Eastport South Manor Facing $1.2 Million Shortfall

A recent review by the business administrator of the Eastport South Manor School District estimates that the district will overspend its $92.9 million operating budget for 2017-18 by some $1.2 million by June 2018—a dire financial prognosis that could force the slashing of programs and even positions during the 2018-19 school year, according to district officials.Timothy Laube, the district’s new assistant superintendent of business, who came aboard this summer to replace Richard Snyder, explained this week that district officials had grossly underestimated their expenditures for the current fiscal year. He said they did not allocate enough money to cover escalating retirement, health insurance and transportation costs, and also did not set aside enough to pay off the district’s tax anticipation notes, or TANs, which are used to finance school operations before tax revenues are received.On Friday, Mr. Laube pointed out that the district had set aside approximately $692,000 for retirement costs in the current budget, though it will most likely need closer to $1.1 million this year. In other categories, health insurance was underestimated by approximately $386,000, transportation by about $210,000, and the TANs by $92,000, according to Mr. Laube.“Right now, we don’t have enough money to pay our bills,” he said. “We’ll likely have to go into our savings yet again.”In order to make up that anticipated shortfall, Mr. Laube said he expects the district to tap both its unassigned reserve fund, which currently contains just shy of $2.08 million, and its employee benefit accrued liability reserve, or EBALR, which currently has just over $2.11 million in it and can be used to cover some of the district’s retirement costs. Once those transfers are completed, their combined total will be reduced to approximately $3 million.He noted that both of those funds—as well as seven other reserves to EBALR—contained nearly $20 million in them in 2010, before they were systematically tapped to cover expenditures in the new era of the state-mandated tax cap. The seven reserve funds, now empty, contained $7.6 million seven years ago, Mr. Laube added.Eastport South Manor’s reserve fund should contain $3.7 million, or 4 percent of the district’s current operating budget, to meet state requirements.Mr. Laube explained that the district had been spending more than it had been taken in from taxes and state aid, and that those practices could force the Board of Education to attempt to pierce the state cap with its 2018-19 budget. When reached last Thursday, December 14, Schools Superintendent Patrick Brimstein declined to offer his opinion of the business practices of former district official that, most likely, will force some difficult decisions in the coming months.“I can’t comment, because I wasn’t here,” said Mr. Brimstein, who was hired by the district in May—the same month the current year’s budget was approved by taxpayers.“Unfortunately, we inherited budgets with deficits,” he continued. “We’re aggressively looking at finding efficient ways to do things. For my own integrity, I believe we need to reconcile expenditures and revenues first, and then go to the community and say, ‘We’ve already cut into the bone.’ For me to go the community and say, ‘I need to pierce this cap’—that’s alarming.”At the prior night’s board meeting, Mr. Brimstein noted that state comptroller’s office still lists Eastport South Manor as a district in “fiscal distress”—a label it has been unable to shed since 2016.The decision to tap Eastport South Manor’s rapidly depleting unassigned reserve fund could also negatively impact the district’s credit rating, which currently stands at AA, according to Mr. Laube. If its rating drops, the district could end up paying higher interest rates when it goes to borrow money as it is at a greater risk of defaulting. He warned that Eastport South Manor could end up paying more interest on its TAN loans, adding that the district now borrows around $21 million annually.“If the credit rating is bad, we’re going to pay higher interest,” Mr. Laube said. “It’s important to be fiscally healthy.”The district’s dire financial situation appears to have caught members of the Board of Education by surprise, with President Karen Kesnig stating at a meeting held earlier this month that that was the first time she was told the budget was running $1.2 million in the red.Ms. Kesnig, who has served on the panel since 1997—three years before the Eastport and South Manor districts merged—did not return multiple calls inquiring about the district’s financial situation.Those attending the board’s most recent meeting, on December 13, said they were astounded that board members had no idea that the district was running in the red.“I was surprised when the board’s response was, ‘We didn’t know about this,’” said Michael Doyle, one of the district’s librarians and a cross country coach. “After employee salaries, I would think employee health insurance benefits are the second-biggest item in a budget.”Mr. Laube agreed with that assessment, explaining that employee salaries and benefits account for nearly 70 percent of the annual budget; salaries account for $45.6 million, while health insurance runs around $7.8 million annually.He also could not offer an explanation of how the previous administration did not foresee the budgeting shortfalls. “I can’t speak for how my predecessor budgeted,” Mr. Laube said. “All I can say is the money that was dedicated does not meet our need for this year.”“I have to address the structural problem … it’s going to be a difficult work,” Mr. Brimstein added. “It won’t just be a one-shot deal.”Anticipated salary increases, as well as additional bumps in health insurance and retirement costs, are also expected to further tax the already cash-strapped district next year and possibly beyond, Mr. Laube said. He estimated that those three lines are expected to increase by approximately $3.2 million next year, or from almost $12.8 million to $14.6 million in the 2018-19 fiscal year. Mr. Laube noted that the teachers’ union contract expires at the end of the current school year, meaning board members will have to budget for anticipated raises, too.Therefore, administrators are most likely going to have to make considerable cuts to its educational programming and sports teams, and the elimination of public transportation could also be on the table, Mr. Laube said. He warned that those cuts might not be “enough to close the budget gap,” meaning that the staffing cuts could also be made next year.“The reality of closing the $3.2 million gap is very substantial,” Mr. Brimstein said on Friday. “Regrettably, I can’t close a $3.2 million gap without looking at staffing as well.” “We’re not going to the look the same as we have in the past,” Mr. Laube added. “All things are on the table.”Priscilla Tuttle, president of the Eastport South Manor Teachers Association, shared her organization’s concerns about potential staffing cuts at last week’s board meeting. She noted that cuts will “have a detrimental impact on the students,” and noted that the current administration has not yet been willing to sit down and discuss things with the union.“The ESMTA is concerned about the reduced level of communication and transparency on the part of the current district’s central administration team,” Ms. Tuttle said. “Our students are depending on you.”She has declined additional requests for an interview.One option that could be on the table moving forward is for the Board of Education to present a budget that pierces that 2 percent state-mandated tax cap on schools. School boards have always had the option of “piercing” the cap—or presenting a budget that exceeds the state cap—but spending plans must have the support of 60 percent of taxpayers, known as a supermajority. If the measure fails, and goes down a second time in a subsequent vote, a district must adopt a budget with a zero percent increase in spending. District officials said they plan to hold several community forums in the coming months to address the district’s financial situation. Mr. Laube stressed that with all the projected cuts, it’s important that the community be involved in what stays and what goes.“What are those cuts going to look like? That’s what we don’t know yet,” he said. “Everyone’s got some tough choices to make.”