$80 Million Shortfall In Schools Stuns D.C.

By Justin Blum Washington Post Staff Writer Friday, September 7, 2001; Page A01

The District school system overspent its budget by $80 million this fiscal year, city and school officials announced yesterday, saying that they learned of the deficit only recently and that three school finance employees have been fired as a result.

The shortfall, equal to almost 10 percent of the system's $832 million operating budget, largely involves spending on special education.

The city's chief financial officer, Natwar M. Gandhi, said the problem does not affect the District's overall financial health, which remains strong. He said that $42 million of the deficit would be covered by freezes and fund transfers within the school budget and that the rest of the shortfall would be made up from unanticipated growth in tax revenue.

But Superintendent Paul L. Vance said he would be forced to implement "severe austerity measures" because the budget for the fiscal year that begins Oct. 1 will have to be adjusted to avoid another deficit. He said no decisions had been made about what would be cut.

The financial problems are a blow to the city at a time when District officials are trying to restore faith in their ability to manage money after six years of oversight by the D.C. financial control board. Yesterday's announcement also was a reminder of previous fiscal crises in the school system, in which budget deficits resulted in layoffs and dismissals of employees.

Bert Molina, the school system's chief financial officer since July, said he fired three employees in the school budget office last week, including budget director Jonathan Travers, in connection with the shortfall. Travers, reached by a reporter, declined to comment.

Vance said he was "incredulous" when Molina reported the deficit a couple of weeks ago. "I couldn't believe it," Vance said. "I felt that I finally knew what Alice in Wonderland felt like."

Vance said Molina's predecessor had repeatedly failed to provide him with monthly financial statements he had requested.

D.C. Council members, who were told about the problem this week, said they were furious at the news, noting that they had been told that the school system was spending within its means.

"It's frankly mind-boggling," said council member Kevin P. Chavous (D-Ward 7), who chairs the council's education committee. "It's almost like you can't trust them at their word. That's what's maddening about this."

Council member Kathy Patterson (D-Ward 3) said the overspending means the city will not be able to add funds to other programs.

"The $80 million shortfall is just plain sickening," Patterson said. "Sickening because it represents a repeat of the same failures we've seen in the school system over the last decade, and sickening because there are other spending priorities that have been identified – needs that now simply will not be met for the foreseeable future."

School officials said part of the deficit stems from cost overruns in special education. The number of students requiring those services has increased, and the school system continues to send many of the children to private schools because it does not have programs in public schools to accommodate them.

In addition, almost half of the shortfall – $38 million – involves the school system's alleged failure to properly document special education expenses submitted for Medicaid reimbursement. Medicaid recently rejected reimbursement claims dating to 1995 because the school system did not collect certain paperwork, school officials said. Gandhi said he would appeal the Medicaid decision.

The school system's financial staff is overseen by Gandhi. He said he learned the extent of the cost overruns only recently, after Molina took over as the schools' chief financial officer and analyzed the situation.

"I expect my CFOs to really report all the problems on an early-warning basis," Gandhi said, criticizing Molina's predecessor. "I should be alerted a long, long time ago about these matters."

Donald L. Rickford, who was the chief financial officer for the schools until July, said he had told Gandhi in March that there were cost overruns of about $13 million and that money could be shifted from other parts of the budget to cover the expenses.

"I don't know how Dr. Gandhi can blame me for that, since I told him in March," said Rickford, adding that he does not know what accounts for the additional overruns.

Rickford, who left the schools job to become acting chief financial officer for the city's health department, said he has resigned from that post effective next week, in part because he has been denied access to school records he needs to defend himself.

He said school officials may have spent money without telling his office that they were doing so, throwing off projections. Rickford also said that he provided monthly financial statements to Vance.

-- Anonymous, September 06, 2001