REGIONAL— Despite numerous public records requests by the Timberjay, the St. Louis County School District has failed to produce updated financial projections that it hired Johnson Controls in June 2009 to develop.
The missing financial projections are one of several key issues in an ongoing legal complaint filed in 2010 by Tower Mayor Steve Abrahamson and Coalition for Community Schools president Tim Kotzian, who allege that the school district misled district voters about its financial health as part of a campaign to win passage of a $78.8 million bond measure in December 2009. After winding its way all the way to the Minnesota Supreme Court, the case was referred late last year to the Office of Administrative Hearings, which heard three days of evidentiary testimony this past January and December.
Meanwhile, a second public records request by the Timberjay—this one to the Minnesota Department of Education— has revealed that school district business manager Kim Johnson made inaccurate statements about material matters while testifying under oath at that evidentiary hearing in December.
As the Timberjay first reported last month, the school district contracted with Johnson Controls, Inc. for updated financial projections prior to its bond referendum in 2009, but the whereabouts of the projections remain a mystery.
The board commissioned the report in July 2009, asking JCI to work in conjunction with the financial firm Ehlers and Associates, and Kim Johnson, to update its financial projections following the district’s June 8, 2009, adoption of its long-range facilities plan. That plan included significant staffing reductions, many of which were made at a board meeting held two weeks later, on June 22. Those staffing reductions trimmed more than $1.5 million from the district’s 2009-10 budget, and left the district’s financial picture much-improved over projections prepared earlier by the business manager.
At that same board meeting, the school board authorized a Phase 3 contract with JCI, which included $22,000 for financial work. Updated financial projections were specifically included in the listed work associated with that contract.
One month later, on July 20, then-superintendent Charles Rick informed the school board that work on the new projections was underway and that the district was working with Ehlers on the new numbers. He told the board that the new projections would be completed by mid-August.
But somewhere between July 20 and mid-August, work on the projections was either suspended, or the completed projections went missing.
Those projections would almost certainly have revealed what the business manager had already told the school board— that the district’s financial circumstances were much better than earlier projections had indicated. Those projections were based on a $1.973 million projected deficit in the 2008-09 school year, which the business manager claimed would grow to $4.1 million as of the 2011-12 school year without budget changes. School district officials repeatedly cited those projections as they argued for passage of the 2009 bond measure.
Those budget numbers were inaccurate, and district officials knew as early as June 2009 that projections based on those numbers would be significantly at odds with their actual finances. Yet, school officials continued to cite the old, far more dire figures, right up until the December referendum. That discrepancy is at the heart of the legal case that still awaits resolution.
Testifying under oath in that case on Jan. 24, 2014, Charles Rick acknowledged he spoke to JCI and Ehlers representatives about the financial projections shortly after the board authorized the update, and that he had informed them of the improvements in the district’s finances.
Those improvements stemmed not only from the staffing reductions approved in June, but also from the fact that the district finished the 2008-09 school year with a much smaller deficit than the original budget, approved in June 2008, had indicated. The school district’s final 2008-09 deficit was a relatively modest $802,000, far less than the $1.97 million that the business manager had projected a year earlier.
Combined with more than $1.5 million in staffing reductions that the board approved for the following school year, it would have been apparent to school financial officials that new projections would have shown a budget much closer to balance, if not in the black.
In his testimony, Rick acknowledged that the discrepancies between the financial claims that the district made in newsletters and brochures it sent to voters and the actual figures might have made a difference in how residents voted on the referendum.
He further testified that he believed the updated financial projections, which would have revealed the district’s improved finances, were never completed. Left unanswered was who made the decision not to complete the updated projections, and why. Also unanswered is why the school district paid JCI for the financial work—which it did according to invoices reviewed by the Timberjay— if the work was never completed.
In later testimony, board chair Bob Larson testified he thought the projections were developed for the district’s Review and Comment document that JCI prepared for the Minnesota Department of Education. Yet that document, submitted to MDE in September 2009, includes the original, by-then outdated, financial projections developed months earlier by the business manager.
The conflicting stories provided by school district witnesses prompted the Timberjay to make its public records request to the school district on Jan. 27, 2014. Despite repeated requests, the district never provided the projections. The school district did produce 113 pages of financial documents that it claims are responsive to the newspaper’s request, but the documents bear no relationship to the information actually requested by the Timberjay. Instead, the documents relate to the financing of bonds, property tax calculations, and a variety of other bond-related information, all of which appears to have been produced in 2010, well after the school district’s 2009 referendum.
Business manager Johnson offered a separate explanation to the Timberjay, suggesting that an emailed summary of a Sept. 9 school board study session, which mentioned a brief financial report she gave to the board, constituted the updated financial projections. She said, typically, financial projections are done twice a year, in the spring and in the fall and are given orally to the board.
Yet Johnson’s claim is inconsistent with the facts. Just one year earlier, in 2008, the district had hired Ehlers through a previous JCI contract, and Ehlers produced detailed, lengthy written financial projections based on data supplied to them by Johnson.
Further, the financial report that Johnson provided to the school board during its study session was not updated at all. Indeed, school officials testified in January that the financial data they were presented in September was based on the dire, and by then-outdated, projections that the business manager had produced several months earlier. Since those projections were produced, the district had finished the 2008-09 school year in much better financial shape that those earlier projections had suggested. In addition, the school board had approved major staffing reductions in June, which would have further improved the district’s financial circumstances.
On Dec. 12, under cross examination by attorney Erick Kaardal, Johnson acknowledged that at least one figure provided by the district to voters was inaccurate. That was the district’s claim in its December 2009 newsletter that it had finished the 2008-09 school year with a $1.5 million deficit, rather than the $802,000 deficit the district actually reported.
When Kaardal asked why the information had not been updated, Johnson testified that she only learned of the improvement in the district’s finances on Nov. 30, 2009, too late to make a change for the December newsletter, which was being printed at that time.
“When did you know it wasn’t going to be $1.5 million?” asked Kaardal a second time.
“November 30,” Johnson repeated.
Yet financial documents obtained by the Timberjay through a public records request to the Minnesota Department of Education, point to a different timeline. Every school district in Minnesota is required to file preliminary financial data each year, as of Sept. 15. As school districts finalize their financial data, they file occasional updates with MDE through the fall.
In 2009, ISD 2142 made submissions to MDE on Sept. 14, Nov. 3, and Nov. 20, before submitting final numbers on Dec. 2. While the September submission was substantially incomplete, by the Nov. 3 submission, the district’s filing showed an improvement in the district’s deficit, which by that time was indicated to be $1.1 million, a substantial improvement over the $1.5 million the district would claim in its newsletter sent to voters one month later. By Nov. 20, ten days earlier than Johnson had testified she learned of the improvement, the district submitted financial data to MDE showing the deficit trimmed still further, to $863,000, very close to the final deficit number of $802,000.
The Timberjay contacted Johnson seeking an explanation for the discrepancy in her testimony. In a written statement, Johnson said the financial information submitted to the MDE was a compilation of data entries, with no running total, and that she stands by her testimony.
“The first submission of unaudited data must be made by Sept. 15. Our auditors must submit audited data by Nov. 30 which must be free of errors,” stated Johnson. “Consequently, data entries are submitted prior to Nov. 30 so that compliance reports may be generated and any errors corrected. Therefore, my first access to audited data is when the error free submission is made to the Department of Education on Nov. 30. The final audit report must be submitted by Dec. 31. The School District’s auditor prepares its financial statements and audit report in December at that time the numbers are final. This is consistent with my testimony.”