Two predecessors to Indianapolis Public Schools’ Superintendent Lewis Ferebee are raising questions about his analysis of the district’s financial situation, with one saying he got it wrong when he said the district won’t have to cut costs this year.
On Tuesday, Ferebee dropped a bombshell when he reported to the school board that a looming $30 million deficit was fantasy. Ferebee said the shortfall, which was the basis for more than 100 teacher layoffs as part of $10 million in cuts last spring, resulted from a slew of false assumptions that inflated the district’s projected spending.
Ferebee said he believed annual reports of deficits were designed to quietly keep a strong cash balance to cover any unexpected expenses that might otherwise be difficult to address during the school year. Board members and the public were led to believe IPS was falling short financially, he said.
More than $40 million allocated in the $274 million total IPS budget for 2013 — about 15 percent — was never spent, Ferebee said. The $30 million projected deficit instead turned into a surplus of more than $8 million added to IPS’s cash balance at the end of December, he said.
But Peggy Hinckley, interim superintendent for six months before Ferebee came on in September, said she worried that Ferebee was jumping to conclusions. Ferebee, a first time superintendent who was chief of staff of Durham, N.C., schools in his last job, told reporters Tuesday the calculations that led him to dismiss the deficit were his own, although he said they were checked by the district’s lawyers and an accountant.
“He has no experience as a superintendent and no experience with funding in Indiana,” Hinckley said. “I don’t understand how they could have fewer expenditures by that much money.”
Even if the budget situation is less dire than she thought, Hinckley said IPS still should be aggressively cutting back, especially by closing schools. She remains convinced IPS must prepare for the likelihood of lower enrollment, losses resulting from state funding changes and high costs for half-empty buildings would continue to eat into its bottom line.
“If they make no cuts they will have half their cash balance left at the end of 2014,” she said. “If they do nothing the next year, they will have no money by December of 2015.”
Board members, however, stood strongly behind Ferebee.
“We are not spending ourselves out of business,” school board President Annie Roof said. “We feel we actually have the cash balance that will allow us to function as long as we remain prudent. We believe and trust our superintendent and his administration are guiding this district in the direction we need to be headed.”
But Hinckley and former Superintendent Eugene White both said it was clear to them that Ferebee had taken a different philosophical approach to the budget which could partly explain his wildly different view of IPS’s financial state.
White served as superintendent for nearly eight years until he was forced out by a new school board majority in January of 2013. When his buyout was finalized, Hinckley was brought in as his interim replacement in March of 2013. She quickly began raising alarms about the budget, suggesting up to 10 schools might need to be closed to assure the district remained financially viable. It was Hinckley who announced the $30 million figure.
Hinckley, who now works as a consultant to schools, served as a superintendent in Indiana for 28 years, the last 11 in Indianapolis’s Warren Township. When she examined the IPS budget in the spring of 2013, she said it was clear White’s primary focus had been on assuring the district always carried over a solid cash balance.
It was an odd approach, she said.
“Until I was there they had never reconciled revenue and expenditures or presented balanced budgets,” she said. “Dr. White was of the opinion that they had cash balances so they didn’t have to worry.”
White doesn’t disagree that his focus was on the cash balance bottom line and that some planned spending didn’t happen in order to save money.
“It was an expenditure budget,” he said. “You could control your expenses but you couldn’t control your revenues. It had been that way for a long time before I was there.”
When Ferebee says he found allocations — such as money set aside for a science and technology magnet school — that never came to fruition but remained in the budget, White said he knew that was sometimes the case.
“There were athletic teams appropriated for each school,” said White, who now serves as president of Indianapolis’s Martin University, as an example. “Even if they didn’t have a team, we still budgeted those amounts. You have to have some cushion for error.”
Ferebee released an accounting of the unspent dollars from 2013 that suggests the cushion was huge.
The figures showed $13 million in salaries and benefits set aside for employees who apparently were never hired. Another $8 million was set aside for consultants and other purchased services that were never contracted.
The idea of a large deficit, however, came from Hinckley only after White had left, he pointed out.
“All that came from her,” White said. “You never heard that from me.”
White said the cuts he was making each year were generally in the $2 million to $3 million range and helped IPS stay ahead when revenue dropped as fewer students enrolled and the state cut aid programs.
It’s possible, Hinckley said, that inflated budgets painted an exaggerated picture of the problem. But she maintains her cautions were and are valid. The cuts White was making, she said, were never big enough to cover the revenue losses. IPS would soon be devouring its cash balance without deep cuts.
If the $8.4 million cash surplus Ferebee found is real, it resulted from $10 million in cuts IPS made last spring, Hinckley argued.
“They’re losing money,” she said. “At some point, when that cash is gone, what is he going to do?”
Ferebee and board members said the district would next undertake a more detailed analysis of IPS’s finances. Ferebee said he would reach out to the Council of Great City Schools, an alliance of urban districts, to seek a “comprehensive” financial analysis.
Board member Gayle Cosby also said IPS also plans to create a budget development committee that includes students, teachers, administrators, parents and business leaders to review spending and income going forward.
Even so, board members said they continue to grapple with Ferebee’s revelations and understand their implications.
“You have to understand we are not a board of accountants,” board member Michael Brown said. “We accepted those (budgets) as factual and truthful.”