2015-02-12 / Front Page

School Deficit Approaches $1.24 Million

By James Merolla

The Newport School Committee will explore creative funding – possibly even borrowing against retiree funds – in order to help make up a projected $1.24 million budget shortfall this year.

At the School Committee monthly meeting on Feb. 10, Superintendent Colleen Jermain and Finance Director Joan Tracey publicly confirmed what the committee already knew – that deficits in funding retiree benefits, transportation expenses, and pension costs accounted for more than $1.17 million of the estimated shortfall.

“This does not mean we are out of money,” said Jermain. But, based on current spending trends, contract negotiations and unrealized savings, she predicted the $1.24 million gap by June 30, the end of the fiscal year.

Jermain distributed packets to the committee itemizing the projections, including “three main drivers” causing budget problems: extra retiree benefit costs ($862,000), unexpected transportation ($256,426) and pension expenses ($57,642). Much of the rest stems from out-of-district education costs.

“Last year, the City Council helped us tremendously. They helped us as much as they could,” said Jermain. She was referencing the $918,000 increase the council gave the district in 2014 for this fiscal year, per the schools' request and the maximum four percent increase allowed by state law.

Even after this allotment, the committee had to go back and make aggressive cuts in order to fill a remaining $2 million gap.

Jermain said the district is looking at additional funding sources, including national grants and new opportunities to partner with other school districts in cost-sharing programs. A budget freeze in place since November will continue, with delays in hiring staff, but no cuts to student services.

To that end, the superintendent mentioned school employees who have contributed to an extended benefits trust over the years in order to receive “lifetime” health benefits after retirement.

In setting up the trust years ago, Jermain said it was a requirement that no one would be allowed to access it. At present, Jermain and Tracey reported that the fair market value of the trust included “an unrealized gain” of $1,244, 994.

The overall balance of the trust is $4.8 million.

School Committee member Robert Leary said that the $1.2 million surplus from 2010 was invested in the trust and has seen $400,000 in capital gains.

“I do believe the School Department and the School Committee have the right to access these funds,” said Jermain. “This is not the answer to our situation. This is a step in the process to create a sustainable system going forward.”

This option was just her personal opinion, she reiterated. “I do not speak for anyone [else],” she added.

She wanted the possibility discussed publicly in “complete transparency.”

“We are a great school system, and we have so much potential. We need to have that discussion,” said Jermain.

Committee members were quick to warn against the strategy of using the money, although some would consider a loan from the account.

“I am dead set against doing this,” said Leary. “However, if we do it, any money would have to be paid back with interest.” He said that the account has always been severely underfunded, only 30 percent instead of an ideal 70 percent.

“The elephant in the room here is that it has never been properly funded,” he said. [By borrowing] you would make a bad situation worse. I don’t like this idea at all, but if we are stuck…”

Jermain then clarified that she would suggest using some of the fund, not all of it.

"It is an issue this School Committee will deal with. We have to think outside the box,” said Committee Vice Chair David Hanos Jr. He suggested a five-year interest payback plan if the schools borrow from the fund.

“How do we pay it back? We have to find a way,” said School Committee Chair Jo Eva Gaines.

“When I came to Newport, people told me, ‘You know, you are going to have a budget problem,’ ” said Jermain. “It is part of my job to identify the drivers; I will call them outliers. I see my role here to address this fully.”

Hanos said that it didn’t help that the schools had been “level funded” for 10 straight years while the department was forced to make cuts with “everything else going up, year after year.”

But Leary told Newport This Week that the system has 1,000 fewer students and 100 fewer teachers than 10 years ago, implying that level funding should suffice.

On Wednesday, Feb. 11, Gaines dispatched a letter to Rhode Island General Auditor Dennis Hoyle, officially informing the state of the possible deficit. She wrote, “As part of a corrective action plan, the Newport Public School (NPS) has implemented a hiring freeze and a spending freeze.

“Both employee unions are working under expired contracts and NPS is negotiating with both of them. We are engaged in discussions with the retirees to bring down the cost of retiree benefits in the district.”

A budget meeting with city councilors is scheduled for early March.

In other news:

. Jermain reported that 2014 graduation rates had met the committee’s improvement goals. The rate rose to 73 percent from 2013’s 68 percent.

She suggested that the schools try to achieve another four percent increase to 77 percent this year.

“We still have a long way to go,” said Jermain. . The Committee regretfully accepted the resignation of longtime administrative assistant Wendy Gasior, who worked under school superintendents for more than 20 years. It is effective April 7. . Roof leaks are occurring at Pell Elementary, Thompson Middle and Rogers High schools, due to extreme winter conditions. Rogers is still under its bonding and some $500,000 remains in the account to fix the roof with no cost to the city.

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