Did TUSD really use the teachers’ Prop 301 monies to stay out of the red? Annual financial report just released

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.

Source: A Look Back: TUSD Use Of Prop 301 Monies | Arizona Daily Independent

We showed the following table to provide evidence of our claim:

Table 1. The amount that TUSD has had to borrow to stay afloat almost exactly matches the amount in unspent 301 monies, the fund from which it borrowed.

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.

Figure 2: TUSD has 107% of Prop 301 money UNSPENT!

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.

Figure 3. Performance pay gets cut starting in 2013, and the amount in the Prop 301 account skyrockets.

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.

Figure 4. Annual financial report for 2016: http://tinyurl.com/jfs3eox

 

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?

Figure 5: Signatures on the 2016 CAPR.


(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?

Figure 6: Page 76 of 2015 CAPR.

 

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.

Figure 7: Prop 301 funds only had $3.5 million in the bank, with over $12 million of it loaned out to pay for TUSD’s deficit. (Page 48, 2015 CAPR).

 

Summary

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.



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16 comments on “Did TUSD really use the teachers’ Prop 301 monies to stay out of the red? Annual financial report just released
  1. Sanchez loves to claim that he had CFO experience and it looks like he did–experience with playing a shell game with OPM–other people’s money, that is. I personally doubt if the new board will fire him (it would cost 1/2 million dollars or more to do so and as you note above, the District is already in debt) , but I sure hope that glaring spotlight on his work encourages him to walk away.

  2. Actually, Sanchez’s contract doesn’t end until June 2018, not June 2017..

    Sanchez gets automatic pay raises every year of his contract. Those annual pay raises also increase both the size of his annual performance bonuses AND the amount he collects for each day of unused vacation he turns in. This year he will also get an additional $25,000 for completing the year. For the last year of his current contract he will get $153,000 for completing that year, in addition to his salary, stipends, unused vacation days, and bonuses.

    If the Board decides to let Sanchez go without cause, he will collect all that lovely money minus any as yet, unearned performance pay. If he resigns, he loses everything, except his prorated base salary. That means he wouldn’t even get paid for his unused vacation days.

    The Board can terminate him for “sufficient cause as provided by the law,” whatever that means. Maybe it will be fortunate that Rachel Sedgwick is a law student.

    Sanchez’s contract can be renegotiated, if he agrees to it. If this Board is smarter than the prior Board majority was, perhaps he would leave sooner and with less money, given the current furor.

    • Perhaps one strategy would be to let HT come up with his plan to leave not one penny left in Prop 301 funds, give him a deadline of a month or two, and if he fails then fire him?

  3. The 301 money scandal is indicative of the greater problems in our district. Example: A couple of years ago, I heard rumblings from a few other teachers that some principals were no longer giving teachers the highest score on their evaluations (highest score =highest payout from 301 fund). While I did not experience this myself, I figured that this was another “unwritten policy” from the top and that TUSD must be in real financial trouble.

    If a journalist did a little digging, they’d uncover massive corruption in TUSD & find quite a compelling story. Our story is set in a state where the legislature is openly trying to dismantle public schools in order to privatize education. Our story is tainted by a prominent political family who uses the district as a way to gain political power and give favors to cronies. This is the same district with the state’s highest paid Superintendent and the lowest paid teachers that squanders the resources it does have while many families who can flee to charter schools.
    Our story features plenty of villains, a few heroes (teachers, citizen activists), but mostly victims (children & families).
    I’m ready to change this story. I want to be part of a story where citizen activists, teachers, and parents work together with the school board to make the district’s transactions transparent. I want to be part of a story where TUSD earns the community’s trust and respect and relentlessly holds the district (and ourselves) accountable to the thousands of families we serve. Those who are used to dealing in the dark with little accountability will leave on their own accord.

    This is how our new story begins.

  4. HT should have to earn his compensation like he treats the teachers. Watching him squirm like the money hungry fool he is for the next two years should prove interesting. Unfortunately 46k kids education hang in the balance while HT exists is painful.

  5. Make HT work instead of firing him! Hold him accountable by directing him as he should have been all along. What’s he known for is divide and conquer! He meets individually with certain Board members and tells them what he wants them to know. Make him meet with the Board directly and report on directives he has been given. Clean out the Board Office by firing Mary Alice as she is loyal to Adelita and Kristel. Fire Karla Sota and hire a qualified CFO who will stand up to HT and his shenanigans! Finally, fire Anna Maiden who has done NOTHING to recruit and retain teachers, and Abel Morado who merely serves as HT’s pit bull! If these people are fired, new people can be hired who have no loyalty to HT! Make HT stand alone and WORK!

    • Employee of 20 years, you are exactly right about who needs to go! Even if Sanchez worked, he’s not worth what he’s being paid. He’s neither competent nor qualified to run a school district of this size.

      In my experience, competent people don’t lie. When there’s a problem, they tell you how they’re going to fix it & how they’re going to prevent the problem from reoccurring. Sanchez’s strategy hasn’t been to fix problems; it has been to attack the messengers and to deny there are any problems.

  6. Lillian, I couldn’t agree more about HT being unable to manage TUSD! He doesn’t seem to understand the meaning of transparency, which is vital for TUSD after years of misinformation being fed or withheld from the community. Maybe this new Board will begin to act like his boss instead of his friend, and we can get back to educating students!

  7. Lillian, I agree that HT seems to be unable to manage TUSD. This community deserves the truth about everything that concerns TUSD! This community deserves transparency as it relates to funding, the USP, teacher hiring/retention, administrative (cabinet level) “bonuses”, student discipline, etc.

    Here’s hoping the new Board will be more interested in being his boss rather than his friend!

  8. There are serious reasons to be concerned about the financial conditions in TUSD. What has happened to the retired teachers of the last 3 years is horrendous, affecting their entire lives in retirement. Everyone is waiting to see how the new board will function in regard to the administration in the new year. No raises should be proposed for anyone earning 6 figures, and no bonuses either for those categories.

  9. Why doesn’t threesonorans.com publish an article for the retired teachers regarding how to file a notice of claim for wages with TUSD, Sanchez and the board? These teachers, will not receive the 301 monies to be paid out for the below, which was floating around this past December:

    PROPOSED Amendment to Tucson Unified School District 2016-17
    301 Pay for Performance Plan
    Submitted by the 301 District and TEA Joint Task Force
    Purpose:
    The purpose of this amendment is to address the current surplus balance in Fund 12 of the Classroom Site Fund as of the 2016-2017 fiscal year, which is approximately $9.5 million dollars, and which has accrued over time. Remaining funds in Fund 12 represent new funds received for the 2016-17 budget year for the 301 Pay for Performance Plan.

    There is a 180 day time limit and you can ask for three times the wrongfully withheld amount and damages for shortchanged pensions….I understand that the accountants said there were no illegalities. However, the phrase “illegal” may pertain to criminal not civil liability and it looks like there’s a lot of bad faith and inequity from TUSD. Any attorneys out there brave enough to represent all these claims?

    • I’ve heard lots of talk about this. If I ever find out how to have a class action lawsuit or something I will definitely write about it.

      Have any retired teachers sought the help of TEA/AEA?

      • As part of yearly negotiations, TEA is suppose to see a budget. It is obvious that they now know that money was moved from 301 to areas in the red. Yet, they agreed to the recent 301 amendment that left retired teachers out of the picture. Many of these retired teacher may have paid their TEA dues during the years at issue. Yet, TEA failed to consider their interests. From the amount of money TUSD paid for 301 during the years of interest, I would also argue that TEA failed to properly bargain for higher 301 bonuses. I believe the 301 amendment still excludes retired teachers from receipt of the 301 money or from the contract bonuses (were these paid from 301 as well?) that were handed out in August. Retired teachers return as “leased” employees if they continue to work after retirement.

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