Schools insist finances on track

Russo tells legislators city system on path to fiscal responsibility

January 17, 2001|By Erika Niedowski | Erika Niedowski,SUN STAFF

City schools chief Carmen V. Russo told state legislators yesterday she has taken "major steps" to ensure fiscal accountability, even as some lawmakers criticized the system's handling of finances.

The school system is facing a $19.1 million deficit carried over from the last fiscal year, which ended June 30.

Last month, city school officials realized that the system was on pace to end the current fiscal year an additional $16.8 million in the red. But Russo said she took steps - including laying off temporary workers, eliminating six administrative positions and freezing vacancies - to roll back spending.

"We have put in place a variety of measures that will begin to put us on the right path toward what I think is fiscally responsible, business-like operations," Russo told legislators at a joint hearing of the Senate Budget and Taxation and House Appropriations committees.

The city school system spent $34.6 million more than it took in last year, an audit by the Arthur Andersen accounting firm shows. However, because it had a $15.5 million fund balance, the deficit carried over was reduced to $19.1 million.

Russo vowed to end the current fiscal year with a balanced budget.

Several lawmakers, including Appropriations Chairman Howard P. Rawlings, criticized school officials for not being more diligent in keeping track of their finances, particularly when the system separated its operations from the city more than a year ago.

A major portion of last year's deficit is $15.6 million the school system believes it is owed by the city - an amount only recently discovered by the firm of Arthur Andersen.

"I would like some explanation from the city and the [school] board of how this happened," said Del. Nancy K. Kopp, a Democrat from Montgomery County.

Under state legislation passed in 1997, the Baltimore school system was to take over its operations - including bill payment, payroll and revenue collection - from the city. When the school system began doing that, the city transferred more than $200 million in federal, state and local funds to city school administrators.

Russo conceded yesterday that a complete financial audit was not done when the separation was completed in September 1999.

"That audit never took place," she said. "That's why we're going back to reconstruct it."

Russo said school officials have been working with the city's finance director, Peggy J. Watson, to resolve the issue. An independent auditor will be hired to determine the amount the city might owe, and the city and school system will split the cost of that review, said Mark Smolarz, the schools' chief financial officer. He said later that the cost of the audit should be less than $100,000.

Russo, who took over from chief executive officer Robert Booker in July, said more than once during the hearing that the management team now in place was present when the problems originated.

"Please don't keep saying that," Rawlings told her. "The [school] board was there from the start."

Sen. Robert R. Neall, an Anne Arundel County Democrat, called the unresolved issue of funding from the city "upsetting" and urged school officials to "reconcile these books" as quickly as possible so legislators can have an accurate picture of city school finances. Neall said the legislature made a "leap of faith" three years ago when it agreed to provide more than $250 million in state aid to city schools.

"There should have been an audit prepared at the time of transfer," he said.

Nancy S. Grasmick, state schools superintendent, said in testimony yesterday that the state agrees that the city school system is owed $15.6 million from the city.

Grasmick raised concerns about possible "systemic problems" in the management of the food services division, which overspent its budget by $3.3 million in the last two years, and said Russo has taken steps to improve finances.

She said trimming the deficit will require "hard choices" but that officials have been "targeting the right areas," meaning items that do not affect classroom instruction.

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