Studies: Districts free with state aid

Money not going for desegregation

— Over the past five years, the Pulaski County Special and North Little Rock school districts used millions of state-provided desegregation dollars for other purposes, including general-operating expenses, according to financial studies commissioned by Arkansas Attorney General Dustin McDaniel’s office.

That office on Thursday released the findings of the studies done by Navigant, a New York-based company contracted for $250,000 last year to determine, in part, how state desegregation funds are spent in the three Pulaski County school districts.

Navigant is also analyzing desegregation spending done by the Little Rock School District, which receives more than half of the annual state desegregation aid going to the Pulaski County districts. No date has been set for the release of that Little Rock report, said Aaron Sadler, a spokesman for the attorney general’s office.

Together, the North Little Rock, Pulaski County Special and Little Rock districts receive nearly $70 million a year in state desegregation aid that other Arkansas school districts do not receive. That extra funding is the result of a 1989 financial settlement agreement and later court orders in a now 28-year-old federal PulaskiCounty school desegregation lawsuit.

In the lawsuit, filed by the Little Rock district in 1982, the state and Pulaski County Special and North Little Rock districts were found to be at fault for ra-cial segregation of students in the three school systems.

Over the long term, more than $1 billion in state desegregation aid has been distributed to the three districts.

McDaniel said Thursday that “there has been no clearcut accounting of how the districts spend” the desegregation money, and the Navigant reports “make it clear that the districts need to take greater care in accounting and appropriating this money.”

“I think that this is a veryimportant step in shining light on how the money is being spent and bringing some transparency and accountability for a lot of taxpayer moneyin these districts," McDaniel said in an interview.

Attorneys for the Pulaski County Special and North Little Rock districts said Thursday that the 1989 settlement agreement and subsequent court orders did not specify how the desegregation money must be spent.

Sadler agreed that the settlement agreement doesn’t require the money to be spent on any particular programs.

“However,” he said, “the state expects desegregation payments to be used for desegregation efforts.”

John Walker, who represents the black students known as the Joshua intervenors in the case, said he has complained in the past that the districts have been using the desegregation money “under false pretenses,” but it was done with the state’s knowledge and the state was derelict in its duty to monitorthe districts.

The Navigant analysis concluded that the Pulaski County Special district received $105.6 million in desegregation funding from 2006-11, the only years analyzed, but that only $61.5 million, or 58 percent, was recorded as being spent for desegregation purposes. A total of $35 million of the $105 million was transferred to nondesegregation general unrestricted accounts, and $10.1 million was not accounted for as a specific expenditure or transfer.

In North Little Rock, $45.1 million in desegregation aid was provided, and efforts have been made to classify expenditures of that money as desegregation-related, but the district’s chief financial officer told the financial analysts that the desegregation fund is used to pay for general-fund expenditures.

“The end result is that it is largely impossible to determine what portion of the desegregation funding, if any, was actually used for desegregation related purposes,” the North Little Rock study said.

The Navigant studies were released at a time when the Pulaski County Special and North Little Rock districts are seeking to be released from years of federal court monitoring of their desegregation efforts.

The studies generally identify desegregation programs in the Pulaski County Special and North Little Rock districts as magnet schools, the majority-to-minority student transfer program, transportation for magnet schools and majority-to-minority transfers, the Magnet Review Committee, and teacher health insurance and retirement costs.

The magnet-school money is sent directly to the Little Rock district for the operation of six original magnet schools - Parkview High, Mann Middle, and Booker, Carver, Gibbs and Williams elementaries - that provide special programs to attract black and white students from all three Pulaski County districts.

Majority-to-minority transfer programs allow students to move from districts and schools in which their races are in the majority to districts and schools where their races are in the minority. The Magnet Review Committee sets the policy and budgets for the magnet schools.

The teacher benefits programs became wrapped up in the desegregation case years ago when the state attempted to change the system for funding benefits in a way that was seen as detrimental to the districts and in retaliation for them receiving desegregation funds. The districts successfully challenged the changed benefits system as part of the desegregation case.

Representatives of the districts said Thursday that they will review the analyses but they don’t believe that they violated court orders or laws in the spending of the funds.

“The district and its attorneys have just received the report and are in the process of studying it,” said Charles Hopson, superintendent in the county district. “However, we are not aware of any restrictions in the use of these funds in any settlement agreement or court order.”

Sam Jones, an attorney for the Pulaski County Special district, said, “I have never seen anything in the 1989 settlement agreement or subsequent court order or award that requires the settlement funds to be spent in a particular way.”

Steve Jones, an attorney for the North Little Rock School District, said the district will do what the state wants in terms of accounting for thestate funding.

“But the suggestion that we are some how misusing the money and that the districts are not using the money for the purposes for which it was intended, that’s just categorically untrue,” Steve Jones said.

Steve Jones said the desegregation money referred to in the report - except for the teacher retirement andhealth insurance funds - is “incentive” money intended in the desegregation plans to encourage the districts to permit students to participate in the magnet school and interdistrict student transfer programs. He said no direction was given as to how the funds should be used or accounted for.

He also said the North Little Rock district provides programs and assistance to students who are at-risk of school failure, and many of those students are black. Those initiatives include providing pre-kindergarten programs, making school bus transportation available for after-school clubs and sports, as well as paying for uniforms and camp for cheerleader candidates.

“There are things we do that are not in our desegregation plan but that we think are desegregation-related,” Steve Jones said.

Walker said the state is casting blame at the wrong source. He said the attorney general’s position appears to be political rather than educational or based on legitimate concerns some 20 years after the funding process began.

“The state, in paying out the money without any kind of accounting standards of its own, cannot fault these districts,” Walker said. “It has to have known that it was not fulfilling its responsibility, and it was on notice that there was no correlation between monies paid out and achievement results. The state promised to monitor diligently all aspects of the desegregation programs and the use of its money.”

The financial studies also come just weeks after both districts were identified by the state Department of Education as being in “fiscal distress” and subject to state review of all of their expenditures and debts. The state Board of Education is expected to decide at its May 16 meeting whether to uphold those designations.

The Pulaski County Special district is identified as fiscally distressed as the result of wide-ranging financial mismanagement first uncovered last year by the Arkansas Legislative Audit Division. The North Little Rock district was identified as the result of private audits that found that the district repeatedly failed to reconcile its bank accounts. The Navigant analyses also faults the districts for some of the same or similar weaknesses in their management and businesses practices.

McDaniel said the analyses are important because of the fiscal distress findings.

“I think its very timely, and I think its very important that the state have access to this information and that the public have access to this information while we are evaluating the current fiscal condition of these school districts and the long-term ultimate conclusion of the desegregation litigation,” Mc-Daniel said.

Information for this article was contributed by Sarah Wire of the Arkansas Democrat-Gazette.

Front Section, Pages 1 on 04/22/2011

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