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May 22, 2018 4:19 PMPublication: The Southampton Press

Eastport South Manor's Budget Woes Began Years Ago, With Fiscal Moves That Reverberate Today

Tim Laube, the district’s new assistant superintendent of business.      FRANK COSTANZA
May 23, 2018 1:32 PM

In 2012, the state comptroller’s office created a new monitoring system to alert school districts and municipalities if their financial practices were putting them on shaky footing.

The Fiscal Stress Monitoring System was touted as an “early warning” system, meaning that those flagged had ample time to take action to avoid a full-blown financial meltdown. It was rolled out shortly after a new state limit on increases in the tax levy from year to year, aiming to curb reckless spending and prevent crushing single-year property tax hikes.

And every year since the system was implemented, Eastport South Manor School District has been flagged.

That undesirable position appears to be the result of an unwavering over-reliance on the district’s once-robust reserves to cover repeating and growing expenditures—primarily escalating salaries, medical benefits and retirement costs. A stubborn reluctance to shed employees, as well as failure by administrators to anticipate a steady and considerable drop in enrollment, also played significant roles in the creation of a nearly $5 million operating shortfall next school year.

The deficit forced Eastport South Manor’s administrators to cut more than 70 positions in its five schools.

Yet, even with the draconian cuts in staff, the $93.5 million budget approved by residents on May 15 maintains most educational and athletic programming in the district—another signal that current staffing levels are not on par with Eastport South Manor’s actual needs.

Things could have been worse, said School Superintendent Patrick Brimstein, who marked his one-year anniversary with the district on May 8. He explained that initial discussions raised the possibility of slashing up to 150 positions total. A slide presented by Tim Laube, the district’s new assistant superintendent of business, at a budget hearing on March 14, shows that the district can operate with 523 staffers—not the 580.9 positions left in the 2017-18 spending plan.

The decision not to cut deeper leaves the district with a projected $2 million to $2.5 million shortfall in the 2019-20 school year, according to the superintendent. The district’s budget woes are far from over.

“Obviously, when I interviewed … I didn’t have a full sense of how deep [the financial issues] ran,” said Mr. Brimstein, who has had parents call for his resignation even though he had no part in crafting the current year’s spending plan, which underfunded several critical budget lines. “I prefer to solve problems I caused.”

Early Warning Signs

Eastport South Manor was first identified as a district “susceptible” to fiscal stress in the 2012-13 school year. Two years later, it was downgraded and labeled as a district suffering from “moderate fiscal stress.”

An audit completed by R.S. Abrams and Company LLP of Islandia, Eastport South Manor’s longtime auditors, for that fiscal year pointed out that the district’s general fund total balance had lost $5,240,066 in a 12-month span, leaving $8,192,968 in reserves—a balance that had nearly hit $21 million just four years earlier.

Officials had to start reducing those reserves because, under the tax cap, the state no longer wanted school districts to build enormous surpluses, forcing them to either spend some of the stockpiled money or transfer surplus funds to specific, designated reserves.

But reducing its once-vast surplus became a routine part of the budgeting process at Eastport South Manor. Administrators failed to look ahead to what would happen once the district’s unallocated reserve fund was reduced to 4 percent of the operating budget, the state standard.

As a result, what had been a nearly $21 million reserve now is just shy of $2.1 million—some $1.6 million below the amount that should be available in the account, according to Mr. Brimstein. “We don’t have enough fluid cash to pay for things that we may need,” he said.

The superintendent noted that the reserves at many districts routinely exceed 4 percent, explaining that those that violate the policy typically receive a “slap on the wrist” from the State Education Department—meaning that his predecessors could have preserved more of their reserves without the fear of being subjected to serious penalties. Mr. Laube noted that officials also could have legally transferred some of the surplus to designated accounts, such as retirement, rather than spending it down.

Too Little, Too Late

School officials responded to the audit by cutting $152,000 in spending when adopting the $92.4 million 2015-16 budget. That action, as well as other factors—including a decision to use $1.9 million in reserve—resulted in Eastport South Manor being upgraded to its prior designation. It only lasted one year, even though officials cut an additional $1.9 million from the $90.6 million 2016-17 budget, which still included tapping $1,115,931 in reserves.

This time, however, the return to “moderate fiscal stress” did not prevent officials, following two belt-tightening years, from pushing through a $92.9 million budget for 2017-18 that increased expenditures by more than $2.3 million—and, though it would not be known for several more months, still shorted several critical budget lines.

A few months later, the bottom fell out.

Revealing that they were operating some $4.7 million in the red, the new administration announced in early 2018 that significant cuts would have to be made to get them back on more stable financial footing. Four months and several impassioned budget hearings later, School Board members adopted a budget for 2018-19 that still increases spending by roughly $580,000 but comes with an even deeper cost: the loss of more than 70 jobs—including 28.3 teachers, 28 teaching aides and four administrators.

The dire situation has left many to wonder what went wrong, and if anything could have been done to prevent it. One of those individuals is Mr. Laube, who arrived just last summer to replace Richard Snyder, the district’s business official for the prior decade. He is now entrusted to help steer Eastport South Manor’s rapidly leaking financial ship out of treacherous waters.

Leaning On Reserves

Mr. Laube said it didn’t take long for him to understand why his new district was in such a predicament: Constantly draining its reserves to balance the budget during the tax cap era had taken a toll.

An already difficult scenario was exacerbated by earlier administrations’ failure to adjust to falling enrollment. Officials approved the hiring of additional staff when, in hindsight, they should have been trimming numbers and reducing expenses.

In the 2010-11 school year, the last before the tax cap’s introduction, the district’s unallocated reserves were robust, containing more than $20.7 million. But by the following school year, those accounts had been drained by $5.2 million, and almost slashed in half again by the 2013-14 school year, according to Mr. Laube.

Over the same span, Eastport South Manor hired more than 110 employees, increasing its total staffing levels to 750—with the bulk of the new hires being teacher assistants, teacher aides and permanent substitutes.

The holes in the budget created by those new hires often were filled by reserve fund allocations—a repeating expense funded via a one-time revenue source. As with most school districts on Long Island, staffing costs, which include salaries, medical coverage and retirement benefits, account for roughly 75 percent of a school district’s annual budget.

Those hires were made even though enrollment continued to decline—from 3,888 students in the 2010-11 school year to 3,663 in 2013-14, according to the State Department of Education.

The district also finished work that year on a new $26 million K-2 building, the Tuttle Avenue School in Eastport, though most of that expense was covered by Albany as part of the earlier merger of the Eastport and South Manor districts.

As administrators followed that spending pattern over the next three years, a $11.1 million reserve dwindled to $4.2 million by 2016-17. Administrators finally began to shed some staff during that span—staffing levels dropped to 684 employees by 2016-17—as enrollment continued its downward trend, dropping to 3,475 students.

“As a parent in the district, I watched as we used reserves, and I believed that we were supposed to do that,” said Cheryl Hack, the newest School Board member, who was elected in May 2017. “I was somewhat ignorant and believed that we would receive an increase in state aid, somehow.”

In March 2016, at the height of the 2016-17 budget negotiation process, the School Board accepted the retirement of longtime Superintendent Mark Nocero, though they never disclosed the reasons for his abrupt departure. As part of his “resignation agreement,” the district agreed to pay him $71,760, and he also qualified for full retirement benefits.

The damage to the district’s financial standing had already been done by then.

In addition to the state’s comptroller’s office, the district’s underfunded reserves caught the attention of Eastport South Manor’s credit rating agency, Standard & Poor’s, which promptly downgraded its credit rating by two spots, from AA+ to AA-, prompting lenders to raise their interest rates on the district’s outstanding debt.

The long-standing trend of an over-reliance on reserves—so much so that the district is now below the state’s required fund balance levels—had taken a toll, Mr. Laube explained in a recent interview, prompting him to immediately break “a longtime reliance on reserves as a revenue source” with the 2018-19 budget.

In hindsight, Mr. Brimstein said that prior administrators failed to adjust quickly enough to dropping enrollment, noting that they were continuing to add positions in the 2012-13 and 2013-14 school years even though the student population was shrinking. It wasn’t until the following year that positions were cut, but that two-year delay exacerbated the district’s growing financial woes.

“If someone made a decision five years ago to cut $1 million from the budget … and continued the same pattern for the next few years, we would have been in a very different situation,” he said.

Like Mr. Laube, the superintendent said he was aware of the district’s finances before he accepted the position, though the true extent of those shortfalls did not reveal itself until Mr. Brimstein was asked to approve a $600,000 budget transfer last June, about a month after taking office, to offset unbudgeted increases in healthcare costs.

Coincidental Or Strategic?

The timing of Mr. Snyder’s departure—which occurred shortly after Mr. Nocero’s forced retirement—has also raised questions about whether or not the former was aware of the extent of the district’s now unavoidable financial troubles.

“Whether that was by intent or frustration, I don’t know—but in the end, he left,” Mr. Brimstein said of Mr. Snyder, the district’s former business official. “But it’s more complicated than one person.”

Mr. Snyder, who has been employed as the assistant superintendent for finance and operations at the Bayport-Blue Point School District since July 1, 2017, did not return multiple messages seeking comment.

Mr. Brimstein said the district’s audits should have been widely circulated, as well as shared with members of the School Board, but no one appeared to notice the warning signs. “If the fund balance is low, you don’t budget reoccurring expenses with revenue sources that are not reoccurring,” he said.

In early 2016, shortly after Eastport South Manor earned its “moderate fiscal stress” label for a second time, Mr. Snyder acknowledged that the district’s reserves were nearly depleted. “We have been drawing our fund balances down for a long time, and we can no longer use those reserves,” he said while officials were crafting the 2016-17 budget.

He also noted at the time that the district had lost almost $1.2 million in state aid in the 2014-15 school year, and an additional $431,853 in 2015-16, factors that further undermined the district’s financial stability. Mr. Snyder placed budget shortfalls squarely on Albany’s shoulders.

“We have a revenue crisis being caused by New York State,” he said. “Our spending is under control—we are just not getting enough revenue to fund operations.”

That year, the board adopted a nearly $90.6 million budget that cut almost $1.9 million in spending by eliminating 20 staffing positions, including 14 teachers.

But State Senator Kenneth LaValle, who personally oversaw the merger of the South Manor and Eastport school districts—securing enough building aid to cover 95 percent of the construction costs of the massive junior-senior high school in Manorville—disagrees with Mr. Snyder’s assessment. Like Mr. Brimstein and Mr. Laube, Mr. LaValle said administrators waited too long to cut staffing in the face of declining enrollment and, when they finally did so, did not cut deep enough.

The senator also said they failed to remove programming that should have been eliminated to save money, falsely believing that they could continue to spend more than they were taking in simply because that was the pattern that they had been following.

“They have been treated in a very special way,” Mr. LaValle said of Eastport South Manor, noting that it is set to receive $37,411,486 in state aid in the 2018-19 school year, or $760,638 more than the current year.

“What tends to happen, when you’re living high on the hog, is that you sometimes don’t know that the day of reckoning is going to come,” Mr. LaValle added.

School Board members, while unpaid elected representatives, also play a pivotal role in the crafting of budgets. They are among the first to review the financial audits completed by outside firms that, in Eastport South Manor’s case, flagged potential pitfalls several years out that, for the most part, were either dismissed or initially ignored.

Neither former School Board President Karen Kesnig, who has served on the panel for 21 years, nor current President Kenneth Cooke, who has served for nine years, answered inquiries about the district’s current financial situation.

At a board meeting on December 6, 2017, when Mr. Laube first announced that the district had a $1.2 million shortfall in its 2017-18 spending plan, Ms. Kesnig and other board members expressed shared surprise.

As Mr. Laube continued to share details, including projected shortfalls for 2018-19, Ms. Hack interrupted him to ask if Mr. Snyder could be held personally liable for the shortages. According to that meeting’s minutes, Ms. Hack stated: “Mr. Laube … have we asked the attorneys whether or not there’s any criminal implications in purposely misapplying numbers in a budget when that’s your job?”

Mr. Laube, who noted that he never worked alongside Mr. Snyder, said he never made such a request, prompting Ms. Hack to respond with: “Can we?”

Prior to stepping down as president in February, Ms. Kesnig announced that she was “disappointed” in the administration, stating that critical information about the district’s financial standing was withheld from the board.

Though she declined to point fingers in terms of who’s responsible for the current financial crisis, Ms. Hack said she has questioned certain budgeting decisions “to see if we could avoid this situation in the future,” and will continue to do so in the future.

Rising Costs, Dropping Enrollment

Rather than attempt to pierce the tax cap, action that could have dire consequences if voters reject the measure, administrators opted to continually tap and deplete their reserves over seven years, dating back to 2011-12, to cover escalating costs in employee salaries, health insurance premiums and retirement benefits.

The salary line of the budget, which includes everyone from teachers and administrators to clerical staff, is expected to increase by $1,363,164 next year, to $42,648,855, according to Mr. Laube. That line is still increasing by 3.3 percent—even after cutting more than 70 positions.

At the same time, the district’s health insurance premiums are projected to jump 12.1 percent to $8,752,495. Figures provided by the district show it spent $6,431,972 on those same expenses in 2013-14.

The district’s teacher retirement benefit contributions, meanwhile, are expected to skyrocket by 153 percent, from $679,717 this year to $1,721,065 next year, according to Mr. Laube.

The district’s teachers union contract expires at the end of the current school year.

A key component in Eastport South Manor’s hope to return to fiscal solvency is the future closure of one of its four elementary schools, possibly as early as the 2020-21 school year. Though they have not yet identified which building they are targeting, administrators said during recent budget talks that the district could cut more than 30 teaching positions due to a projected 18.1 percent drop in enrollment since the 2010-11 school year.

That year, 3,888 students were enrolled, and officials had decided a short time later that they needed to build a new elementary school. It turns out the timing could not have been worse. “They went forward with those plans just as enrollment was peaking,” Mr. Laube said.

Though various factors can be blamed, officials never ordered the completion of an enrollment analysis, a study that helps anticipate projected swings in the student population by examining trends, including the construction of new subdivisions.

Mr. Brimstein said he does not think such a study was undertaken since before the merger of the South Manor and Eastport districts in the early 2000s. “I was not able to identify any time that we had one done,” he said.

The studies are fairly common—the much smaller East Quogue School District ordered the completion of one earlier this year prior after asking its residents to approve an $8.4 million construction bond that will finance the renovation and expansion of that district’s elementary school. They’re also relatively cheap, with East Quogue’s expected to cost only $3,500 and take several months to complete.

Today, Eastport South Manor’s enrollment stands at 3,352 students, with Mr. Laube projecting that figure to decline by another 168 students, or 5 percent, by this September.

Breaking The Cycle

Weaning the district off its overreliance on reserves also meant that some difficult decisions were going to have to be made, and immediately. With the endorsement of a fellow new arrival, Mr. Brimstein, Mr. Laube rolled out a three-step plan earlier this year that’s designed to accomplish just that.

The first step included trimming millions in expenditures, including the staffing cuts. The next two years are going to prove equally trying. Unless something changes, administrators intend to ask residents for the first time next year to approve a budget that pierces the cap on tax levy increases—meaning that 60 percent of those who cast ballots must support the spending proposal and an accompanying jump in property taxes.

And if that works, the third and final step would be closing one of the district’s elementary schools in 2020-21, and possibly renting out the space to earn income.

“We knew from the start that the cuts were going to be big,” said Mr. Laube, who left his position with the Shelter Island School District to take over at Eastport South Manor.

He went as far as to speculate that a hidden goal of the state’s tax cap could be to bankrupt districts that are unable to balance their budgets. Though it is just a theory—Mr. Laube notes that he has no examples in New York State to point to—the bankrupting of a school district would “reset” everything, from teacher salary schedules and healthcare contributions to pension plans.

“We’ve never been in this situation before,” he said, “so I’m not really sure how it would all work out.”

Looking Ahead

The whiteboard in Mr. Laube’s office in Manorville states: “Find $2 Million Before April 2019.” There’s also an asterisk.

Next to the asterisk are the words: “Give or take a million.”

He explained that he and others are already trying to figure out how they can help offset next year’s projected shortfall, even as they make plans to pierce the cap in May 2019.

Mr. Brimstein said he would like to avoid making more cuts next year. In addition to finalizing a new teachers’ contract, the superintendent said the district must start setting aside money to make significant building repairs, explaining that the heating and air conditioning system, along with sections of the roof at the high school need replacing.

“It’s hard to sell to a community, stating that we need more money but are also making cuts,” Mr. Brimstein said.

He also said it is important to share those possibilities now, so taxpayers are not caught off guard. They’re following the same approach when it comes to the potential closure of one of the schools: “We want people hearing about it a year or two in advance before we begin looking at it in earnest.”

He acknowledges that it is going to take some time to mend the relationship with the community.

“Tim and I are very similar,” Mr. Brimstein said, referring to Mr. Laube. “We’re looking at this situation with a Native American philosophy. We’re not concerned about tomorrow—we’re concerned about seven generations from now.”

Ms. Hack noted that this year’s spending plan was extremely challenging—“I don’t think anyone knew how difficult creating this year’s budget would have been”—but she is not shying away from the responsibility and the myriad challenges that lie ahead.

“I have not regretted my decision at all,” Ms. Hack said of her decision to run for a School Board seat after contemplating the move for a decade. “If anything, it proved to me that I did the right thing ... I am confident that we can correct this.”

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By Mouthampton (419), Southampton on May 23, 18 7:43 AM
I thought that school district in Brookhaven?
By J. Totta (102), Sag Harbor on May 23, 18 12:21 PM
Eastport South Manor is split between Brookhaven and Southampton. There is also a very portion in Riverhead. The district lines are very erratic.
By lifesaver (118), speonk on May 23, 18 4:14 PM
Our school taxes are already thru the roof and you want to pierce the tax cap for an even larger tax increase. Enrollment is decreasing steadily and so should staffing and programing that doesn't have a high demand. Rent the school out now there is no benefit to waiting for 2 years. Teacher contract should be 0% as we have NO money. I am a union employee and have had to take 0% it sucks but, I would rather have a job then no job. Tough times call for tough measures and Eastport must pull its belt ...more
By lifesaver (118), speonk on May 23, 18 9:35 AM
Why does Eastport pay an insurance company for healthcare insurance when there's only one real choice for medical care for their staff? It's SUNY Stony Brook, funded by NY State -- $500 per person per month, or get your own healthcare. Stop paying the healthcare scamsters and tell Governor Cuomo to find other donors besides health insurance companies to fund his campaign for President.
By dfree (743), hampton bays on May 23, 18 12:01 PM
This comment has been removed because it is a duplicate, off-topic or contains inappropriate content.
By G (334), Southampton on May 23, 18 4:42 PM
Is he doing a photoshoot at his desk with his shoes off while he decides how many teachers to axe?
By Pacman (251), Southampton on May 23, 18 8:24 PM
1 member liked this comment
Should've cut more this year, bad move
By blahblahblah (7), Westhampton on May 23, 18 9:05 PM
8k run & 3 mile walk, Agawam Park, Southampton Rotary Club fundraiser