State takes charge of debt-ridden Penn Hills School District's financial recovery efforts

The Pennsylvania Department of Education has placed the Penn Hills School District in financial recovery status in an attempt to get the debt-ridden, shrinking district back on track to solvency, officials announced Wednesday.

The oversight move means that the state will appoint a full-time chief recovery officer to work with the school board, administrators, education experts, community members and officials from neighboring schools to develop and implement a financial plan that incorporates goals for academic success.

“We’re still in a reaction mode,” Superintendent Nancy Hines said by phone Wednesday night, shortly after hearing from the state about the financial recovery classification. “If it’s support for our community and it helps to relieve the taxpayer burden, I welcome the extra support. The state has been supportive of us all long, so I’m going to assume nothing’s going to change as far as that end.”

The decision follows years of warning signs that the district of less than 4,000 students in the sprawling suburb northeast of Pittsburgh was on the brink of a financial cliff.

In May 2016, Auditor General Eugene DePasquale published a report that he described as “one of the worst school audits” he’d ever seen. Among concerns DePasquale cited were alleged mismanagement of funds and district credit cards, bad business decisions and an alarming lack of oversight and internal controls.

Soon after, during summer 2016, investigators with the Allegheny County District Attorney’s Office arrived unannounced at district offices and seized thousands of pages of documents and computer files as part of a grand jury investigation into district finances.

Three years later, the investigation continues.

District Attorney Stephen A. Zappala Jr. has repeatedly declined to comment on the matter.

“I have mixed feelings right now,” said board President Erin Vecchio. “If it’s (financial recovery) going to help the taxpayers of Penn Hills, then I’m for it. We’ve cut everything possible that we can cut in our budget. I was hoping the (Allegheny County District Attorney) would come out and charge somebody so we can go after insurance companies to get some money back, but that has not happened yet.”

RELATED: Lack of information raising tensions in Penn Hills School District investigation

A separate independent audit funded by the district concluded in April 2017 that district leaders were confronting an “avoidable” financial burden that amounted to “far and above what most districts are facing.” The 57-page audit warned the district was at risk of losing funding if it could not produce missing records on how it spent money on school lunches and low-income students.

A Tribune-Review investigation found, aside from declining enrollment and charter school competition, factors such as unrealistic expectations, pricey wish lists, rampant turnover among key leaders and ignoring expert advice in favor of personal or political whim contributed to the financial problems plaguing the district.

The district spent more than it budgeted for five consecutive years while ballooning its debt burden from $11 million in 2011 to more than $170 million by 2016 — 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.

The district’s debt burden is approaching double the amount of its roughly $87 million annual budget, with payments set to spike over the next several years.

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

In October 2015, Penn Hills became one of handful of districts statewide ever to seek a last-ditch emergency stream of state funding, in the form of an $18 million short-term loan to fund day-to-day operations.

The next year, the district received at least $5 million in advances from the state toward debt service payments and ongoing expenses.

The district also received a $2 million grant in the 2017-18 academic year and another $2 million grant in 2018-19 year.

In June 2017, the state placed the district on financial watch, a step below financial recovery, which resulted in officials getting extra technical help and support on budgetary issues from education department consultants.

“Despite these efforts, the district continues to experience ongoing and significant financial difficulties and now meets relevant criteria to be placed in recovery status,” the education department said Wednesday in a statement.

RELATED: Penn Hills School Board rejects independent audit critical of practices

Chief recovery officers typically have backgrounds in school leadership and business management. No potential candidates have been named.

The Penn Hills school board also must form a “special advisory committee” to meet with the recovery officer monthly and provide feedback on the financial plan.

The committee must include: two school board members, one principal, one business official, a representative of the Allegheny County Intermediate Unit, two residents, a special education advocate, an official of a nearby school district, and a representative of a charter or cyber charter school attended by students who live in the Penn Hills School District boundaries. Hines also will be on the committee, and the local teachers union will appoint one teacher.

The school district has until Jan. 30 to appeal the financial recovery status decision. Hines said it’s too early to tell if the district might do so.

“We haven’t had time to meet as a group in person, meet with our solicitor and talk about the options available for us,” Hines said.

RELATED: Penn Hills school board members want resolution to county financial investigation

Hines said the district will send a message regarding the change to students and their families and post it online later this week.

Board members plan to discuss the state’s decision during a finance committee meeting open to the public scheduled to begin at 7 p.m. Tuesday at Linton Middle School.

Natasha Lindstrom and Mike DiVittorio are Tribune-Review staff writers. Reach Natasha at 412-380-8514, nlindstrom@tribweb.com or via Twitter @NewsNatasha. Reach Mike at 412-871-2367, mdivittorio@tribweb.com or via Twitter @MikeJDivittorio.