At a school board meeting last week, it was publicly revealed that a small Houston-area district is in a very precarious financial situation. What’s even worse is that community attempts to call attention to the problem have long been ignored by school board members.

At the August Crosby Independent School District board meeting, Superintendent Dr. Scott Davis delivered a report outlining the district’s current financial standing. Davis, who is newly appointed, decided to take a deep look at the district’s finances back in the spring of 2017. He, along with the chief financial officer, found a significant cash flow problem that “resulted in the district partaking in a short-term loan and internal fund borrowing from the district’s Debt Service and Construction Funds to cover operational needs and the district’s payroll obligations,” according to a district press release.

“Prior to Davis’s arrival, $5.65 million had been borrowed from the Construction Fund to cover the district’s payroll obligations,” the press release continued. It also said at the start of Davis’ tenure, he borrowed an additional $1.99 million from the Construction Fund to cover expenses for the July 15 payroll. In total, the district borrowed $7.64 million from that fund.

“Davis stated that the plan is to repay the $1.99 million he had to borrow by the end of November 2018 … Approximately $2.25 million of capital expenditures have been identified as potential qualifying expenses leaving $3.4 million outstanding that the District intends to pay by December 2018.” The $3.4 million is the amount the superintendent and CFO came up with after determining if any of the borrowed funds could be written off as qualified expenditures from the total amount due to the Construction Fund.

In addition to operating expense and construction fund issues, the district’s fund balance (savings account) is below the recommended amount. The Texas Education Agency recommends two to three months of operating expenses in the fund balance; Crosby is well behind. A healthy fund balance for the district would be $14.4 million, and in 2016 they had $10.6. However, two years ago the district approved a change to its fiscal year, moving the end date from August 31 to June 30, which created a 10-month fiscal year for 2016-2017. In that 10-month fiscal year, they saw a net decrease in their fund balance of $5.2 million, leaving them with $5.4 million.

Fast forward to recently when they “discovered payroll was not accrued at the end of 2016-2017 fiscal year in the amount of $3.8 million for the General Fund.” This discovery forced the district to do what’s called a Prior Period Adjustment or PPA. Simply put, it’s a correction. The correction decreased the June 2017 fund balance from $5.4 million to $1.5 million. Now the district says that since they are required to have a restricted General Fund balance of $1.7 million, other fund balance categories will be negative. “Replenishing the Fund Balance to a healthy state will require less spending than the District earns.”

Their plan is for the district to be in financial recovery for three to five years and to take out more short-term loans, or Tax Revenue Anticipation Notes, to subsidize the lack of cash flow. However, a dependence on short-term loans can lead to future problems, so the district plans to implement cost-saving measures.

They plan to identify 10-20 percent in budget cuts and eliminate positions through attrition. They’ve done this with about 20 positions so far and are also open to reducing the workforce if necessary.

Some Crosby residents are upset because many have been sounding the alarm about the district’s finances for some time. The night of the public acknowledgement of the state of finances was the last day to file for Crosby ISD school board and some say, had this been made public prior to the filing deadline, they would have thrown their name in the ring.

CISD is in the district of State Rep. Briscoe Cain (R-Baytown), and he has long been calling attention to the state of affairs there. After the board meeting, he said:

The whole thing is disgusting and shows a total disregard for the parents and students of our ISD. Instead of focusing on what’s in the best interest of students our board is hell bent on protecting the system and those in it. I’m standing with parents who are concerned about the lack of focus on student outcomes and hope the board wakes up soon.

In January of this year, after the former superintendent voluntarily resigned amidst scandal and thus was permitted to receive his full salary through June, I raised concerns over financial troubles. The board obfuscated and now I am vindicated. I’m calling on the board to conduct a forensic audit as soon as possible. I’m pleased with Superintendent Davis’s actions to right this ship, and feel that a forensic audit would give the people more trust in our district.”

The superintendent plans to present an amendment to the already-approved 2018-2019 budget in the near future to ensure that the budget reflects and addresses the actual state of the district’s finances.

Charles Blain

Charles Blain is the president of Urban Reform and Urban Reform Institute. A native of New Jersey, he is based in Houston and writes on municipal finance and other urban issues.

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