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Penn Hills School District shoulders huge debt load from years of bad decisions

| Saturday, Aug. 20, 2016, 10:50 p.m.
The Penn Hills High School auditorium/theater.
Jasmine Goldband | Tribune-Review
The Penn Hills High School auditorium/theater.
The main entrance at Penn Hills High School.
Jasmine Goldband | Tribune-Review
The main entrance at Penn Hills High School.
One of the skylights inside the main entrance at Penn Hills High School.
Jasmine Goldband | Tribune-Review
One of the skylights inside the main entrance at Penn Hills High School.
A panorama of the Penn Hills High School stadium.
Jasmine Goldband | Tribune-Review
A panorama of the Penn Hills High School stadium.
Boys use the auxiliary gymnasium at Penn Hills High School to play some pickup basketball. There is also a larger, main gymnasium across the hall.
Jasmine Goldband | Tribune-Review
Boys use the auxiliary gymnasium at Penn Hills High School to play some pickup basketball. There is also a larger, main gymnasium across the hall.
The Penn Hills High School stadium.
Jasmine Goldband | Tribune-Review
The Penn Hills High School stadium.
An example of the Penn Hills High School radial hallways.
Jasmine Goldband | Tribune-Review
An example of the Penn Hills High School radial hallways.

Tension is high inside the administrative offices of Penn Hills School District as investigators dig for clues about how the three-school system fell into a self-inflicted financial debacle rife with allegations of poor business decisions, missing internal controls and possible criminal conduct.

Two days or so a week, officials with the Allegheny County District Attorney's Office have arrived unannounced and asked district staff to sift through boxes of files in storage and scour former computer software systems to comply with demands they turn over thousands of pages of documents.

At least once weekly, Superintendent Nancy Hines has been phoning newly installed business manager Robert Geletko to ask, “How much money do we have?”

“It's been daunting, and it continues, and we have no idea when it's going to be over,” Hines said this week at a finance committee meeting.

“My goal and the goal of the team is to stay focused,” continued Hines, promoted in 2015 to helm a district losing a large number of students. “We've got kids coming back to school. ... The goal is to get this school year up and running and to stabilize.”

Political pressure, unrealistic expectations, turnover among key leaders and the flouting of expert advice based on personal or political whim contributed to the financial problems plaguing the local agency, a Tribune-Review investigation found.

The embattled district of about 3,800 students in the sprawling suburb northeast of Pittsburgh has spent more than it budgeted for five consecutive years while ballooning its debt burden from $11 million in 2011 to more than $170 million — mostly because of bond-funded construction projects riddled with claims of over-the-top expenditures, unanticipated overruns, alleged “mismanagement” and deficient plans to pay off one of the highest school debt loads in Western Pennsylvania. It's one of a handful of districts ever to seek a last-ditch emergency stream of state funding, in the form of an $18 million short-term loan taken out in October.

Hines and several board members blame the financial problems on since-resigned or fired administrators, former board members and prior business manager Richard Liberto, who has filed two lawsuits against the district: one for wrongful termination and one for whistle-blower retaliation.

Long list of ‘sins'

“A lot of things happened that shouldn't have,” said Marlon Ferguson, elected to the school board in November, “and we're in the process of cleaning up a mess from a lot of the sins of the past.”

Board member Erin Vecchio and former board member Carolyn Faggioli said Liberto should not shoulder all the blame.

Vecchio said Liberto “took orders from politicians, school board members and past administrators, and everyone involved should be held accountable.” Faggioli said that “Liberto is taking a lot of heat, and it's not his fault.”

“I believe it's politics at its finest that put the district in the position that it's in,” said Faggioli, who opted not to seek re-election in 2013 after serving two terms.

Penn Hills residents face maximum annual school district property tax increases for the next several years while elected officials scale back programs and staff.

Among examples of issues that contributed to the district's financial distress, according to current and former board members, employees and documents reviewed by the Trib:

• Ambitious initial construction plans for the high school that opened in January 2013 were made more expensive by unbudgeted changes and overruns. The high school's $1 million entrance, for example, features modern LED-light chandeliers, “radius” curved wall designs, wall-to-wall glass panes stretching two stories high and a large, triangular overhang.

• Plans and talks were nixed to add to the stadium a moving walkway — like the kind at airports — and a $1.2 million press box. Documents from an April 15, 2013, finance committee meeting show board members and administrators discussed adding the press box, and later discussed, in the same meeting, a $3 million deficit and cutting staff.

“We were like, ‘No way,' ” school board President Denise Graham-Shealey said of herself, board member Don Kuhn and former board member Heather Hoolahan on the eventual decision to scrap the pricey press box. “We're not the Steelers.”

Debt costs soon will exceed 17 percent of the district's $82 million annual budget — a figure that should be closer to 7 or 8 percent, Geletko said.

• Plans to save money by privatizing transportation in 2011 backfired, with busing costs instead spiking and further straining the cash-strapped budget. Prior to privatizing in 2010, the district enrolled 4,600 children and had 78 school buses; by 2014, enrollment dropped to 3,800 but the district had 111 buses across five companies.

• The district has churned through five superintendents since 2008 — and hasn't used a formal search process to find any. Nearly every year since 2009, the district has furloughed teachers, only to bring them back and fill positions left vacant by employees who took retirement buyouts, negating millions of dollars in anticipated savings.

• The district had a poor system of checks and balances that left it vulnerable to theft. In a scathing May audit, Auditor General Eugene DePasquale cited $22,000 in missing athletic funds; $385,000 in fuel overcharges; and a former employee allegedly purchasing a water heater for personal use on a district credit card authorized for use by “anyone in uniform.”

• The district has spent more than it budgeted since 2010, going $435,103 over budget in 2012 and up to $10.3 million over budget in 2015, for a total of $17.2 million more in actual than planned expenditures during the period, data provided by the Auditor General show.

Despite the district's overspending and mounting bond debt, board members decided in 2013 to lift restrictions on funds designated for rising debt service and pension costs to cover general-fund costs and promised residents repeatedly they would not raise taxes — against advice from Liberto, financial consultants and state education officials.

“We were told not to (raise taxes) by people,” Faggioli said, declining to cite names. “If it was an election year, we weren't going to raise taxes. We were told it was not a good idea.”

Poor project planning

The district's tax rate falls roughly in the middle of the state pack, with this year's 1.5-mill tax hike making it so the owner of a property valued at $68,800 would pay about $1,852 next year — $151 more than in 2015.

“We're a bedroom community,” said state Rep. Tony DeLuca, D-Penn Hills, who asked the state to audit Penn Hills last year and has been pleading with the state education secretary to install a financial recovery officer. “The fact is, if we don't have a good school district, nobody will move into the district with young kids.”

Since 2000, enrollment in non-charter Penn Hills schools has plummeted by more than 2,000 students, for a decline of about 35 percent.

“That's a huge hit,” said Alan Schankel, municipal strategist with Janney Montgomery Scott in Philadelphia, “so it kind of belies the idea of building a big new school.”

At the end of the 2015-16 school year, the district laid off more than 30 teachers and canceled 21 elective classes as part of a broader restructuring plan.

“We're bare bones to begin with,” Geletko said. “If we cut the programs down to nothing, then all our kids will go to charter schools. So we're walking this line.”

Designed by Architectural Innovations LLC in Ross, Penn Hills High School features a 1,000-seat auditorium with some of the latest lighting and sound systems; two gymnasiums, three sky-lit atriums in the main corridors and auto­mated drop-down gates that can be used to isolate parts of the building.

“It's a beautiful school,” Graham-Shealey said. “Unfortunately, too much emphasis was put on how it looks as opposed to how we're going to pay for it.”

Architectural Innovations and Turner Construction, which managed the bulk of the projects, declined to comment.

In September 2012, the district terminated its contract with Turner as Graham-Shealey contended things were being “mismanaged” and hired Russo Construction in Plum to complete the work.

The second firm's owner, Dennis Russo, said he helped save the district more than $3 million on the high school and elementary school projects by swapping expensive materials for more cost-effective ones and removing “unnecessary” expenses such as office trailers for construction management.

But almost as soon as he found savings, Russo said, the board found a way to spend it.

“It was like there was an endless money pit that just kept spending and spending,” he said.

Emails sent in 2013 by or to school solicitor Bruce Dice, Liberto, Hines and board members show that Dice had difficulty determining what may have been added to construction projects versus what was included in original plans.

“I just think that there should have been more projections, more preparation,” said Ferguson, the freshman board member who's overseen capital fundraising campaigns as executive director of Veterans Place of Washington Boulevard in Homewood. “You don't just build it and figure out how to pay for it later.”

Soon after Liberto notified the board they'd won a $200,000 grant from the NFL to put the football field in, he said, “The next thing you know, soccer parents are saying, ‘You're forgetting about us.' Then the track people, and so on. The board couldn't say no to people.”

Geletko said he is three years into a five-year plan for the district, which he plans to reveal in September.

The district can make payroll and pay bills in the short term but remains $18 million in the red and has not figured out how to pay for annual debt service payments set to spike by more than $2 million in 2018-19, up to almost $15 million a year. Hines said a top priority remains cooperating with District Attorney's investigators, who declined to comment.

“We are moving absolutely in the right direction,” Hines said. “It's just that what we're carrying as baggage is pretty heavy.”

Natasha Lindstrom and Mike Divittorio are Tribune-Review staff writers. Reach Lindstrom at 412-380-08514 or nlindstrom@tribweb.com. Reach Divittorio at 412-398-5304 or mdivittorio@tribweb.com.

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