Looking for an audit

by Loren Martell

Photo credit: Ted Heinonen
Photo credit: Ted Heinonen

When I arrived in the boardroom on the evening of December 11, for the school board’s Business Committee meeting, Board member Oswald was nice enough to hand me a memo from the district’s new CFO, Kathy Erickson.  The first line of the memo stated that the firm hired to perform the audit had screwed up and “the annual audit presentation, slated for today…would need to be delayed.”

Of course ISD 709 cannot be faulted for the auditing firm blowing the deadline, but the episode did feel symptomatic.  There have been so MANY fiscal screw-ups causing our school district to circle the drain with increasing rapidity over the past decade.  Just since last December, the once robust $30 million reserve was revealed to be completely gone, the Board was forced to cut an million and half dollars to avoid slipping into statutory operating debt, Administration failed to get a budget together, the Board was forced to pass a generic budget and hire an outside firm to put a real one together, and the district’s CFO was sent packing.    

Who says the boardroom is a buzz kill, boring enough to lull a cheery, caffeine-addicted PTA booster into a coma?  Especially as of late, the place has been as intense as a high-stakes casino game, with all the chips on the levy referendum. 
Business Committee Chair Trnka said she hoped the Board would see the audit before the district’s financial statements are submitted to the State at year’s end, “given the financial uncertainty we’ve had over the past year,” but the Superintendent’s comments on the subject didn’t make that feel like a safe bet.  

No audit, but some numbers

A very important topic during this meeting was the first reading of a new policy regarding the district’s reserve fund.  For those of you not keeping up with the narrative, district Administration has been conducting a “review” of all the Board’s policies for a couple of years now.  Policies slated to be added or deleted appear on the agenda of nearly every meeting.  

The district’s reserve was once a symbol of the organization’s good fiscal health.  It was amazingly robust 13 years ago, when Keith Dixon came to town.  The district had more than thirty million ($30,151,202) in its rainy day fund.  The reserve plummeted each year of his six-year reign: $28,610,883, $23,867,428, $21,378,283, $18,581,865, $14,717,348, $6,799,777.  Three years after Mr. D. left, the reserve dropped to $1,934,777.  Four years later, it was completely depleted and in the red.  

The prior policy regarding the reserve fund, policy 3017, was just three sentences long.  The new policy, 714, is more than two pages long.  
One primary difference between the two policies is that the fund balance the Board is supposed to hold in reserve has been reduced from 10% to 8% of the fund’s unrestricted money.  Another is that policy language has been significantly watered down.  The original policy used ironclad words: “the District SHALL establish and maintain” the 10% fund balance.  The new policy equivocates that the school board will “strive to maintain” the 8% fund balance.  

Another significant difference between the old policy and the new is who controls the balance.  The original policy explicitly stated that “any reduction in the above named general fund reserve may only be made through Board resolution voted upon by a two/thirds majority of the School Board.”
District 709, in actuality, blew through its entire reserve fund without any such vote, but the intent of the original policy was clear. The power to spend the reserve fund balance officially belonged to the entity responsible (ostensibly) for fiscal control: the school board. The new policy states that the school board abdicates its fiscal authority and delegates power to “assign fund balances” to the Superintendent and the CFO, also adding that: “an appropriation of an existing fund balance to eliminate a projected budgetary deficit…satisfies the criteria as an assignment of a fund balance.” 

That’s sort of like the CEO of a bankruptcy-prone corporation telling his/her Board or Directors: “We all know where this is heading again.  I’m securing the right to use our cash reserves without even telling you the next time we crash into the red.” 
This pattern of Administration — and specifically, the Superintendent — corralling the Board’s power and funneling it into his own realm has been an ongoing erosion of representative government for more than a decade.  
Nine years ago, I fought an intense battle over bylaw 9020.  Trying to persuade former Board Chair Tim Grover into keeping his Red Plan-related campaign promises, I orchestrated a letter-writing campaign.  Unhappy with the tenor of the letters, the Chair removed them from the public file.  When I revealed that the letters had been removed, Mr. Grover went on the record in the Duluth News Tribune claiming he “didn’t know what the practice was…we don’t have any written policy.”  The district’s CFO backed up this claim, responding to my inquiry about the existence of any such policy in this manner: “Mr. Martell: There are no written policies, old or new, regarding correspondence to school board members.”  

When I went public with bylaw 9020, which stated very explicitly what was to be done with Board correspondence, the controlling majority members put the bylaw on the agenda of the very next meeting and expunged all the language they didn’t want to follow.  One of the most significant alternations made at that meeting changed the way letters addressed to the Board would be routed through the system.  Letters would no longer be received by the Board Clerk, but rather by “Administration.”  The earlier version of the bylaw directed the Clerk to forward received correspondence on to the Superintendent “for assignment to a Standing Committee agenda.”  The new language channeled Board correspondence through Administration to the Superintendent “for his/her review.” 

Censoring authority over the Board’s correspondence with the public had been handed to an unelected administrative officer.  
During the 6/16/10 Board meeting, members Johnston and Glass fought against another wall being erected between the school board and its public constituency.  In regard to the word “Administration” being substituted for “Clerk” in the language of bylaw 9020, Mr. Glass said: “I know who the Clerk is.  I do know that person is a member of the Board…This is a real concern: that we’re weakening the Clerk’s role in this and putting it into the hands of Administration.”  

Keith Dixon responded: “We’re trying to simplify things.  We’re trying to get things back in order…There are a number of things, over time, that have been transferred out of the Superintendent’s Office that should be in the Superintendent’s Office…In reality, when it comes to working with the Board and communications and other matters, in our judgment — in my judgment--that should come to me.”   

The changes in bylaw 9020 definitely undermined the likelihood all citizen letters would make it into the public record where they properly belonged, especially with Strongman Dixon as the “reviewing” authority.  The changes were anti-democratic, blatantly obstructive to the democratic process.  
The Superintendent is responsible for administrative control; the school board is (again, ostensibly) responsible for fiscal control.  The reserve fund and how it is “assigned” should remain within the purview of the Board.  As I’ve pointed out before, however, the reason Mr. G. is so happily grinning at the current school board makeup is because, in the boardroom, DFL generally stands for: Does Follow Leader.   

Certifying the levy 

“I know that our CFO is excited to talk about this!”  Business Committee Chair exclaimed, when the district’s tax levy came up on the agenda.   
Using pre-referendum estimates from the county, I calculated the district’s 2019 levy to be $37.3 million, in my last article.  Next year’s levy is actually going to be $39.8 million.   
I was so stunned by size of this latest tax increase, I actually chased after the new CFO as she tried to leave the meeting early, and buttonholed her in the hallway.  
“Did I just hear you correctly?”  I asked, incredulity evident in my voice.  “The levy is going to go up by 26%? “
“That’s correct, 26% over last year.”  She responded.
“The dollar increase is $8.13 million?  $5 million from the voter-approved increase, and the Board is going to add $3.13 million more--for what, maintenance?”  
“Yes, that’s correct.  For LTFM (Long term facilities maintenance) and debt service and some other adjustments.”
Still incredulous, I questioned the Finance Manager after the meeting.
“The levy’s going up by 26%?”  
“Yeah, 25.68%.”
“That must bring the total levy up to about forty million a year.”
“$39 million.”  
Again, the actual figure is $39.8 million.  When the Dixon came to town the levy was $11.9 million.  We’ve been hit with a $28 million/year increase, while the reserve plummeted in the opposite direction, in a little over a dozen years.  If the district had gotten both levy increases it was angling for with its ballot referendum, the total levy would now be nearly $43 million a year--a $31 million/year increase!

“Surely you won’t mind if we tack on another $3.13 million a year” is apparently our school board’s unique way of saying, “‘Thank you,’ for giving us $5 million more a year.”  
The people of Duluth were promised a lean, clean educational dream machine.  $4,493,676.25 of extra money is supposed to be available for education in next year’s budget from the Red Plan’s “efficiency savings.”  Johnson Controls should be legally pursued for blatant misrepresentation of fact.  There must be some way to prosecute this fraud with intent under the civil code, but no one is looking out for the people of Duluth.

The giant, corporate culprit has found an soft, exploitable spot in the system.  The company has discovered, much to its profit, that education is sacrosanct and any flimflam hustle can be safely hidden behind the little children. 
My apologies if I’m becoming too “excited,” here.  I can barely contain myself.  
Surprise, surprise!

The district’s facilities manager, Mr. Spooner, sprang a surprise on the Board during his report.  
“One cost item — ” Mr. S. began in his trademark quiet voice, “that I haven’t even brought up with Kathy (Erickson, the CFO) and Bill (Gronseth, our district’s preeminent leader) yet —”
(A big Board laugh.)
“Bill loves it when I spring things on him.”
(Another big Board laugh, and Business Chair Trnka joked: “We’re gonna call you Mr. Springer instead of Mr. Spooner.”)
“This is kind a unique situation,” Mr. Springer/Spooner said, “where the FCC has sold to T-Mobile Cell 600-700 megahertz, and many of our--if I were in the gym right now in East High School — and I were communicating on a wireless microphone that transmits in that same frequency —.”  Mr. S. let that sentence dangle, then continued: 

“We’re doing an audit right now, and we don’t know how many are impacted, but I can tell you at East we have eight systems — eight wireless microphone systems--that are in that (frequency) range that we will have to replace.  But if you extrapolate eight at East, there might be eight at Denfeld, maybe four each in the two Middle schools, one, or possibly, two in the Elementary(s).”  (The district has nine elementary schools.)

As to the expense our perennially hapless school district will have to absorb, Mr. S. said: “I don’t have the total cost yet, but it’s something we will have to replace because they (the wireless microphone systems) will become nonfunctional for sure in 2020.  T-Mobile has started using the frequency in St. Louis County now, so there’s some interference at East — we’re having trouble already.  So, it’s a unique situation, but it will require general fund dollars to replace these systems that were installed (only) ten years ago…”   

Mr. S. told the Board the situation was “never anticipated, nobody could have known that the FCC would sell that frequency.”
Our leaders can’t be blamed for not seeing something unforeseeable, but this unpleasant surprise again felt symptomatic.  Good luck tends to come to organizations that plan well, and our school district went down an errant path that let loose all kinds of bad karma.  Unfortunately much of the bad luck, stemming from that bad karma, has hurt both our public education system’s budget and the taxpayers.    

Our vote

Board members also engaged in a lengthy discussion about a resolution which would grant them power to combine polling places, in order to save the district money, during Special elections.  
Member Sandstad argued that the resolution didn’t set anything in stone.  She pointed out more than once that Administration could bring up the issue in the event of a Special election, “and we (the Board) would get to decide whether or not to do the limited version (one polling place per district) versus (a) regular (election, with all the normal polling places) and pay for everything.”

Member Oswald voiced concern about the one polling place choice, and the obstacle such an arrangement would create for people without transportation.  She worried they wouldn’t have an equal and fair opportunity to vote.  
As to member Sandstad’s position, member O said: “I do want to say, or respond, to member Sandstad…I don’t want (the policy) to be — when we need it, need to rely on it — we walk in (to the boardroom) and we have a terrible option and an expensive option.  That’s not good policy.  So, I would really like to, at least, have our minimum standard present.  And I think our minimum standard is a little better than this (one polling place per district.)  Understanding there’s cost, but you don’t — we’re about democracy, so we have to pay for our voting, and we have to support our community.”    

It was an affirming moment when every Board member who spoke up concurred with this basic principle.  Undervalued democracy is the primary underlying reason for all of ISD 709’s problems.  
In the Review & Comment document submitted to the Minnesota Dept. of Education, the Red Plan’s advocates argued a vote would be a waste of valuable time:  “Regardless of the outcome, an election will delay the construction process.  At today’s rates of construction cost inflation, the project’s cost increases at an amazing $50,000 per day.  Add to that the wasted operational dollars of $15,000 per day and the total cost of the program increases at $65,000 per day. A six month delay will cost the community an extra $10 — $15 million.”  

These hyperbolic claims were as empty and deceptive as carnival barking.  But even if the carnival barking had been valid, which it wasn’t, what is the price of democracy?