Are Monies Missing?
Mrs. Turner, our district’s new superintendent, addressed this, explaining that no monies were missing. This is simply a matter of spending more than the amounts expressed in the budget, she explained.
Should The Finance Committee Have Known?
According to Mrs. Turner, there was no sign of this problem in the audit reports. It remains unclear to me whether reporting to the finance committee (and the public, who apparently see the same documents) includes enough information that this could have been discerned. Ms. Sullivan, the interim Business Administrator, in explaining the various states of “unpaid” a bill might be in, seemed to suggest that only a Business Administrator would be able to discern this. Mrs. Turner has expressed the same point.
If that is true, though, then it is a problem that should be corrected. No system should depend upon a single individual for proper functioning. This is discussed more below.
Something remaining unclear to me is whether the relevant bills were in the system at all. In discussing Essex Regional, Ms. Hunt had described finding bills sitting in desk drawers. I cannot see how this could be the case for salaries, however.
Should The Auditors Have Known?
Ms. Sullivan indicated that they should have known, but I’ve sent a follow-up question about this to the district (to which no reply has yet been received). It’s worth noting that the 2024-25 books have not yet been audited. If the auditors should have noticed something, then that something would be an issue that predates the 2024-25 budget.
How Far Back Does This Go?
At least one of the listed items is a set of unpaid bills to Essex Regional for transportation services. Ms. Hunt had said in a prior meeting that these were bills to the district that predated her tenure. How many more of the “70 pages of outstanding purchase orders” are from previous years, and from how far back in the past are they?
The Penultimate Question: Why?
Mrs. Turner described this deficit as the result of spending more than budgeted amounts. There are only three possible causes for this. There’s also a fourth factor that could mitigate or exacerbate this situation.
The possible causes are:
- The budgeted amount was predictably too small
- The spending was unnecessarily higher than budgeted
- The spending was necessarily higher than budgeted
Note that more than one of these may apply.
I’ve sent questions to the district regarding the spending, concentrating primarily on salaries since those should be the easiest to predict and see in the budget. We’ve been told that we’re M$2.3 over budget for salaries. I’ve asked whether the positions added were required (eg, for students’ IEPs). Many of the comments made during the town hall assumed that the hiring was unnecessary, but this remains unclear to me. The answer to this is crucial, indicating whether this is a spending problem or a bookkeeping problem.
The fourth factor is unallocated fund balance. This is supposed to act as a reserve against unexpected expenses, and we’re permitted to keep as much as 2% of our budget here when a budget is created. This is funded by unspent money carried over from a previous year. That unspent money can also be used as revenue in a new budget.
Ms. Hunt, our Business Administrator until her recent resignation, mentioned that the 2025-26 budget was using enough money from a previous year that unallocated fund balance was well below the permitted 2%. Was this also true for 2024-25? Had the unallocated fund balance held 2% of our total budget, would it have been enough to avoid this unbudgeted spending becoming a crisis?
How does unallocated fund balance for 2025-26 compare to 2024-25? If it is again insufficient to allow for unexpected costs, then this becomes a larger problem.
This is another of the questions I’ve submitted to the district.
Many of us have been worried for years about the unsustainable combination of inflation in our district’s budget and the state-imposed revenue cap, which is well below that rate of inflation. We’ve experienced years of “budget crises” as a result of this untenable mix. The last couple of budgets have looked like miracles with their lack of teacher cuts. Were they miraculous, or were they simply too optimistic – unrealistically so – in assumptions and cuts made elsewhere?
The Ultimate Question: What Now?
Mrs. Turner and Ms. Sullivan are concentrating on immediate and short-term issues, and justifiably so. According to Ms. Sullivan, it’s a struggle to find enough cash to pay our immediate costs. That’s clearly the top priority.
Next will come the need to review and make any necessary adjustments to the 2025-26 budget. If our costs were underestimated for 2024-25, for example, this seems likely to also be the case for the coming year’s budget.
Unfortunately, unless the district releases far more detailed information than it has to date, there’s little we can do to help with these two essential tasks. Anyone with suggestions on where money can be saved in the short term or where revenue can be found should contact the district.
We can, though, consider how we might help in the longer term. One prominent example is to revisit advocating for a portion of PILOT revenue to be directed to our schools. The pressure for this had decreased when we believed in our last two “miraculous” budgets, but – with that mythology wiped away – this deserves more immediate attention.
We still face the fundamental problem of inflation in our district’s budget and a state-imposed revenue cap well below that rate of inflation. A pair of budgets that apparently offered an illusion of well-being gave us a false sense of comfort, but we’re now seeing the truth behind those miracles. The problem of unsustainable budgets remains. Even a more proper allocation of PILOT revenues will be but a partial solution.
We must also advocate for whatever is needed to prevent situations like this. This is not the first time Montclair has suffered from a budget crisis involving bad information. For example, for a period at least from 2009 to 2011, we were in something of a panic about our school budgets, going so far as to consider closing schools. Ultimately, we learned that the deficits about which we were panicking were far less severe than we thought (and we ended up with significant surpluses instead). Worse, this letter suggests that the BA of that time knew that the panic was unnecessary. We might never have had a full grasp of our finances had Shelly Lombard and the rest of the BOE of that era not formed a Budget Working Group, a set of volunteers responsible to the BOE who conducted an in-depth analysis of the district’s budget. Perhaps we need that type of volunteer oversight, again.
The situations then and now have an essential difference: then, we had too much money in our budget. Today, we’ve too little. The former is far easier to fix; correcting the current situation will not be easy. However, amidst the short-term fixes that will be required, we must not lose sight of the fact that both cases involved a failure of reporting and budgetary controls. The administration and BOE must find a way to prevent these in the future.
We should also remain aware that this issue is not limited to finances. A non-financial example may be found in the March 18, 2013 BOE meeting, when we learned that years of Achievement Reports had left us mistaken in our belief that the Achievement GAP had been shrinking.
There’s an argument to be made that this goes beyond the policy/governance role of a BOE, but I believe that policies can specify minimum controls or reporting requirements. Policies are the province of a Board of Education, and such policies would aid in the board’s other responsibilities of governance and representation of the community. I believe that this falls under N.J.S.A. 18A:11-1, which includes “Make, amend and repeal rules … for its own government and the transaction of its business and for the government and management of the public schools and public school property of the district” as well as N.J.S.A 18A:17-14.1, which states that a BOE can define the duties of the Business Administrator.
While Mrs. Turner has pointed out that we cannot afford a forensic audit, and given that there’s nothing at which an auditor could be pointed suggesting any form of malfeasance, we should still seek to leverage whatever resources possible to assure that this problem is as serious as we’re being led to believe. Can the state help? The county? Volunteers?
We must also recognize our eagerness to suspend disbelief when given news that appears “too good to be true”. We should have treated recent budgets, which seemed to solve our sustainability problem, with greater skepticism. The math is unforgiving, and we cannot let ourselves forget this again.
We’re seeing now, as we have in the past, problems that result from insufficient controls and/or reporting. These issues must be addressed, or we’ll likely relive this in another ten or fifteen years. Given that we have finally won ourselves an elected Board of Education, perhaps we should put some emphasis on electing members with backgrounds in finance or other relevant fields, as well as other members who will support efforts to improve reporting and management.
Our own Sword of Damoclese?
Mentioned above is the persistent problem of inflating costs combined with a state cap on our revenue growth which fails to meet those increasing costs. We were led to believe that this problem might have been eliminated, but current circumstances show that this was never the case.
More immediately, though, we need to remain vigilant against what might be imposed upon us by the county or state as cost-saving measures. While I believe our magnet system safe, at least in the short term, thanks to a court order that remains in effect, there are other threats. I specifically asked whether we could be forced to cut staff and raise class sizes, for example, and Ms. Turner believes that this might be imposed upon us.
I’m not sure how we’d push back against such a demand, but we should be ready to do so.