The pre-flood picture was made clear earlier this month as part of the school system’s annual audit, covering the fiscal year that ended June 30.
The school system ended the 2015-16 fiscal year with $59.2 million in the bank available for emergencies. That’s $16.8 million more than the reserves it was predicting back in April and $9 million more than the amount the school system had at the end of the prior fiscal year.
The flooding forced an immediate draw on that $59.2 million: Ten schools and four administrative buildings were severely damaged. Twin Oaks Elementary was repaired and reopened Oct. 10, and the former Prescott Middle, now a charter school, returned to that campus, though it’s only been partially repaired.
The initial damage estimate, released days after the flood, was $50 million at a minimum. The final price tag is likely to be substantially more.
Adonica Duggan, a spokeswoman for the school system, said just cleaning up and remediating the flooded buildings is costing between $25 million and $35 million. Replacing 68 flooded school buses and repairing others cost another $9 million, she said.
The costs of repairs and renovations, a process known as “build back,” is going to cost yet more, but how much more is not clear.
“Now that we have identified architects, we can expect to have preliminary numbers on costs for repairs of damaged sites within the next 60 to 90 days,” Duggan said.
The school system is getting some money to help cover these costs. Its flood insurance claim is netting $10 million. And the Federal Emergency Management Agency is authorized to reimburse flood damage costs up to 90 percent.
FEMA, however, has complicated rules about what it will pay for and what it won’t, so it’s unclear how close to 90 percent the school system will get. Also, FEMA reimbursements can take months or even years to come through, which has been the experience of New Orleans public schools since 2005’s Hurricane Katrina.
The parish School Board is set to approve its annual audit, done by the firm Postlethwaite & Netterville, when it meets Thursday.
Since 2010, the school system has cut its budget annually because of a mix of tight state funding, a variety of expenses and growing competition from charter schools that have drawn money and students from the parish system. That budget-tightening, plus conservative revenue forecasting, has allowed the system to maintain its financial reserves. This school year, for instance, class sizes have increased substantially in middle schools. Alternative schools have also been merged and health insurance premiums for many employees and retirees are set to go up in January.
During the 2015-16 school year, the school system overall took in $590 million and spent $585 million. The general fund, which accounts for 74 percent of spending, didn’t fare as well, with spending growing almost 3 percent, while revenue grew only half as much. The general fund is the system’s primary source of unrestricted money to pay for operating expenses, to finance new initiatives or to cover emergencies like the recent flooding.
Freddy Smith, an auditor with Postlethwaite & Netterville, said the school system needs to keep working to prevent future deficits.
“A deficit is generally not good,” Smith said. “But this deficit is better than what you budgeted for. And you have sufficient fund balances to cover it.”
Charter schools remain a big cost driver. The cost of in-house and independent charter schools grew by $4.6 million in 2015-16 from the prior year. Costs are expected to grow substantially in the future as new charter schools come online and existing ones continue to grow.
There are other warning signs in the audit. An accounting change requires the school system to include its employee pension liabilities as a cost on its books. Just two years ago, before the change, assets outweighed liabilities to the tune of $257.3 million. Now, with estimated pension costs figured in, liabilities outweigh financial assets by $265.4 million.
And a spot review of the the school system’s federal Title 1 antipoverty program found problems. A change in accounting rules required auditors to look at the accuracy of student graduation records.
“There was some missing documentation with respect to students who have left the system,” Smith told the board.
This is not the first time problems in graduation records have caused issues. The auditing firm previously conducted an extensive review of graduation records in 2014 in the wake of an investigation by the Louisiana Department of Education. The investigation occurred after a student was allowed to graduate despite being short a required course credit.
This year’s audit also noted a “phishing” scheme in which the school system’s chief business operations officer in May wired $46,500 to an online con artist; the system has managed to get back all but $10,000 of the missing money but the perpetrator remains at large. Postlethwaite & Netterville also conducted a separate audit of those wire transfers and turned up no evidence that any school employees were part of or benefited from the fraud.
Despite the black marks, the auditors have issued an “unmodified opinion” saying the school system’s basic financial statements are sound. The school system’s finance office this year again received a certificate for excellence in financial reporting from the Chicago-based Government Finance Officers Association.
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