DISTRICT OF COLUMBIA BOARD OF EDUCATION
PEGGY COOPER CAFRITZ
President of the Board of Education
825 NORTH CAPITOL
STREET, N.E.
WASHINGTON, D.C. 20002
PHONE: (202) 442-4289
FAX: (202) 442-5198
STATEMENT
OF PEGGY COOPER CAFRITZ, PRESIDENT OF THE DISTRICT
OF COLUMBIA BOARD OF EDUCATION, TO THE DISTRICT OF
COLUMBIA COUNCIL COMMITTEE ON EDUCATION,
LIBRARIES AND RECREATION, LEGISLATIVE ROUNDTABLE,
SEPTEMBER 24, 2001
I feel
uncomfortable submitting a written statement because I do not know what the truth
is and I only want to speak truth to the City Council. I am open to answering any questions
you have of me.
Thank you.
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COMMITTEE
ON EDUCATION, LIBRARIES AND RECREATION
Kevin
P. Chavous, Chairman
Roundtable on Budget Year 2001 Deficit
Testimony by Paul L. Vance Superintendent District
of Columbia Public Schools
SEPTEMBER
24, 2001
Good afternoon,
Councilmember Chavous and members of the Committee.
We come before you today to discuss an important problem that has arisen
at the District of Columbia Public Schools -- and the steps we are taking to
address this problem.
The Problem
As you are aware, we were informed in late August by our new CFO that DCPS
had a potential deficit for FY 2001 of approximately $80 million.
This projected deficit is composed of approximately $38 in unrealized
Medicaid revenues and approximately $42 million in projected overspending
-- most of which is special education-related.
Several factors contributed to our receiving late notice of this problem:
-
The previous CFO did
not share financial reports with DCPS management,
-
Medicaid audit drafts
were received on August 31 for 1995-96, 1996-97 and 1997-89 showing a
projected $38 million Medicaid problem, and
-
DCPS does not have a system of program performance indicators to track the
key drivers of the overspending and - in the absence of reliable and
timely financial reports - provide early warning of spending pressures.
It wasn't until our new CFO in late July began examining the assumptions
underlying the projections in the DCPS financial reports filed by his
predecessor that the problem was identified.
The Solution
In response to this problem, our Board of Education adopted gap-closing
measures of $27 million, including spending freezes expected to yield
$17.2 million and reallocation of $9.9 million in unused revenues.
Spending Freeze ($17.2 million)
-
Discontinue non-emergency OTPS spending ($6.7 million)
-
Liquidate Requisitions ($3 million)
-
Liquidate Encumbrances ($7 million)
-
Close DAPS Accounts ($500,000)
Reallocate Unused
Revenues ($9.9 million)
In addition to the $27 million in gap-closing measures taken by DCPS, the
District of Columbia Chief Financial Officer has made available $14
million to cover the remaining portion of the shortfall caused by
overspending.
In addition to gap-closing measures, the following steps have already been
taken or are being developed for short or medium term implementation.
- The District of Columbia's CFO has replaced the DCPS
CFO and other top staff with responsibility for financial controls and
reporting and budget planning, execution and monitoring.
-
DCPS is
implementing all the financial modules of the PeopleSoft system, including
the Budget, General Ledger, and Accounts Payable modules.
When
operational in the spring of 2002, this system will provide real-time
financial and budget performance information for DCPS executives and
programs managers.
- Prior to the full
implementation of PeopleSoft, the DCPS CFO will prepare and share with the
School Board, Superintendent and executive staff newly developed financial
statements and budget reports.
- DCPS executive staff
will work with program
managers to develop a system of program performance indicators to
track key budget drivers, beginning with those items that contributed to
the overspending to provide early warning of spending pressures.
- The DCPS Board will
require monthly written and verbal reports from program managers on the
key issues that drive the budget.
These steps will assure the availability of
independent, accurate financial statement and budget reports - and the
tracking of program performance indicators for key budget drivers,
especially those items that contributed to the overspending.
Finally, and central to the solution, is addressing
special education costs. To do so, we have developed a management plan
that encompasses every facet of special education programs. The plan
addresses:
- the role of
non-public providers and the placement of special education programs
- strengthening DCPS
special education capacity and quality
- establishing new
cost management systems
- building a new legal strategy for addressing all special education issues
- restructuring all
school-based and central office special education operations.
In addition, we will identify a Special Education "Czar" to
oversee and implement the plan with authority to develop and implement new
solutions and practices for special education
Thank you.
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PUBLIC
ROUNDTABLE ON DISTRICT
OF COLUMBIA PUBLIC SCHOOLS $80
MILLION BUDGET DEFICIT
Before
the Committee
on Education, Libraries and Recreation Council
of the District of Columbia
Councilmember Kevin P. Chavous, Chairman
September 24, 2001
2 PM
441
4th Street, NW
One
Judiciary Square, Council Chambers
Testimony of Natwar
M. Gandhi
Chief
Financial Officer
Government
of the District of Columbia
Good afternoon, Chairman Chavous, members of the Committee, and other
members of the Council. I am Natwar M. Gandhi, Chief Financial Officer
for the District of Columbia. I am here today with Mr. Bert Molina,
recently appointed Chief Financial Officer for the District of Columbia
Public Schools (DCPS), to report on spending pressures faced by the
school system as we near the end of Fiscal Year 2001.
Let me begin by first stressing that the primary duty of the Chief
Financial Officer is to maintain the overall financial viability of the
District of Columbia. To that end, I must take all necessary legal steps
to ensure that financial problems are identified and addressed quickly
and effectively.
As soon as we found out about the spending pressures at DCPS, we
immediately alerted key stakeholders. We then took necessary corrective
actions to remedy the situation. It is, after all, not uncommon for any
state or local jurisdiction to have spending pressures. The key is how
you manage them. And, we are effectively managing our spending pressures
in 2001 and are working with Superintendent Vance and the School Board
on resolving the pressures. Let me assure you, Mr. Chairman, the
spending pressures currently at DCPS will not impact the overall
financial viability of the District of Columbia. We will end the fiscal year with a balanced budget across the City, and the financial
health of the District of Columbia is solid as we begin Fiscal Year
2002.
THE FY 2001 BUDGET ISSUE AND
POTENTIAL SPENDING PRESSURES FOR FY 2002
For Fiscal Year 2001, DCPS is facing spending pressures totaling $80
million. The root of the problem at DCPS is with special education
expenditures, which are often imposed by external forces such as
mandated court orders by the special master. I must also note that
expenditure problems need to be resolved programmatically. It is the
CFO's duty to alert program managers as to the state of their finances
and help them resolve their financial problems. Managing business
processes is a programmatic function.
From a financial perspective, the shortfall is primarily the result of
one program area within DCPS. The special education portion of the
shortfall amounts to $68.7 million, or about 86% of the total shortfall,
and is comprised of:
special education transportation, $6.1 million.
In addition, DCPS overspent on utilities by $8.6 million, and had
various unanticipated expenditures of $3 million.
Without significant intervention, it is very likely that many of these
spending pressures will repeat in FY 2002. This is true because none of
the factors that contributed to creating the spending pressures have
diminished over the course of FY 2001. For example, the special
education population of DCPS continues to grow. DCPS' hearing officers
had roughly 1,600 special education hearings in FY 2001. This is a
slight increase over the number of hearings in FY 2000 (1,390). The
continued high rate of referrals contributes to DCPS' inability to
reduce the number of non-public placements and the need to provide a
high level of transportation services. In fact, the Transportation
Administrator has indicated a substantial increase will be needed in the
FY 2002 budget to successfully transport students for the 2001-2002
school year.
Similarly, Medicaid poses a spending pressure for DCPS in FY 2002 for
two reasons. First, the FY 2002 budget was built using the same
assumptions that were used for FY 2001. As these optimistic assumptions
proved false in FY 2001, they will likely prove false again in FY 2002.
Second, during FY 2002, we expect DCPS to receive Medicaid audits for FY
1999 and FY 2000. If the patterns hold from prior audits, DCPS will
again be forced to return payments from these audits.
I think it is important to note that were it not for a breakdown in
financial and program management in the special education area, we would not be
here before you today. DCPS had early on identified its utilities and
miscellaneous spending pressures and was confident they could be addressed by
reprogramming from other sources.
When the new CFO notified me in mid-August of the extent of the
shortfall in the special education area, I asked both him and my budget
staff how this could have happened. There is no way to put a good face
on this. The financial cluster at the schools and my office, as well,
did not have in place the kinds of financial monitoring systems that
would have provided an early alert to a problem of this magnitude.
Working with Superintendent Vance and the School Board, we will remedy
this situation immediately to prevent a reoccurrence.
Before discussing our analysis of the causes of this failure and the
steps we are taking to improve our oversight operations, let me again
assure you that this shortfall will not compromise the District of
Columbia's overall citywide FY 2001 financial position. The District
will end the fiscal year with a balanced budget. The OCFO will offset
revenue surpluses to address the $38 million revenue shortfall, and DCPS
has already made spending adjustments to cover $28 million. The balance
of the shortfall--$14 million--will be covered by reprogramming from
other accounts to DCPS.
IDENTIFYING THE PROBLEMS AND THEIR FY 2002 SOLUTIONS
The shortfall at DCPS was immediately reported to Superintendent Vance
and myself by the school system's newly appointed agency Chief Financial
Officer, Bert Molina, who was empowered to improve the school's
financial operations. Three senior individuals directly responsible for
reporting the financial health of DCPS to key stakeholders -- including
the CFO, budget director, and deputy controller--have been terminated or
removed and are being replaced with seasoned professionals with direct
experience dealing with large city school budgets. In addition,
22
employees within the financial cluster at DCPS have been dismissed in
order to restructure that office to be more vigilant and effective.
A number of internal control weaknesses led to the failure to identify
the major financial deficits at DCPS much earlier in the fiscal year.
Below, I will summarize what we believe to be the primary weaknesses
that led to this budget shortfall, as well as the steps we are now
vigorously engaged in with DCPS to correct these weaknesses for
FY 2002
and beyond.
1. Revenue Analysis and Tracking
The budget shortfall at DCPS is not merely about the agency's
overspending. Nearly half of the spending pressures are attributable to
a Medicaid revenue shortfall. Simply stated, DCPS and its CFO
organization used a set of assumptions to project their revenues that proved faulty, and the
assumptions were not checked and updated systemically. This means that
even if spending is in line with total appropriated resources,
overspending can occur if revenues are less than estimated.
Medicaid is the most significant non-appropriated revenue source for
DCPS, and the school system is highly dependent on Medicaid payments to
defray its special education operating costs. As a result, having an
accurate estimate of probable receipts and actual revenues realized is
critically important.
One of the most difficult challenges with Medicaid is the timely
processing, collection, and reporting of accurate data. By the time
paperwork is processed, a significant amount of time has passed, and
Medicaid routinely denies claims because of inaccurate information or
because the claims were not filed in a timely manner. This loss of
revenues results in an unbalanced budget.
In short, revenue analysis is critically important and was critically
missing-in the area of Medicaid. We are working with the City
Administrator to establish an improved Medicaid revenue estimating and
tracking system for the future, which will track on-going collections
against last year's actual collections to assess shortfall potentials,
not only in DCPS, but in all agencies that are reliant
on Medicaid funds. (This amounts to approximately 20% of the City's
budget, or roughly $1 billion of $5.3 billion.) This information will now be
required as an additional element of each agency's monthly Financial Review Plans that
are reported and explained to the City's stakeholders.
However, until this system is perfected, the OCFO will track DCPS and
report actual Medicaid receipts against DCPS' monthly projections. If
there is a discrepancy, OCFO will view this as a spending pressure for
which gap-closing actions will be immediately implemented at DCPS.
2. Special Education Planning Assumptions
Special education programs comprise nearly one-third of the costs for
the entire school system ($269.7 million) in spite of the fact that only
about 17% of the students in the DC public schools are special education
students (11,545 students).
Special education is facing $25 million in spending pressures largely
due to a higher-than-budgeted number of students and increased
attorneys' fees for a greater number of special education cases than
projected. To begin to address this problem, the DCPS Chief Financial
Officer--in concert with DCPS special education program managers--will
revisit all spending assumptions with respect to special education to
validate their accuracy and update, as necessary. We will then monitor
actual experience against these assumptions throughout the year to
assure currency of financial projections. In short, the OCFO will
continue working with DCPS to stabilize special education budgeting and
spending.
It is imperative that agency administrators and directors be responsible
for managing their programmatic costs. Without a doubt, the school
system faces ongoing challenges in this arena; however, Superintendent
Vance and I will be working diligently and cooperatively to
address rising costs in special education and Medicaid reimbursements so
that DCPS operates within its allocated FY 2002
budget.
3. Appropriation Controls
As the Chief Financial Officer, it is my responsibility to assure that
all
agencies remain within the amounts budgeted by the Council of the
District of Columbia and appropriated by Congress as required by law.
This means that, as we enter the new fiscal year, DCPS will be required
to strictly adhere to the funding levels appropriated by Congress in the
FY 2002 Appropriations Act. This will be achieved by the OCFO imposing
an expenditure alert and apportioning the total of all DCPS
appropriations, so as to prevent obligations or expenditures in a manner which would result in a deficiency.
However, it is important to recognize that financial improvements alone
will not solve the overspending problem. As noted earlier, much of the
special education expenditures are externally mandated. Nevertheless,
the DCPS will have to manage its programs more effectively. If there are
not any business process changes at DCPS, the appropriation controls are
not going to fix the problem. For example, the special education budget is developed by
using prior year enrollment numbers, rather than current
enrollment, which affects the funding levels. Our goal is that, working
together with the school administrators, we can jointly solve the
problem.
The District is authorized, subject to approval by the Council of the
District of Columbia, to augment the DCPS appropriation to a certain
degree. We are currently exploring how to use this latitude to recommend
that funds be redirected from other sources to address the projected
DCPS Medicaid revenue shortfalls.
4. Quality and Timeliness of Financial Reporting
While the Office of Budget and Planning receives a monthly financial
report from all agencies, including DCPS, it is clear these reports were
not sufficient to spot problems early in the year. To remedy this
situation, we will require that each financial report from DCPS contain
specific information on the special education program, and that Medicaid
revenue receipts are tracked in addition to expenditures. We will also
begin tracking expenditures against a monthly spending plan that is
based on last year's actual expenditures to assess overspending
potential. For FY 2002, DCPS (as well as other agencies) will be
required to include prior year spending and explain any variances
between the prior and current year of 5% or more.
5. Timely Entry of Transactions
Proper monitoring using the SOAR system cannot occur unless all
transactions are entered into the system on a timely basis. Complicating
factors prevented the OCFO from obtaining an accurate financial picture
of DCPS. For example, in reviewing the school system's finances, the new
CFO discovered that approximately 3,800 invoices had not been posted to
SOAR in a timely manner.
The new Chief Financial Officer for DCPS will be charged with assuring
that such entries are made timely. The Chief Financial Officer for DCPS
will also receive a monthly report of the status of vendor payments that
will track the lapse time between receipt of invoices and vendor
payment. The standard for this lapse is 30 days.
6. Regular Briefings with DC Public School Board
Finally, I will meet with Superintendent Vance and the Board of
Education on a regular basis to apprise them of progress in executing
DCPS' budget and any related issues.
In conclusion, we have carefully identified the problem areas at DCPS
and we are committed to working with the Superintendent and School Board
to solve these problems immediately. Let me reiterate that the budget
shortfall at DCPS does not imperil the overall fiscal viability of the
District of Columbia in FY 2001.
This concludes my testimony. Mr. Molina and I will be pleased to answer
any questions you may have. Back
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Council of the District of Columbia
Committee
on Education, Libraries and Recreation
Public Roundtable on DC Public Schools
$80 Million Budget Deficit
September 24, 2001
Testimony of John D. Catlett
My name is John D. Catlett. I am president of Teamsters Local #639.
Teamsters Local #639, along with Teamsters Local #730, represent
approximately 1,600 DC Public School (DCPS) employees. These employees
are in the classification of engineers; custodians, including skilled
tradesmen; truck drivers; warehousemen; cafeteria workers; and cafeteria
managers.
I am here today to ask the Council and the community that this group of
essential, dedicated DCPS employees be treated fairly. They have
suffered long enough. They had nothing to do with creating any deficit
spending.
Teamsters Local Unions #639 and #730 are responsible for negotiating
labor agreements with DCPS for these DCPS employees. Items to be
negotiated include wages and benefits. The CMPA prohibits District
employees from striking; instead, it requires that disputed items
(called final offers) be submitted to an arbitration panel if the Union
and District cannot reach an agreement. The arbitration panel then
issues an award, granting either the Union's proposal or the District's
proposal. The award is supposed to be final and binding, but the CMPA
requires funding and Council approval.
The Teamsters have gone to interest arbitration four times, starting in
1987. The first three awards were never fully complied with. Indeed, the
pay raises awarded for the periods of 199093 and 1993-96 were never
funded. The DCPS employees went from April 1990 to December 1997 without
a pay raise. They did receive a payment in December not because the
arbitration awards were fully complied with but because the Teamster
employees were so frustrated that they were going to strike.
Efforts to negotiate a new labor agreement for the period from October
1, 1996 through to the present have been difficult. The constant
turnover of DCPS officials and the arrogance of the Authority and then
Superintendent Arlene Ackerman caused the threat of a strike about 18 months ago. DCPS sought and
obtained an injunction against the Teamsters preventing strikes.
Teamster Locals #639 and #730 agreed to comply with the interest arbitration
procedure. The arbitration lasted five days. Both
DCPS and the Teamsters presented voluminous evidence, including wage
surveys of the surrounding jurisdictions.
The award will be issued any day now.
When it is issued, I am asking that justice be done. The justice that
has been denied these dedicated employees 11 years now.
I have addressed the Transportation department problems in previous
testimony before this Council. The Teamsters represent only the
full-time bus drivers and attendees of which there are only about 100.
The other 800 or 900 employees are part-time. As I said in my prior
testimony, a part-time work force any place brings with it turnover and
attendance problems. Full-time career employees are a much more stable,
dedicated work force.
In closing, the DCPS Teamsters did not cause the deficit. I am asking
the Superintendent, the School Board, the Council and the Mayor to give these
workers justice and comply with the
interest arbitration award. Back
to top of page
DISTRICT OF COLUMBIA PUBLIC SCHOOLS
BOARD OF EDUCATION
825 NORTH CAPITOL STREET, NW
WASHINGTON, DC 20002
(202) 442-4289 OFFICE (202) 443-5198 FACSIMILE
June 1, 2001
Dr. Paul L. Vance
Chief Executive Officer
District of Columbia Public Schools
825 North Capitol Street, N.E.
Washington, D.C. .
Dear Dr. Vance,
Thank yon for your consideration of our request to meet with Mr. Bart
Molina, the District of Colombia's Associate Comptroller for Financial
Operations ad Systems.
1t is our understanding that Mr. Molina is the person Mr. Gandhi would
him to have replace Mr. Rickford as the DCPS CFO mice Mr. Gandhi
transfers Mr. Rickford, because of his specialized skills and talents,
to the
Department
of Health. After yesterday's meeting between Mr. Molina, Mr. Lockridge,
Mr. Erste and you. I met
with these gentlemen and wish to convey our thoughts on the important
issue of who serves as the DCPS CFO.
We appreciate your willingness to accommodate out input on this issue,
gives that all DCPS staff decisions are your prerogative and not within
the scope of the Board's responsibility. We understand that your
willingness to include us in this situation is based an the critical
role played by our CFO, our joint responsibility for achieving the
important goal of maintaining financial stability, and the unique
arrangement under which our CFO is appointed by the District of
Columbia's CFO.
In the meeting, Mr. Molina demonstrated clearly the high level of
skill, experience,
and qualifications needed to serve as the CFO of DCPS and the following
comments are not intended in any way to diminish his abilities, professionalism
or character. However, we share your positive views of Mr. Rickford and, along with
you, have been pleased with his performance and his service to DCPS.
We therefore ask that you work with Mr. Gandhi and other DC officials to
keep Mr. Rickford as our CFO.
Thank you for your consideration.
Respectfully
Peggy Cooper Cafritz
President
William Lockridge
Vice
President
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