Highlands officials blame late business manager for fiscal crisis
The Highlands School District is faulting its late former business manager for a budget crisis causing it to consider a tax increase, employee furloughs and a reconfiguration of its schools.
Jon Rupert, who died in October, had taken “significant amounts” out of the district's reserves to balance the district's budget without the school board's knowledge, and he had underestimated certain expenses, such as charter school costs, district Solicitor Ira Weiss said.
“The money the board thought was there wasn't,” he said.
School board President Debbie Beale would not discuss Rupert. She referred questions about the district's finances and how it got to this point to Weiss.
Superintendent Michael Bjalobok did not respond to requests to be interviewed for this report.
Rupert had been the district's business manager for more than 30 years. He had a good reputation and officials had a “very high degree of confidence” in him, Weiss said.
Rupert, who died from colon cancer, had been very ill and in a “diminished capacity” for an extended time, Weiss said.
“The situation here was due to his personal situation,” he said. “It's unfortunate, and the district is doing what it can now to overcome the consequences of it.”
Weiss said there is no evidence of any wrongdoing by Rupert.
“The issue is the lack of complete disclosure on what the budget situation was and what he was doing to balance the budget,” Weiss said.
By reconfiguring schools, the district is allowed to reduce and more economically use its staff, Weiss said.
Highlands has notified 30 employees they could be furloughed when the school board meets Monday night.
First tax hike in 6 years
The board is expected to vote Monday on the district's preliminary $47.9 million budget for the 2018-19 school year. It would carry a 3.5 percent property tax increase, the highest the state allows for the district.
The school board previously voted to not raise taxes any higher than its inflation index, a move that would have required voter approval at a referendum or, more likely, exceptions to do so without a vote.
A 3.5 percent increase would raise the district's property tax rate from 23.8 mills to 24.633 mills.
Highlands has not increased taxes since the 2012-13 school year, when the rate was increased from 24.41 mills to 26.41 mills. It has been 23.8 mills since the 2013-14 school year, when it was lowered because of the county's property reassessment.
Given how limited school districts are in increasing taxes, Highlands should have increased its taxes at least minimally each year, said Joe Nicola, a tax partner with Sisterson in Pittsburgh and a member of the Pennsylvania Institute of Certified Public Accountants.
“I'm a strong advocate for increasing them marginally every year. That's a fiscally prudent thing to do,” he said. “The impact on residents is insignificant and unnoticeable, as opposed to a single increase to catch up. That's a fiscally dangerous thing to do.”
On top of the tax increase, the school board has approved borrowing up to $11.5 million. Beale said that's to keep $6 million in the district's reserves.
“We don't want a zero fund balance,” she said.
Borrowing adds to debt
While it's not prudent for a district to borrow every year, a healthy school district can and should, Nicola said.
“Debt isn't a bad thing, to the extent the school district is otherwise healthy. To the extent it's marginally healthy or not healthy, then the answer is ‘no,'” he said. “Revenue is best generated by taxation and then, secondarily, by borrowing.”
According to a state report, Highlands had about $88 million in debt at the end of the 2016-17 school year. Of that, about $60 million was for pensions, and about $19 million was bonds.
The amount of debt that school districts are carrying is a concern, Nicola said.
“The economy, while it's strong, hasn't seeped into the public sector. They're not feeling the effect of the stronger economy that private businesses are seeing,” he said. “They rely heavily on tax revenues. Tax revenues haven't increased at all, or not significantly enough to generate the kind of revenue the private sector is experiencing.”
Beale said she's not concerned about Highlands' debt.
“If we sit here and do nothing and don't raise taxes and don't make cuts and keep doing what we're doing, by 2021 we'll be minus $17 million,” she said.
The district says it will save $2.3 million — $1.5 million by furloughing staff, and $790,000 by deferring maintenance and repairs to Fawn.
Beale said the buildings would not need any work to meet their new roles. Grandview and the middle school, both former high schools, can each house 900 students, but have less than 600 each now, she said.
The district does not need a feasibility study to tell it how to use its buildings, Beale said. Such a study would cost about $40,000, according to the district.
She said board members have tried for years to reduce Highlands down to a single K-5 elementary school, for economic and educational reasons.
“Change is difficult. It is very difficult for people,” she said. “I do not want to keep pumping money into old buildings and put our district in a dire financial situation. We have capacity that we can use. The children will benefit from it. Going forward, I think we would all be better for it, not just academically, but financially.”