As this article describes, last week I challenged the school administration to explain their need to amend/increase their budget by almost a million dollars nearly 9 months after council declined their total budget request by about that same amount. Their explanation remains the same….it is an accounting entry correction. The letter below along with all of the supporting documentation was provided to council 2 days before the meeting. Of all the questions I posed, not one was answered by Mr. Bailey or Karen Gagliano. In fact, the entire ordeal only led to more.
? Why would city council need to vote at all if, according to their attorney, it had already been approved ?
? Why vote if the only choice is to approve?
? If the amendment increases their budget up to the amount that city council declined last year, why did they ask for more to begin with? Did they simply “fluff” up their original budget?
? Why are the mayor, city manager and city attorney eager to push this through before getting real answers from the administration?
I could go on, but you are smart enough to see through all of this by now.
The following letter and supporting documentation (school audit and budget excerpts and State of TN reporting data) were submitted to the City of Oak Ridge Clerk for inclusion in the March 7, 2012 city council agenda packet:
Last spring, the schools submitted to you their April 7, 2011 BOE Approved FY2012 budget which asked the city for a 7.32% increase in its contribution, or $15,529,302. After city council approved to only increase their contribution by 1.1%, the schools submitted to council a revision in July entitled June 1, 2011 BOE Approved FY2012 budget which reflects the city’s total contribution as $14,629,302. The difference between the two budgets totals $900,000. The total adjustment that the schools are now requesting is $937,091.
According to the January 19, 2012 letter signed by the BOE chairman (Keys Fillauer), the majority of this adjustment is an “accounting entry to reflect the full value of the technology lease this first year.” During your February 27, 2012 work session, Karen Gagliano explained that the capital lease is worked through the bank who gives them the money up front to purchase the new computers and the entire amount is reflected in the first year of the lease. They then use recurring dollars to make the principal and interest payments over the next 4 years. The auditors say to record the value of the equipment on both the revenue and expenditure sides and thus it will appear inflated for the first year. When asked about what the purchase was for, Ms. Gagliano said it was for a combination of student and teacher computers. She said that she had originally thought that the lease amount was fully accounted for but then realized it wasn’t.
In my February 27th email to council, I provided documentation that clearly shows that after the city declined to fully fund their budget requests, the schools made a significant decrease in their Capitalized Lease Proceeds line item for technology purchases ($750,000 reduced to $386,000) as well as three other expenditure line items specified for computer purchases, which included at least two duplications. The Capitalized Lease Proceeds line item is the very same line item that the schools now want to increase by $766,843.
In the last 10 years, not including the current 2012 budget year, the Oak Ridge Schools have entered into at least four major capital leases for technology totaling nearly $3 million. The attached spreadsheet and supporting documentation show that:
In 2009, the Oak Ridge Schools received proceeds for a $471,515 from California First National Bank for the purchase of 210 computers. This lease was not accounted for in their originally proposed and approved budget and it was not reported to the State of TN.
In 2008*, the Oak Ridge Schools received proceeds for a $732,479 capital lease from Apple Computers for the purchase of 500 computers. This lease was not accounted for in their originally proposed and approved budget but, just as with this current request, was subsequently brought before council in February 2008, nearly a year after the original budget was adopted. This lease was reported to the State of TN, though it is unclear if it was reported originally or as a result of the State Comptroller’s inquiry and subsequent reprimand of the schools (when the schools had to come before council to make nearly $2 million in budgetary amendments.)
In 2004, the Oak Ridge Schools received proceeds for a $891,640 capital lease from Apple Computer Inc and California First Leasing Corporation for the purchase of two (2) computers. This lease was not accounted for in their originally proposed and approved budget but was reported to the State of TN.
In 2003, the Oak Ridge Schools received proceeds for a $774,678 capital lease from Apple Computer Inc for the purchase of a wireless educational network system. This lease was not accounted for in their originally proposed and approved budget nor was it reported to the State of TN.
In light of the inconsistencies referenced above, I request that city council consult the State of TN Comptroller’s office for clarification on the following prior to approving the ORS FY2012 budget amendment request:
1. Why didn’t the schools report 2 out of 4 of these leases (totaling over $1.2 million) to the state?
2. Did the late adjustment in 2008 for the $732,479 capitalized lease contribute to the need for the ORS to make $1,951,957 in budgetary amendments?
3. If these were planned purchases, why were they not included in the budget presentation to council any of the four years referenced during the budget approval phase?
4. *What dates were each of these leases actually entered on? There are two different dates within the same month reflected in the audits for the $471,515 lease and there are two different years reflected in three different audits for the $732,479 lease.
5. The $732,479 lease is not mentioned in any of the summaries in the 2011 Audit. Has this debt been fully retired?
6. Have the ORS already entered into a new capitalized lease for the 2012 budget year (prior to approval of city council)? If so, when and for how much?
7. If this requested adjustment is simply an accounting entry to reflect value (not spent dollars) why were these adjustments to the budget made in the first place? Why didn’t they just leave the new technology lease figures in the budget?
8. Why are the amounts for the teacher computers and middle school lab computers (which totaled $750K) duplicated on the expenditure side but not on the revenue side?
9. What was the $375,000 in the central services line item originally intended for and why was it subsequently cut? Where was it originally reflected on the revenue side?
While Mayor Beehan and the city attorney have both publicly encouraged the blind approval of this request stating that it is of no consequence since the funds do not originate from city coffers, I respectfully disagree. There would be no need for your approval if there were no consequences. I urge council to explore to the fullest extent possible, what the consequences of this action would be and who would truly be responsible because it is ultimately the taxpayers who pay the bill and to whom you are accountable.