Muncie Community Schools “Has a Checkbook Problem”
By: Todd Smekens
March 2, 2017
BLOG – I’ll be honest, I’ve tried to avoid reporting on the negative issues surrounding Muncie Community Schools. My previous article called on the community to work together with Dr. Steven Baule. Quite frankly, the negative energy swirling around this subject is overwhelming. Ultimately, this is about our kids and their education. We only get one chance to educate them and our failure is committing them to a life sentence of uphill battles. However, when I listened to our new chief financial officer, Bruce Perry, articulate our negative cash flow problems, I started to get that gnawing sensation in my gut which refuses to be ignored.
Mr. Perry stated for the crowd, “Our school district has a major checkbook problem.” Designated funds like scholarships, prepaid lunch monies, and bond proceeds were transferred to the general fund and used to pay basic operating expenses – the biggest expenditures are union and non-union wages and their related health insurance benefits.
If you want to review his cash flow presentation, see Finance Presentation.
Within Mr. Perry’s allotted 15 minutes or so, he showed how our deficit went from a mere $2.1 million several years ago to around $15 million for the period ending 12/31/2016. While that is a substantial number, he also used the terms, “breach” and “misappropriation of funds”. He further stated that the problems began long before Dr. Baule was hired. Pat Kennedy, president of the Muncie Teachers Association, took exception to blaming the previous administrators: Mr. Heller and Mr. Burkhardt. Hold that thought.
Tuesday evening’s school board meeting was followed by Wednesday morning’s mediation meeting. Unfortunately, the final attempt at mediation between school administrators and the union failed to reach an agreement. According to Dr. Baule, a state-appointed “fact-finder” will now have roughly thirty days to choose one of the two proposals listed within this article. Basically, the state chooses either the school district’s plan or the union’s plan and they are miles apart.
Mr. Perry’s comments about “commingling of funds” launches red flags in either the private or public sectors. These breaches indicate fraudulent handling of funds. I pulled this comment from a 2016 State Board of Accounts report about MCS’s negative fund balances:
“The cash balance of any fund may not be reduced below zero. Routinely overdrawn funds could be an indicator of serious financial problems which should be investigated by the governmental unit. (Accounting and Uniform Compliance Guidelines Manual for Indiana Public School Corporations, Chapter 9)”
Monies received from a $10 million general obligation bond were transferred into the general fund and spent. MCS has a fiduciary responsibility to spend those dollars on capital projects – not general operating expenses. All these “borrowed” or “misappropriated funds”, must be returned. Thus the $15 million cash flow deficit facing MCS.
Let’s now take a look at the obvious question posed by one inquisitive audience member, “Where did the money go?”
In a nutshell, it went to pay salaries and benefits for both union and non-union staff and toward general operating expenses.
Mr. Perry’s cash flow presentation went back to 2013 and even before. When I talked with him this morning, he expanded on the many negative influences which hit the school district as far back as property tax caps in 2010/11. The planning or response by the union and administrators was negligible. Mr. Perry has access to the files and he’s found nothing indicating a sense of urgency or proactive planning to address the negative influences impacting the school district. Based on a full frontal assault on education within this state and beyond, the apparent lack of planning is truly puzzling. When you consider the dramatic demographic changes in Muncie proper alone, the steps to address our financial shortfalls should have begun years ago.
Why didn’t administrators sit down with the union back in 2013 to explain the dire situation facing our school district? Based on the 2015 reality of lower revenues, why didn’t the administrators and union sign a new contract so students wouldn’t be negatively impacted?
Sadly, the evidence points to a strategy of “non-negotiation” or “stalling” by the teacher’s union. For example, the last signed teacher’s contract was for the school year 2014.
It doesn’t take a financial degree from Wharton to detect who benefited and who was hurt by not negotiating a contract reflecting MCS’s new fiscal reality. Had a new 2015 contract been negotiated in good faith, the salary and health benefits would have been reduced dramatically. By stalling, wages weren’t cut and the loftier benefit packages remained.
The obvious problem was the school district couldn’t afford to pay 2014 wages and continue lofty benefits in 2015, 2016 or even 2017.
Every attempt to negotiate a new contract met with union stall tactics. Great for Pat Kennedy and her teachers, but the tactics have essentially bankrupted the school district. You can dislike Dr. Baule as much as you’d like, but the facts remain the same. He certainly hasn’t benefitted from not negotiating a contract with the teachers.
When looking at complex financial issues, it’s just easier for the public to villainize school board members and administrators. I’ve heard a litany of complaints lobbed at school board members and administrators, but I haven’t heard one single community member ask about the role the union played in our financial woes. I’ve received “anonymous letters” calling on the firing of Dr. Baule for his mistreatment of faculty and staff. Not a single complaint or anonymous tip about the teachers union in Muncie. Not one.
I specifically asked Mr. Perry during my interview, “Was it prudent to not negotiate a new contract back in 2015 knowing the dire financial position of the school corp?
His answer was, “You’ll need to ask Dr. Baule since I wasn’t here during that time.” He then replied, “But considering all the negative trends for the school corporation, it would have been prudent to negotiate a more realistic contract.”
For the teachers union, this meant much higher out of pocket expenses for health insurance and lower wages.
I then asked Dr. Baule the same question. His response, “We did try to negotiate a new contract, but the teacher’s union always found a reason to avoid contract negotiations.”
Obviously, it was in the unions best interest to avoid a new contract. A new contract would have resulted in lower wages and fewer benefits for teachers. However, since educating our kids is the sole purpose of our school system, did the union’s tactics cause irreparable damage to the school district? Were they being greedy?
And now that we have literally turned over contract negotiations to a state-appointed “fact-finder”, how much more damage might be inflicted on the school district going forward? Are there further stall tactics to be played by the union? Can even more damage be inflicted? How will the school district raise the monies to repay to dollars borrowed from other fund accounts?
More questions emerge. I must be honest…at some point during the meeting this morning with Dr. Baule and Mr. Perry, these new questions started an even greater pit in my stomach. It came in the form of yet another question, “Did previous administrators and board members collaborate with the teachers union to extract as much as they could from our school district and local taxpayers?” Is this yet another case of greed and financial wrongdoing in our community?