The School Board for the Pulaski County Special School District on Tuesday approved a 2018-19 budget that anticipates drawing almost $6.4 million from what is now $20 million in reserves over this school year to meet anticipated annual expenses of $139.4 million.
The deficit spending comes within two years of the 12,000-student district being returned to the control of a locally elected school board in 2016 after being managed by the state for five years because of financial mismanagement and annual deficit spending.
An Arkansas school district is not typically classified by the state as being in fiscal distress for one year of deficit spending but the practice over the course of two to three years puts a district at risk of fiscal distress. That results in a district having to get state approval of all expenses and puts it in jeopardy of state control -- with a state-appointed superintendent and no school board -- if improvements aren't forthcoming.
The Pulaski County Special board's 7-0 vote Tuesday happened as Superintendent Charles McNulty and his staff announced the start a multiyear plan to cut expenses and increase revenue with a goal of reserves that equal about 12 percent of the operating budget.
"This is a framework that starts simple but is actually very complex in its implementation," McNulty told the board. "And that's why it has got to start now."
In the near term that plan envisions cutting expenses in food service, employee overtime pay and utility costs, but also issuing second-lien bonds as a way to generate as much as $20 million, McNulty said. Money from the bond issue -- if approved by the School Board with a vote to come as soon as next month -- would be used to pay off more than $13 million in construction cost overruns for the new Mills University Studies High and Robinson Middle school buildings that opened to students last month.
In the subsequent 2019-20 school year, McNulty told the School Board this week that he anticipates:
• $4.1 million in savings, or a 3 percent reduction, across all departments and schools.
• An additional $2 million in savings in operations other than employee benefits, , maintenance, equity, specific curriculum initiatives and transportation.
• A targeted $3 million in savings by reducing certified staff positions by as many as 60.
In addition, the district will "engage in high impact instructional programming" as a way to draw students to the district's schools and reverse recent enrollment declines, McNulty said.
That will include expanding the district's "Driven" school of innovation program in which high school students can learn online at their own pace and in a setting of their choice, using mentors, one-to-one student-to-electronic devices ratios and identified career pathways.
The model is being used at Mills and Maumelle high schools this year. Other programs to draw students could be a new virtual school and incorporating the national Advancement Via Individual Determination or AVID program in district schools to support high school students in preparing for college -- including students who would be the first in their families to attend college.
By the 2020-21 school year, McNulty, who started work in the district in July after serving as an assistant superintendent in Waterloo, Iowa, said that he would like to see the district with a 50- to 100-student increase, all schools earning a state grade of no less than a C, and the implementation of an employee incentive plan. Each of the district's four high schools most recently received state grades of D.
Additionally, McNulty's goals call for the district to be released from federal court supervision in the areas of student discipline and student achievement.
The district is a party in a long-running federal school desegregation lawsuit and, as such, is obligated to work toward eliminating racial disparities in student discipline practices, student achievement and the condition of school buildings.
Denise Palmer, the district's chief financial officer, told the board that met on the budget both Monday and Tuesday nights that the district cannot let expenses go unchecked over time, as deficit spending will increase from year to year. She also noted that even in the current school year the district's cushion for covering employee payrolls in March and April is small.
"You can see we are projecting $13.9 million in legal fund balances at the end of the 2018-19 school year," she said.
"If we don't do something, the Arkansas Department of Education will," Palmer said. "It is incumbent on the management team of this district to secure this district financially and to present to you a plan that can take this district out of the financial situation that we are in... and get the district where it needs to be."
Jack Truemper, a senior vice president at Stephens Inc., presented the School Board with options for issuing second-lien bonds to raise $14 million, $16 million, $18 million or $20 million. The bond issue, which is subject to state Board of Education approval, would be repaid with interest by the district over 29 years.
The debt payments on the bonds, or loan, can be structured so that the largest annual payments are delayed until the district's debt on already existing bond issues is diminished.
Second-lien bonds do not require voter approval. The debt on second-lien bonds can be paid with money raised by property tax mills that is over and above the money needed to pay off existing debt.
School Board President Linda Remele of Sherwood said after Tuesday's meeting that despite the deficit in the district's revenue and expenditures for this year, she was encouraged by McNulty's long-term planning for the district.
Metro on 09/12/2018