA contract negotiations until after the team reached a tentative agreement;

b. I was surprised the tentative agreement wasn’t consistent with the guidelines established by the Board;

c. I was surprised the team didn’t clarify initial Board guidance on negotiating parameters during negotiations when it became clear what the negotiating positions were and where the initial guidance was either insufficient or unclear; and

d. Lastly, I was surprised legal counsel wasn’t consulted prior to reaching tentative agreement.

Why I voted No on the District 15 program assistants contract

A four-year contract was approved by the District 15 Board with its ESPA union by a vote of 4 Yes (Babcock, Bokor, Ekeberg, Seiffert) to 3 No (Herr, Iannuzzelli, Sriram) on September 11th. The ESPA union represents more than 450 program assistants, secretaries, clerical assistants, TPI aides, and school nurses.

Following are some brief remarks explaining why I voted No.

There are three major flaws with the agreement:

1. There was no attorney review of the tentative agreement and attorney review is essential for any large contract. The value of this contract is approximately $55 million, which is calculated as $7.5 million per year for four years for wages plus $6.3 million per year for benefits.

2. The Board established guidelines on May 8th and the negotiating team made changes in the tentative agreement that are not consistent with those guidelines. The team did not come back to Board before reaching tentative agreement.

3. The terms and conditions of this agreement are inconsistent with some of the other negotiated agreements.

Why I voted No on the District 15 transportation contract

A two-year contract was approved by the District 15 Board with its transportation union by a vote of 4 Yes (Babcock, Bokor, Ekeberg, Seiffert) to 3 No (Herr, Iannuzzelli, Sriram) on June 26th.

Following are some brief remarks explaining why I voted No.

In February at our 2nd negotiations session with the DTU I listed five principles that are important to me as an individual Board Member:

1. Safety

2. Reliability

3. Professionalism

4. Efficiency

5. Collaboration

In my view the proposed contract doesn’t accomplish enough in these areas.

I’ll comment briefly about three areas:

- First is Safety: I believe a Safe Environment requires a Culture of Safety. Although there are provisions in the contract that will likely improve safety, I’m not convinced these address core safety issues and that there is a commitment from the top to a Culture of Safety.

- Second is Collaboration: A Collaborative Environment can address shortcomings of a contract in an informal way. This is especially important in the area of Safety. However, the negotiations over the past several months would not be described by anyone as Collaborative. Unfortunately I’m not optimistic this will turn around.

- Third is Economics (which is part of Efficiency): The Administration didn’t provide the Board with an economic analysis of the proposed contract including expected impact on the forecast and key metrics. One key metric is the cost per mile. District 15′s cost per mile is roughly 30% higher than surrounding in-house and outsourced transportation departments. Although there are some improvements in economics it’s my sense that they won’t significantly close this 30% cost gap.