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Grand jury: Penn Hills school leaders plunged district into ‘economic ruin’ | TribLIVE.com
Allegheny

Grand jury: Penn Hills school leaders plunged district into ‘economic ruin’

Natasha Lindstrom
| Tuesday, February 5, 2019 2:05 p.m
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Natasha Lindstrom | Tribune-Review
Penn Hills School District Superintendent Nancy Hines (far right) oversees a meeting of the district’s finance committee meeting at Linton Middle School on Tuesday, Jan. 22, 2019.

A scathing grand jury report released Tuesday says Penn Hills School District leaders are guilty of “inexcusable” carelessness that brought the district to “economic ruin” but failed to find any cause to bring criminal charges.

The grand jury, convened by Allegheny County District Attorney Stephen A. Zappala Jr., worked for more than two years and painted a grim picture of the district’s economic status but, apparently, addressed none of the possible criminal actions outlined in an earlier report by state Auditor General Eugene DePasquale.

The grand jury also cited concerns over possible ethics violations and conflicts of interest. It recommended that state lawmakers enact new legislation to thwart future such scenarios.

Board member Erin Vecchio slammed the grand jury report as a “sloppy, slanderous waste of taxpayer money.” Vecchio refuted claims in the report that she made decisions to award contracts based on political motivations and criticized the grand jury investigation for its limited scope and lack of indictments.

“Nothing, nothing came out of it. It’s really been a ride, I can’t believe that it ends with this,” said Bruce Dice of Bruce E. Dice & Associates, the school district’s solicitor firm. “I spent three years in the DA’s office. I know when something looks it’s just put together with paper and strings and that’s what this is, and I feel bad about it. I don’t know why it’s necessary.”

The grand jury report states the district jeopardized the education of its students and overburdened taxpayers for decades by what the report called “egregious” overspending, “inexcusable” carelessness and “inept” decision-making rife with the appearance of impropriety.

“The reckless financial decisions made by the Penn Hills school board, school administrators and their advisors over the past decade plunged the district into an accelerating downward financial spiral that has resulted in the district’s economic ruin,” the report said.

“The district’s taxpayers may face a future of tax increases accompanied by the loss of property value, while the district’s students face vast uncertainty regarding their education.”

Penn Hills Superintendent Nancy Hines said the report “doesn’t really change anything for us.”

“Personally, I feel a sense of relief that we have some type of closure but, admittedly, not all questions have been answered, and I say that more as a Penn Hills taxpayer and parent rather than as a superintendent,” Hines said by email. “I am not sure we’ll ever know who knew what when key decisions were made, and whether or not accounting mistakes were true mistakes or attempts to hide or mislead those making decisions.

“Still, we are faced with the tremendous burden of trying to manage the crushing debt that resulted from these two new schools … and I choose to live in the moment and to look forward,” Hines said.

The 12-member grand jury, convened following an equally scathing audit in May 2016 by Pennsylvania Auditor General Eugene DePasquale, reviewed tens of thousands of documents from individuals, businesses and government entities and heard testimony from board members, school officials and third-party vendors.

District Attorney Spokesman Mike Manko said Tuesday he could not answer any of the Tribune-Review’s questions regarding the grand jury investigation, nor would he say how much time and resources the DA’s office expended on it.

“We are not permitted to comment on things that are not in the report,” Manko said.

DePasquale said he considered the grand jury report to be “an affirmation of everything that we found in our report.” He would not speak about the grand jury omitting credit card abuse and theft allegations cited in DePasquale’s 2016 audit — such as an employee using a credit card to buy a water heater for their personal home, and a policy allowing “anyone in uniform” to rack up charge credit cards at Home Depot. “Maybe they couldn’t prove it, who knows,” DePasquale said. “Without being part of the process, I can’t comment to that. I don’t have all the information.”

Dice said regarding the theft allegations, “I’ve got boxes of material that I gave them (DA investigators) that had the information in there about the credit cards and about hot water tanks and other things, and I don’t know where it all went.”

The grand jury’s findings focused on the district’s mismanagement of bond-funded school construction projects as the “most egregious example of the abuse of public trust” and reason for the district’s crushing debt load, which has climbed from $11 million in 2011 to more than $172 million.

From 2009 to 2015, “the board forged ahead, compounding one bad decision after another, allowing costs to spiral” despite being warned of the risks of not being able to pay for projects that, in hindsight, were “economically unfeasible from the start,” the report said.

The grand jury found that bad business decisions by board members were “most likely the result of a total lack of an understanding or sophistication regarding the intricacies of multimillion-dollar financial transactions.”

Board members further “wantonly ignored the repeated advice” of state consultants as well as their own business managers, project advisers and auditors by approving unnecessary, expensive additions and changes to projects that ran up costs and benefited third-party vendors at the expense of students and taxpayers, the grand jury found.

Among findings the report said contributed to the district’s “catastrophic” financial shape:

  • The 2009 school board, which included Joe Bailey, Erin Vecchio, Don Kuhn Jr., Margie Krogh, Cathy Mowry, Barry Patterson, John Zacchia, Carolyn Faggioli and Robert Hudak, voted to incur up to $140 million in new debt to build new school buildings — a vote that “set the district on its path to financial destruction,” the grand jury said.
  • Architectural Innovations, a firm that was paid $11 million to design the bond-funded projects, increased the high school’s size by 30 percent and made lavish and unnecessary, board-approved changes and additions that had no educational value but increased the company’s fees, which were tied to the overall cost of the project, the report said.
  • The board approved “recklessly spending on extravagant designs and fixtures for these buildings while ignoring recommendations for cost savings measures,” the report said. Architectural Innovations was the “least experienced, while most politically connected firm” of the board’s architect options, and its contract has the “appearance of a politically motivated decision,” the grand jury found. The company’s board-approved overspending led the district to take on an additional $27 million more than planned in debt in 2012, the grand jury found.
  • Board members who testified before the grand jury denied hiring the architectural company based on political motivations, but “the appearances of conflicts and impropriety cannot be ignored,” the report said.
  • Herbein+Company Inc. made an “accounting error” that caused the district to think it had $11 million more than it actually did from 2010 to 2012, the report said.
  • Apparent conflicts of interest further mired the board’s decision-making. “In one instance, a bus route was added for a relative of a board member so that the student would not have to walk too far,” the report said. No other students but the board member’s relative took that bus.
  • The district’s solicitor, Craig Alexander of Bruce E. Dice & Associates, provided free and discounted legal services to several board members — including Kuhn Jr., Faggioli, Mowry, Jennifer Burgess-Johnson and Denise Graham-Shealey — and provided board members free tickets to sporting events and paid for alcohol at retreats without any disclosure to the public or abstaining on votes by board members. The grand jury referred the solicitor issue to the Pennsylvania Disciplinary Board for further investigation.
  • State education officials and weaknesses in state law and oversight failed to recognize and prevent the district’s downward spiral, the report said. It recommends that state lawmakers should write new legislation and strengthen regulatory oversight and interventions of school districts that take on large amounts of debt.

Former business manager Rick Liberto, whom the board fired in 2015, said he feels vindicated by the grand jury’s report, which states that Liberto tried to warn the board about the district’s deteriorating financial condition and that savings from consolidating schools would not be as high as anticipated.

“It shows that I did my job,” Liberto said. “It shows clearly what was going on, how our hands were tied, and from the time we hired the architect, we were doomed … What school board member in their right mind would borrow money like that prior to seeing any drawings and give a blank check to borrow more money?”

Many of the grand jury’s findings were in line with a Tribune-Review investigation published in August 2016.

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

“The dire financial condition is the result of poor leadership, inept decisions made to promote personal interests and ineffective oversight by those entrusted to serve the interests of the students and the taxpayers of Penn Hills,” the grand jury report said.

The shrinking district of about 3,800 students in the sprawling northeast suburb of Pittsburgh has been flagged as financially failing for years. Aside from financial challenges, multiple audits have found evidence of poor internal controls, sloppy record-keeping and alleged mismanagement.

The grand jury described the district as confronting “a catastrophic financial condition from which it will be unable to recover without outside intervention.”

Last month, the state Department of Education placed Penn Hills in financial recovery, one step below a state-mandated receivership.

The grand jury acknowledged in its report that the recovery status label could have “numerous negative consequences,” such as more teacher and staff cuts and reductions to programs.

The district’s debt is approaching nearly double the amount of the district’s annual budget of about $89 million, with annual debt service payments of $12 million set to spike to $15 million in the next few years.

“Their poor stewardship has left the district on the verge of a financial calamity that will continue to cast a shadow over the financial affairs of the district for literally decades to come,” the report said. “The district’s financial condition is catastrophic as it is not clear how it will continue to operate, let alone recover.”

At a board meeting last month, the district projected a $10.9 million deficit for the 2019-20 academic year, a hole that would drop to $8 million if the district can get state approval to raise taxes above the typical annual maximum allowed. Without refinancing, the district will not be able to repay its debt until 2043.

A state-installed recovery officer is set to begin work at the district this week.


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


Natasha Lindstrom is a Tribune-Review staff writer. You can contact Natasha at 412-380-8514, nlindstrom@tribweb.com or via Twitter .

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