Budget woes put Crosby ISD in crisis

Financial problems pushed district into debt accounts to pay teachers this summer

Crosby ISD is in the midst of a full-blown financial crisis that has depleted its reserve funds and forced the district to dip into its construction and debt accounts to pay teachers this summer.

Less than two months after the district’s board of trustees approved a $57 million budget for the 2018-19 school year, the new superintendent, Scott Davis, has ordered department heads to cut spending by 10 percent.

The district said the source of its money woes stems from “cashflow issues” that were discovered in June but date back at least to spring 2017. Davis, who officially came to the 6,000-student district in July, said he and district officials still are trying to figure out what went wrong. He said administrators began asking questions when he was named the lone finalist for the district’s top position in late May, but it took months for officials to fully grasp the gravity of the district’s financial situation.

“I just want the truth, as well, and we are in the process of discovering what that is,” Davis said Wednesday. “It’s not just spring

2017 when the problem manifested itself in a cash-flow issue. Something was going on before them.”

He said the district’s new chief financial officer, Lesa Jones, is looking into what happened with another school district’s CFO and finance officials from the Texas Education Agency’s Education Service Center IV.

The discovery of the financial issues coincided with the departure of former Crosby ISD CFO Carla Merka, who left the district to take the top financial job in the much larger Pasadena ISD in June. A Pasadena ISD spokesman said Merka came to the district “highly recommended by all references” but declined further comment. Reached by phone Wednesday, Merka said she had no comment on Crosby ISD’s finances.

The revelations also followed the abrupt departure of former Superintendent Keith Moore, who signed a voluntary separation agreement with the district in January that paid his full salary through June but barred him from Crosby ISD property. Moore on Wednesday declined comment on the district’s financial situation and referred a reporter to Crosby’s current administration.

TEA spokeswoman Lauren Callahan said the agency is not investigating the district or any of its current or former administrators regarding financial issues.

A 2017 financial audit of the 2016-17 school year shows officials overestimated the amount of state aid and tax revenue the district would receive by $3.6 million. Additionally, the audit shows the district’s expenses grew from $50.7 million in its original budget to $56.2 million when actual spendBefore ing was tallied, a difference of more than $5.4 million.

For example, the district spent nearly $1.8 million more on plant maintenance and operations than it originally budgeted. An additional $3.5 million difference was logged between the original amount set aside for instructional expenses and the actual amount spent from the district’s general fund.

In all, the district spent nearly $8 million more in 2016-17 than it collected.

“We have outlived our means,” Davis said. “We’re getting some of the data from bond projects that happened before I got here to try to determine where some of the cost overruns were.”

To stanch the financial bleeding, officials took short-term loans from the district’s debt service and construction funds to cover general expenses, including payroll.

Davis arrived, the district already had borrowed $5.65 million from its annual maintenance and operation budget. Davis borrowed an additional $1.99 million from the construction fund to cover the July payroll.

In total, the district borrowed $7.64 million from the construction fund, or more than 13 percent of its annual maintenance and operations budget.

The district’s reserve fund dropped to $5.4 million in August 2017 from $10.6 million in August 2016. It fell to $1.5 million after district officials had to use $3.8 million to pay teachers whose July 2017 and August 2017 salaries were not included in the budget, in part because the district changed the end of its fiscal year from the end of August to the end of June.

After paying back its debt service fund for the short-term loans, the district has a fund balance at -$200,000.

Davis has asked staff to cut its budget by 10 percent. He said that his goal is to ensure those cuts do not affect classrooms but that he is worried the reductions may not be enough to dig the district out of its hole.

Davis said he has been struck by how supportive and proud district residents are of Crosby’s schools. He said they have asked one thing of him: transparency going forward.

“We can overcome this other stuff. We can set up a strong, effective and efficient finance system for the district and help it be another strong piece of Crosby ISD,” Davis said. “But I want folks to understand the situation is going to take some time. This is an introduction to the situation, and we’re going to have to see it unfold.”