Region 4 Surplus Return Request Denied by Deep River
The Deep River Board of Finance (BOF) will not return its portion, $14,534.44, of the Region 4 (R4) Board of Education (BOE) surplus funds from fiscal year 2018–’19, to the R4 board to help reduce its capital fund deficit.
The BOF was asked to do so by R4 Superintendent of Schools Brian White at a joint special meeting with the Deep River Board of Selectman (BOS) held virtually on June 9. It was an appeal White had recently and more successfully made to the finance boards in Chester and Essex.
“Essex and Chester have both agreed in principle to this, dependent upon all three towns agreeing to this request,” said Deep River First Selectman Angus McDonald.
Now, the total in surplus funds, $43,065, which was distributed among all three towns based on 2018–’19 Average Daily Membership (ADM), will remain with these towns.
The R4 BOE has been working in recent weeks to reduce a $429,729 deficit in its Capital Fund, which was discovered as the result of its FY 19 audit.
By state law, the R4 BOE could not apply the full amount of unexpended funds from 2018–’19, $201,280, to its deficit. Instead, it applied a portion, $158,215, as recommended by the accounting firm Mahoney Sabol.
The remaining $43,065 was returned to Chester, Deep River, and Essex at a special meeting of the R4 BOE in May with the caveat that White would ask for the monies to be returned to then apply them to the R4 BOE’s Capital Fund deficit.
Deficit as a Material Weakness
At the June 9 meeting in Deep River, White indicated a commitment to reducing the deficit.
“The good news is we’ve really taken some efforts to reduce [the deficit],” said White. “I’m confident that in the near future we should be able to eliminate it all together and truly have a clean slate to be able to move forward confidently.”
He also provided a rationale for why the deficit should be reduced.
“It would continue to be cited as a material weakness in our annual audit, for starters,” said White. “We are submitting to the Office of Policy and Management an action plan, committing to the steps that we are going to take to remediate the areas of material weakness. There were similar areas of weakness cited in the 2017-’18 audit and so, in our work to address those areas, reducing the deficit, for all the reasons we know that it’s not good to have a deficit, is an important part of that work.”
Finance board members asked repeatedly which specific actions were being taken to address the current deficit and to prevent a recurrence of it in the future.
Deep River BOF Vice-Chair and Secretary Lori Guerette pointed to other uses for the surplus funds.
“That $14,000, quite frankly, some of us were looking for paying for a police officer, possibly going for other major expenditures that the town has not put forward because of the excess in ADM costs,” said Guerette. “Sell the [Mislick] property, that will help. I know there is a whole other legal issue of how to sell it, how to refund it. That’ll be a nightmare in and of itself, but with that capital fund, what are you planning on doing with that capital fund?”
The Mislick property, which is adjacent to Valley Regional High School, was purchased by the R4 BOE in 2017 for $379,916 in a move that was both improperly accounted for and faced criticism for a lack of transparency.
In his response, White said that the R4 Board now has a “very clear spending plan” for capital projects that is “tied to the budget process.”
The R4 Board will also approve projects with a clear understanding of how the funds are being used and for which purpose, according to White.
R4 Interim Business Manager Richard “Dick” Huot followed up on White’s comments regarding capital spending and offered a rationale for returning the funds.
“If we budget an amount, in say 2021, to address this issue, that means that it is going to raise the dollars that you are going to have to send Region 4 to cover the deficit,” said Huot. “It would seem more palatable to deal with it in excess funds, so that you are not having to raise more tax dollars and come up with new money to address the issue.”
Later in the meeting, Guerette asked about the R4 BOE’s sources of revenue, as the revenue relates to having surplus funds, and about White’s strategy for paying down the deficit.
Huot identified the two primary sources of revenue as tuition from the preschool program and the State’s Special Education Excess Cost Grant program.
In terms of strategy, White said, “there may be an opportunity, at the end of this current fiscal year, to apply some unexpended funds, if the board chooses to do so. The other part of our strategy would be to actually budget for this in next year’s budget.”
In terms of corrective actions, Selectman James Olson asked about the purchase of the Mislick property, the cost of which accounted for a beginning deficit of $199,261 in the Capital Fund.
“Is there any plan, at all, going back to what started all this, besides the accounting, to selling that property, or a portion of that property?”, said Olson. “When you talk to taxpayers, at least the ones that I see, that is one of the biggest elephants in the room...that it shouldn’t have been bought.”
White reported that the R4 BOE is planning to have an evaluation, or field use study, of the R4 athletic fields conducted by an outside contractor, and the Mislick property would be included in that assessment.
“I was told coming into [this] district about a year ago, that some of the rationale for looking to acquire that Mislick land would be potentially the expansion of athletic use,” said White. “I understand that those conversations and that dialogue might not have been as public as people would certainly have preferred and I understand that. But it’s certainly something that I think the board should be well informed about in order to make decisions about how to best proceed.”
BOF member William “Bill” Ballsieper was one of the first to speak after R4 BOE member Jane Cavanaugh and First Selectman Angus McDonald advocated for a return of the funds to the R4 BOE.
“I don’t like what I’m hearing,” said Ballsieper. “I know you’ve worked hard. I know everyone has worked hard and that’s all I’ve heard, but the point is, I haven’t heard this big commitment like, ‘Yes, we are going to solve this problem, period, and if we have to give something up to do it, we will do it.’”
Ahead of the 5-1 vote to not move forward with the process of returning the funds, BOF member Carmela Balducci explained her rationale for the denial.
“We, on the BOF, have worked really hard this year to keep our budget as low as we possibly could to not burden our taxpayers and we’ve eliminated things in our budget that we would perhaps have liked to put in there,” Balducci said. “I think that the regional board needs to re-look at its budget and see if perhaps there are places where it can make adjustments so that it can cover a deficit. We can use that $14,000 in our budget.”