Yesterday we mentioned the focus of today’s article, that TUSD was using teachers’ Prop 301 money to hide its budget deficit, in a response to an interaction last week on the Bill Buckmaster Show with the Tucson Weekly’s education writer. As the year comes to an end, we now have access to the just-released 2015-2016 Comprehensive Annual Financial Report (CAFR) prepared by the Accounting firm of Heinfeld, Meech. The Arizona Daily Independent also wrote about this today (excerpt below).
This year, as so many others has been a turbulent one for the Tucson Unified School District. Perhaps nothing has caused as much controversy as the issue of the amount and use of Proposition 301 monies.
The release by TUSD’s administration last week of financial statements prepared by the Certified Public Accounting firm of Heinfeld, Meech for the year ended June 30, 2016 raised more questions.
We showed the following table to provide evidence of our claim:
We now briefly explain the background (just search for Prop 301 on this site to find numerous more articles on this topic).
- In 2014, the retiring CFO Yousef Awwad warned TUSD that he was projecting a $15 million budget shortfall in the following year.
- This budget deficit never occurred… or did it?
In 2000, taxpayers approved Proposition 301 which included a 0.6% sales tax for 20 years for education.
- 20% was for increasing teachers’ base salary (in TUSD this is around $31,000).
- 40% was for performance pay and this will be the focus for today.
- 40% was for maintenance and operation expense.
The Prop 301 monies were intended to be spent entirely every year. Keep in mind that 60% of the money is intended to raise teacher pay, and thus that should be applied annually to their contracts since you cannot raise their pay after they retire. The amount varies from year to year, but in TUSD the amount is about $18 million annually.
- Every school district in the state – from the largest, Mesa, to the local surrounding school districts – spend their Prop 301 most of their money annually. TUSD stands out for increasing the amount of Prop 301 NOT paid out, to the point that we now have more unspent than we get annually.
- In other words, if the state of Arizona or if Governor Doug Ducey never gave us the money for an entire year, this would have the same impact since TUSD never spent that money to help the teachers in need. The main difference is that there would be a huge outrage from everyone, from the Tucson Weekly to the TEA, calling out the evil Republicans for holding back money meant for teachers, and yet the Democratic-run TUSD board and HT Sanchez have effectively done the same thing; TUSD held back money meant for teachers.
The data above is all from the government required financial documents that TUSD itself files with the state (as do the other school districts). We made the chart above over the summer to warn everyone at TUSD about the hoarding of Prop 301 funds, but now we have the most recent financial documents available.
We have also noticed an interesting pattern/coincidence. The amount that TUSD has been “in the red” almost exactly coincides with the amount of unspent Prop 301 monies, which is also the fund from which TUSD borrowed to stay afloat (see Table 1)!
First, we documented the pattern since Sanchez took over TUSD.
What are some takeaway points from the graph above?
- TUSD cut the amount it paid out in Performance Pay in half in 2013.
- This came a year after TUSD closed 11 schools to try to stay afloat.
- Former Superintendent John Pedicone could have also been using the Prop 301 money to cover deficits as his tenure came to an end in 2013. He had no problem admitting TUSD was in financial trouble (hence the school closures and laying off of teachers).
- Everything from 2014 forward is squarely the responsibility of HT Sanchez, and it is his signature on the Annual Financial Reports from which the data above was gathered.
Take special notice that the unspent/hoarded Prop 301 money was over $15 million in 2015, and in the Annual Financial report for 2016, it was budgeted to GROW to $21 million! Page 3 of the APR for 2016 is below.
Since this summer, we have been warning the TUSD board and superintendent about this increase in unspent Prop 301 funds that are supposed to be dispersed entirely and annually, and yet we are now reaching over $21 million being hoarded. As you can see above in Figure 4, the main chunk of that money comes from not paying out the performance pay, and you can see in Figure 3 how the Prop 301 account has grown over the past several years.
This problem was made even more insulting to teachers after they worked so hard to pass Prop 123 in the Spring, only to get 26% of the money, a mere $700 annually, whereas our neighboring district to the south, Sunnyside paid out all of its Prop 123 monies in wage increases.
During this election year, two of the incumbents kept repeating that they voted for numerous pay raises. This is true, but the pay raises equated to a small fraction of what they should have been paying out. The voters give TUSD $100 to pay for teachers, and TUSD only gives them $26, but as politicians, they proclaim that THEY gave the teachers a raise but in reality, they only gave barely a fourth of what they should have, and that money came from US the voters. But TEA used this to give them their endorsement and to proclaim them as heroes for teachers.
But why was TUSD not spending this money?
The Comprehensive Annual Financial Report for 2015-2016 was finally released last week. This is the official report done by the accounting firm Heinfeld, Meech which is made up of certified CPAs, something which the TUSD CFO lacks. We now have insight into the past year of finances in TUSD.
Were our estimates of having $21 million hoarded in Prop 301 money correct, and can we find out a reason why?
(Article continued below)
As you can see above, this document has the signature of TUSD Superintendent HT Sanchez, CFO Karla Soto, and Heinfeld, Meech & Co, signed December 19th, 2016.
What does this document reveal?
On page 78 we find the dark secret:
At year end, the General and Title I Grants funds as well as several non-major governmental funds had negative cash balances in the Treasurer’s pooled cash accounts at year end due to state and federal receivables detailed in Note 5. Negative cash on deposit with the County Treasurer was reduced by interfund borrowing with the Classroom Site… All interfund balances are expected to be paid within one year.
Before moving on, let’s summarize what this means. The accounting firm Heinfeld, Meech documents that there is a NEGATIVE CASH BALANCE, meaning that TUSD is in the red, and Classroom Site Funds (aka Prop 301) were used cover these deficits, and these balances are expected to be paid within one year.
What this means is that TUSD used Prop 301 monies to hide its debt, and that money is gone for now. It is expected that TUSD replenishes the Prop 301 fund within one year, but the keyword here is “expected.”
Put another way, TUSD did not pay its teachers the Prop 301 money because it used that money to hide the debt that former CFO Yousef Awwad predicted when he left the district!
Let’s look at the numbers for 2016. We noted that TUSD had $21 million in Prop 301 funds leftover this year… and the amount that TUSD had to borrow was… $22,502,912. (Page 78 of CAPR).
What about for 2015?
TUSD is $12,169,969 in the red, and you can clearly see in Figure 6 that this amount was covered “by interfund borrowing with the Classroom Site Fund” which is the accounting term for Prop 301 funds.
In 2014, retiring CFO Yousef Awwad predicted that TUSD would be in the red around $15 million in a year.
- For 2015, $15 million of Prop 301 was left unspent.
- $12,169,969 was “borrowed” from this fund to cover TUSD’s debt.
Thus TUSD was not paying its teachers the money that was owed to them, instead, using the majority of that money to cover its debt.
For the most recent 2016 reporting cycle:
- Nearly $21 million of Prop 301 was unspent.
- TUSD borrows $22,502,912 from this fund and “several non-major governmental funds” to cover the debt for 2016.
Some main points of concern:
- TUSD’s debt grew by over $10 million last year, from $12.2 to $22.5 million!
- TUSD’s debt of $22.5 million now surpasses what even the hoarding of the Prop 301 monies can cover, which is currently $20.8 million.
- TUSD teachers who did not get the full Prop 301 monies that HT Sanchez or Karla Soto or SOMEONE at TUSD was hoarding, and signing off on (there are 1,100 of them that left since Sanchez began his tenure), will never see that money that voters approved for them.
- This affects their past income.
- This affects their retirement.
- TUSD’s debt is growing, nearly doubling in the past year and just as with a payday loan, or “robbing Peter to pay Paul,” there is no end in sight for TUSD’s financial demise unless it gets a bond passed or a miracle occurs. Since HT Sanchez promised to pay out the entire $21 million of Prop 301 money, saying that not one penny will be left after this year, there will be no more Peter left to rob from to pay Paul.
- The major problem here is that TUSD only has around 2400 teachers and even if we round up to 2,500 to make the math simpler, with TUSD only paying out $3,000 for the highest level of performance pay (which hardly any teachers get), that’s only $7.5 million that gets spent.
- To give a lump sum payment for all of the teachers employed now, including the first-year teachers, is to give all the Prop 301 money that recently-retired teachers were denied to newer teachers who did not earn payment for previous years of teaching in TUSD.
- In short, TUSD should never have used this Prop 301 money to borrow from, since those teachers from which the money was “borrowed” from will never get paid back since they have left the district, exactly for these types of shenanigans.
There is a good chance that HT Sanchez made his grandiose claim of leaving not one penny left in Prop 301 monies as a Hail Mary attempt to save his job. As the new school board gets seated in January, HT’s contract may be terminated. If so, then HT can just claim that he had a grand plan to fix everything, but we will never know about it since he got fired.
What is for sure is that the new TUSD board will be inheriting a financial mess. At least the former superintendent John Pedicone admitted that we were in financial problems which led him to make unpopular decisions, such as closing schools and laying teachers off. HT Sanchez has not had to worry about firing teachers since over 1,100 have left since he took office, and Sanchez also gets to benefit from the schools that were closed and not having to cover those costs.
However, HT Sanchez should have been honest with us all along. He was not, for the simple reason that it is easier to apologize than to get permission. There is NO WAY teachers or even the board would allow the hoarding of Prop 301 funds to pay for a deficit, or at least knowingly since they are also responsible and allowed this to happen with their votes of approval.
Now that election season is over, and with Adelita Grijalva and Michael Hicks not planning on seeking re-election in two years, hopefully the new board just accepts the reality of its current financial situation and increases transparency so that the community can also help. We are all in this together, for better or worse, and TUSD is too important to Tucson to allow it to deteriorate any further.
Also published on Medium.