10-02: Complaint: Town of Mammoth Lakes Finance Department

Availability of Documents to the Public: Research of the publicly available information determined that the budget documents from July 2007 to July of 2010 were not available in the public 20 domain as of Jan 2011. The Grand Jury was able to obtain these documents by making a formal request. It is unclear if the general public would have been provided these documents on request. The ESUSD has a website that includes a link to documents; however, no budget documents from the period in question were available. It should be noted that during the time of the investigation, more documents were added to the website. Meeting agendas and minutes were located, but no budget documents were added. The Grand Jury requested the budget documents, the communications between ESUSD and MCOE and the ESUSD Board meeting minutes. In this manner the Grand Jury was able to obtain documents. However, documents were NOT available in the public domain, as is required by the State of California, at the time of our initial investigation. This deficiency appears to have been partially corrected as of November 2010; however, budget documents were still not available on the website as of this date.

Budget Process Review: The Mono County Office of Education (MCOE) reviewed all budgets and responded formally to the ESUSD Board and Superintendent. Letters were sent to the District from MCOE, summarizing its findings and making

Interviews: The Mono County Office of Education Superintendent confirmed that the County Office of Education is responsible for fiscal oversight of both Districts in the County – Mammoth Unified School District (MUSD) and the Eastern Sierra Unified School District (ESUSD. The MCOE notified ESUSD regarding their deficit spending in written correspondence on several occasions. The MCOE Superintendent indicated that ESUSD failed to file the required paperwork for Categorical Programs in fiscal years 2007-08 and 2008-09, which would have resulted in the District receiving approximately $150,000 annually. The MCOE Superintendent attributed this oversight to the Business Manager’s lack of experience in educational finances. The MCOE worked with the State to have these funds released to ESUSD, which totaled more than $300,000. As of July 15, 2010, the MCOE is responsible for managing ESUSD financials at no cost to ESUSD. This agreement is in place until June 2011. When questioned about expenditures that may have caused ESUSD to overspend, the Superintendent 23 cited the hiring of Assistant Principals which is a luxury for a small district; purchasing 1-to-1 laptop computers for 7th – 12th grade students; hiring Technology staff; hiring an Academic Counselor; having all District administrators attend conferences/workshops, and hiring in-house trainers. The Mono County Office of Education Deputy Superintendent of Business and Operations has more than 20 years’ experience in working with school districts. School District budgeting is rather unique and requires a specific skill set, as opposed to having general accounting experience. This position is responsible for providing support to both Districts, providing oversight to the District’s budgetary process, assessing the District’s financial health and rating them accordingly, and alerting District staff and School Board members of the District’s rating. The Deputy Superintendent made it clear that budgetary support was offered to ESUSD, as it was to MUSD; however, the offer for guidance was not readily accepted. The ESUSD projection for fiscal year 2010-11 is a deficit of 6%. The Deputy Superintendent indicated that large reserves are more critical to a Basic Aid District since revenues are based upon property values which can fluctuate. When questioned as to why ESUSD was in a financial crunch when Mammoth Unified School District was able to manage their budget, the explanation was similar to that cited by the MCOE Superintendent. The Deputy Superintendent also indicated that salary increases were a factor, in addition to hiring new personnel. The former ESUSD Business Manager was interviewed via telephone. Although having experience as a Certified Public Accountant, this individual did not have experience working in a school district prior to being hired in July, 2006. ESUSD became a Basic Aid District the following fiscal year. The Business Manager’s responsibilities included creating a budget for ESUSD based upon the Superintendent’s educational goals for the District, an analysis of trends for expenditures and revenues, projection how much funding would be allocated to ESUSD. The Business Manager indicated that learning how to budget for a Basic Aid District was based upon tracking the District’s historical and regional trends through the help of School Services of California and the Department of Education, with little guidance from the Mono County Office of Education. The Business Manager indicated that meetings with the ESUSD Superintendent occurred routinely to discuss and determine how to balance the budget, although the Superintendent was primarily focused on educational issues. The budget was always presented to the Board of Trustees for review and comment. At times budget workshops were conducted to review the budget in a more in-depth manner. The Business Manager provided 4 major budget reports to the Board annually. The challenges of preparing a budget prior to having solid figures were cited by the former Business Manager. For example, the District did not have the final budget numbers for fiscal year 2009-10 until early 2010. The Business Manager was first alerted that there would be a deficit in revenues when the 1st tax 24 apportionment was issued in January 2010. When questioned about the written warnings from the Mono County Office of Education, the former Business Manager responded by saying that when leaving ESUSD in midyear 2010, the District still had about a 10% in the reserve fund which is considered healthy in most districts. All 5 Board of Trustee members were interviewed; several served on the Board for 8 or more years. The interviews were conducted prior to the November election in which 3 Board members ran for re-election. Some Board members expressed concern about ESUSD’s deficit spending since fiscal year 2008-09; however, it was not perceived as a significant problem given that the District had large reserves. Some of the Board members interviewed continued to have the same belief despite recent budgetary reductions. This philosophy of spending “extra” funds on students, as opposed to maintaining a healthy reserve fund, appeared to be prevalent among the majority of Board members. Some Board members felt confident in the budgetary abilities of professional staff, while others indicated that staff failed the Board. One Board member believed that there was a failure in District leadership and a failure of the Board to reign-in said leadership, while another Board member thought highly of the Superintendent’s leadership and financial abilities. All Board members acknowledged having attended annual budgetary workshops. When questioned about the brevity of Board minutes with reference to budgetary matters, one Board member indicated that the minutes did not always reflect the flavor of the meeting. During fiscal year 2009-10 when the budgetary crisis was at its height, the Board requested several scenarios for budget cuts. At least one Board member suggested that this approach be taken when presenting budgets in the future. The Special Projects Coordinator was interviewed, as this individual was previously the Business Manager prior to 2006. The Special Projects Coordinator indicated that ESUSD works with the Mono County Finance Director and the Mono County Property Tax Collector to gather information regarding County revenues, which has an impact to ESUSD’s Basic Aid status. In early 2010 it was noted that there was a drastic reduction in Mono County revenues received from the Previous Year tax collection efforts. The Special Projects Coordinator indicated that the Mono County Office of Education provided minimal support to ESUSD regarding being a Basic Aid District, a concern also voiced by the former Business Manager. When questioned about large expenditures initiated by ESUSD when becoming a Basic Aid District, this individual acknowledged that spending funds on salary increases were necessary to bring salary levels up to par with similar districts. There was also a significant increase in personnel from 2007 until 2009. Prior to employment with the ESUSD, the Superintendent did not have Basic Aid experience and it was noted that there was a steep learning curve. The Superintendent and key staff attended seminars and web-based training regarding being a Basic Aid District 25 The Superintendent indicated that calculating Basic Aid funding is difficult as there are projections from the State of California, plus input from the Mono County Office of Education and the Assessor’s Office. To determine the revenue stream, the current year taxes are considered along with unsecured taxes and the prior year tax assessments. Unanticipated expenditures helped to create the recent budgetary situation. For example, the State is now requiring “Fair Share” funds from Basic Aid school districts which is $250 per student; plus the State reduced transportation funding to ESUSD by 20% which resulted in a decrease of $600,000 annually. These expenditures and reductions affected both ESUSD and MUSD. Both districts incurred additional expenditures when Special Education programs were transferred from MCOE. ESUSD also experienced an adjustment to their revenues when a charter school based in Fresno, California was extracted from the District through recent State Legislation, which requires charter schools to operate through the county in which it resides. The Superintendent believed the District had the money in the reserve fund and the need, so the funds were spent. In retrospect, the Superintendent now believes that Basic Aid Districts should have a reserve fund of 20%. The ESUSD’s goal is to achieve a 20% reserve, hopefully in approximately 3 years, but the Superintendent wouldn’t be surprised if that goal was achieved in 1 year, or in 6 years. When questioned about the transparency of providing crucial ESUSD information to the community, the Superintendent indicated that the District is in the process of updating the website, however, the District is contracting for technological support since technology staff were eliminated from the budget.

Review of ESUSD Monthly Meeting Minutes: Meeting minutes for the period January 2008 through May 2009 were reviewed for items that referred to the budget. The Business Manager reported frequently at these meetings, however the wording in the minutes was limited to one or two sentences and revealed no fiscal reporting or discussion. However a large number of new expenditures were documented and approved by the Board. These expenditures came in the form of additional personnel and new project approvals. DISCUSSION: