The Morning Call Archives

Copyright © 2010 The Morning Call

ID: 4591345
Publication Date: May 9, 2010
Day: Sunday
Page: A1
Edition: FIRST
Section: News
Type: Local
Dateline:
Column:
Length: long

Series: WATCHDOG

Byline: By Christopher Baxter OF THE MORNING CALL

Headline: A decade of debt forcing Easton schools to the brink

**Administrators insist that the teachers contract is strangling the
district. But paying on $164 million isn't far behind. **WATCHDOG:
EASTON SCHOOL BUDGET WOES

Fearing financial ruin, the Easton Area School District administration last
spring issued a public ultimatum to teachers: Renegotiate the newly inked
contract or face dozens of layoffs.

In an unusual mea culpa, district officials said they signed the 2007 union
contract without knowing its ultimate cost. A year later, they said the
agreement would drive the district into bankruptcy.

But the pact is not the only villain in the budget drama. Debt plays a big
part.

A Morning Call budget analysis found that the cost of the district’s debt
has almost quadrupled from the decade’s low point in 2003-04 and is one
of the leading causes of the pending money meltdown, which has put 85
jobs and most middle school sports at risk.

Annual payments toward the $164.5 million in debt are projected to reach
more than $15 million in the 2010-11 school year, up from $3.84 million
in 2003-04, according to the analysis, which included 10 years of district
financial data, audits and budgets.

Borrowing costs next school year will account for 11percent of Easton’s
spending, about double the statewide school district average, according to
the most recent financial data compiled by the Pennsylvania School
Boards Association.

The price of borrowing to build and renovate schools, combined with the
unanticipated costs of the teachers contract, have the district considering
drastic cuts, even as it sits on a $21 million savings account built through
tax increases.

Without the recession, the district still would face a budget deficit.

The school board and the administration rarely speak publicly of the high
cost of the district’s past decade of building and debt, and the
superintendent has said the debt hasn’t been key to the budget problems.

"The increase in annual debt service payments is not a significant factor in

our budget," Superintendent Susan McGinley said in an April 2009
message to the school community.

In the message, McGinley blamed the district's financial crisis on the

teachers contract, which is expected to push salaries and benefits up $31
million -- or 40 percent -- over five years.

Told last week of The Morning Call's findings, McGinley said in an e-

mail that "debt service is a significant factor in our budget." She added
that all financial information has been available for the public to review.

School Director Kerri Leonard-Ellison, who was elected in 2007, said no

one talks about the debt because nothing can be done about it.

Teachers union President Kevin Deely, who has rejected calls to

renegotiate the contract and challenged the district's claim that the pact is
at fault, called the administration's silence on the debt "infuriating."

"It's easier to pass the buck and say it's not their fault and this
administration didn't cause the problem," Deely said.

Next year's proposed budget calls for the elimination of some 70 teaching
positions, along with increases in class sizes and teaching loads and the
end of middle school sports. It also would raise taxes 2.35 percent.

The administration says the district's savings will be gone by 2012 without
drastic measures .

The cuts have appeased some taxpayers whose patience for levy hikes was
eroded earlier in the decade when the school board approved significant
increases even while banking multimillion- dollar surpluses. Now, when
the district needs money, taxpayers have vociferously said no.

"Why did it take this economic crisis to tighten their belts and stop
wasting money?" said resident Larry Porter of Easton.

But other residents are angered by the cuts and have demanded to know
where their money went, and why the district would get rid of teachers
without using the savings account it quietly built for such a rainy day.

The taxing boom

As new homes sprouted in the Easton suburbs during the past decade, the
school district's savings account swelled. But instead of relying on that
prosperity, the school board raised taxes as it embarked on several
expensive endeavors.

Take the 2003-04 school year. The school board in June 2003 approved
the $80.8 million budget after six drafts, a nearly three-hour meeting and
several job cuts. The general theme: Money is tight. The school board
raised taxes 8.1 percent. When that year ended, it had banked a $3.8
million surplus, an audit of the district's finances shows.

Richard Siegfried, who served on the board from 1999-2007, said the
administration underbudgeted those years. The 2006-07 audit noted that
Easton followed "a very conservative approach to budgeting."

Knowing the projections were conservative, the board forged ahead.

Between 2003-04 and 2006-07, Easton banked $30.5 million while raising
taxes a total of 29 percent. The tax bill for a home assessed at $50,000
increased $501 in four years.

The district's reserve fund of $35.2 million was the second-largest in the
state in 2007, state Department of Education statistics show. About $15
million was slated for future costs, such as retirement payouts. But $20
million had no designated purpose, more than double what credit agencies
such as Standard & Poor's recommend holding.

The undesignated reserve was 20 percent of the budget, 8 percentage

points higher than the Pennsylvania School Code's limit on the amount of
money a district can hold and still be able to raise taxes. The following
budget year, the district followed the code by transferring $9.7 million to
the capital fund and, because it was flush with money, taxes went up only
0.6 percent .

In 2008, revenues began to slump, a sign of the coming recession, and

Easton encountered the first of what would be repeated budget shortfalls.
In 2008-09, it approved a 10 percent tax hike.

Former Business Manager Jeffrey Bader declined to comment for this

story and referred questions to the current administration. Bader was hired
in 2002 and presided over the district budget until leaving in 2008 to
become the business administrator for the Harrisburg School District.

Last month, the administration shocked the public with the largest teacher
layoff plan proposed in the Lehigh Valley so far this year. Critics say the
move will damage students' education; the administration says it is the
only way to significantly cut costs.

At a school board meeting a week after the plan was unveiled, more than
800 people packed the high school auditorium, most in protest of the
proposed cuts.

"How did we get here?" asked Easton sophomore Nicholas Carpinelli, 16,
of Forks Township. "The school board and the administration made
mistakes, and now we have to pay for those mistakes."

The building boom

With patches and modular classrooms, Easton for decades paid to keep its
aging buildings from disrepair while managing a swelling student
population. Finally, the school board decided to tap its prosperity for a
more permanent fix.

Already $54 million in debt from earlier building projects, the school
board borrowed an additional $15 million in 2003 to add classrooms to
the high school. Two years later, it borrowed $80 million to build a new
middle school complex. In 2008, as the economy sagged, the board
borrowed $36 million to renovate two elementary schools.

"The way it was presented to us on the [school] board, the debt service
wasn't supposed to increase an extra lot over what we were currently
paying," Siegfried said.

With the 2008 bonds, issued after Siegfried left, the school board opted
for a mix of variable and fixed interest rates and got burned almost
immediately. Taxpayers paid $1.9 million more on debt than budgeted
that year because variable rates spiked, according to the 2007-08 audit
The middle school, opened in 2008, ended up costing $93 million, about
$23 million more than projected. When former Superintendent Dennis
Riker resigned in 2007, he told The Morning Call the project was one of
the most controversial of his tenure.

"Many people felt the school was needed. Others did not," Riker said at
the time, noting that the district had to prepare for the increase in student
enrollment.

The final cost for the elementary schools has not yet been determined.

School board President Patricia Fisher, who was elected in 2003, said the
district had no choice but to complete the building projects. She admitted,
however, that if she could do it again, she would not have renovated one
of the elementary schools.

Director Pat Vulcano Jr. said the district built too much, too fast, without
considering the impact on the budget. He said he did not speak up louder
because he felt the result was inevitable.

"We didn't realize at what point we had to pull back," Vulcano said.

The budget collapse

The rise in the district's debt helped push up the budget, but the
administration says the five-year teachers contract was a mistake that will
sink this and future budgets.

When the school board signed the contract in 2007, the administration,
then led by Acting Superintendent Joseph Kish, called the agreement "in
the best interest of the students and the future of the school district," in a
news release in December of that year.

Kish, now assistant to the superintendent, did not return messages seeking
comment.

The pact included 4.9 percent annual raises and 100 percent tuition
reimbursement. When signed, Bader predicted it would save the district
money through early retirements. But projections by Guidry, his
replacement, show the cost of salaries and benefits to be unsustainable.

"The superintendent [McGinley] and I talked about projections that had

not been done," Guidry said. "We felt it was a valuable tool to find out
where we would be in five years, and it was very revealing."

Part of the problem was that the number of Easton teachers and
administrators increased by 34 percent between 1999 and 2009 to 799,
according to data from the Department of Education. Under the new
contract, many of the new, young teachers went to graduate school and
bumped up their salaries.

With the proposed job cuts, however, Guidry projects a 29 percent

increase in salaries and benefits over the life of the teachers contract,
compared with a 40 percent increase without changes.

Questions remain about Guidry's proposed budget. For one, she has
allocated $849,777 in stimulus money to go toward salary and benefits,
despite previously stating that using one-time money for ongoing costs is
financially irresponsible.

"We feel as though we can sustain those costs next year," Guidry said.

For another, the district began the budgeting year with an estimated $15.8
million deficit. But that became about $10 million last month, when
Guidry adjusted her estimated tax collection rate.

Director Leonard-Ellison said she is not confident in Guidry's estimates.

She wants an evaluation of how the cuts might increase costs, she said,
such as for busing advanced placement students to Northampton
Community College.

More building and debt, she said, is out of the question.

"The only way we ended up convincing people to take a halt on that was
that all of a sudden we got hit in the face with the budget crisis," Leonard-
Ellison said. "There's an element of just not recognizing reality."

christopher.baxter@mcall.com

610-778-2283

"The Easton Area School District is blaming the current teacher contract
for its budgetary challenge. This concern is not based in reality."

--Kevin Deely, president of the Easton Area Education Association, in a

statement last year

THE PRICE OF DEBT

The Easton Area School District's debt payments have almost quadrupled
since the decade's low point in 2003, and have been one of the leading
budget increases during that time period. The district borrowed an
additional $15 million in 2003, $40 million in 2005, $40 million in 2006,
and $36 million in 2008, almost all of which was used for construction
projects.

2001-02: $4,791,423 (6.72% of spending)

2002-03: $5,337,970 (7.25%)

2003-04: $3,841,194 (4.95%)

2004-05: $5,036,478 (6.1%)

2005-06: $6,585,009 (7.6%)

2006-07: $9,996,764 (10.21%)

2007-08: $11,907,007 (10.79%)

2008-09: $13,589,184 (11.35%)

*2009-10: $14,852,563 (11.40%)

**2010-11: $15,050,573 (11.44%)

*Approved budget

**Proposed budget

RAINY DAY FUND

The Easton Area School District continued to raise taxes earlier in the
decade despite banking multimillion-dollar surpluses several years, a
result of conservative budget estimates. District officials now say if they
use that savings, built on the taxpayers' dime, their rainy day fund will go
dry by the 2011-12 school year.

2001-02: $5,033,939 (94th-highest in state)

2002-03: $4,742,081

2003-04: $8,573,403

2004-05: $15,140,526

2005-06: $24,674,186
2006-07: $35,222,393 (second-highest in state)

2007-08: $27,766,081

2008-09: $27,677,858

*2009-10: $21,543,106

**2010-11: $11,067,549

***2011-12: Fund depleted

*Approved budget

**Proposed budget, without any cuts

***Projected budget, without any cuts

SALARIES & BENEFITS

In 2007-08, the Easton Area School District ran its first significant deficit
of the decade. Signs of the economic downturn first appeared, but the
district continued to spend on building projects and renovations,
increasing annual debt payments. To top it off, the district signed an
expensive teachers contract without understanding its true cost.

"The increase in annual debt service payments is not a significant factor in

our budget."

--Easton Area Superintendent Susan McGinley, in a statement last year

threatening job cuts if the teachers union did not reopen its contract

2001-02: $49,587,723

2002-03: $53,267,440

2003-04: $54,909,392

2004-05: $59,571,606

2005-06: $62,515,096

2006-07: $65,260,063

2007-08: $73,061,399
2008-09: $79,119,379 (new contract)

*2009-10: $89,414,611

**2010-11: $93,360,450

***2011-12: $98,994,126

***2012-13: $110,559,638 (contract expires)

*Salaries and benefits in approved budget

**Salaries and benefits in proposed budget, without any position cuts

***Salaries and benefits in projected budget, without any position cuts

TAXPAYER BURDEN (NORTHAMPTON COUNTY)

Steady tax hikes during Easton Area's growth spurt earlier in the decade
eroded taxpayers' willingness to endure continued hikes when the price of
debt, salaries and benefits increased and the economy turned sour,
pressuring the district to consider job cuts.

2001-02: 33.14 mills (2.5% increase)

2002-03: 34.81 (5.0%)

2003-04: 37.63 (8.1%)

2004-05: 40.61 (7.9%)

2005-06: 42.91 (5.7%)

2006-07: 44.83 (4.5%)

2007-08: 45.1 (0.6%)

2008-09: 49.7 (10.2%)

*2009-10: 51.12 (2.7%)

**2010-11: 52.325 (2.4%)

*Approved budget
**Proposed budget -- not final

Source: Easton Area School District audits, 2001-2009; Easton Area

School District; Pennsylvania Department of Education