Penn Hills School District, facing $10.9M budget shortfall, accepts state oversight

The state-tapped chief recovery officer set to begin work at Penn Hills School District next month will confront an anticipated 2018-19 budget shortfall of $10.9 million, looming spikes in debt payments and a proposed property tax rate hike that would make residents in Penn Hills among the highest-taxed in Allegheny County.

Superintendent Nancy Hines said Tuesday the district does not plan to appeal the Department of Education’s oversight move last week to place Penn Hills in financial recovery status.

That means the state will install a full-time recovery officer at the district by the first week of February. State education officials have begun the search for candidates but have not yet disclosed any potential hires.

“Of course we’re concerned, but nobody is panicking,” Hines said shortly after Tuesday’s finance and human resources committee meetings at Linton Middle School, the first public gathering of board members and administrators since the financial-recovery announcement. “It’s business as usual, keep forging ahead, and then we’ll have an extra set of eyes to help in the business office.”

Penn Hills Board Member Erin Vecchio said the district continues to be plagued by bad financial decisions made years ago, dating to the bond-funded construction of two new schools riddled with cost over-runs.

“It’s not that we are over-spending right now, we’re playing catch-up,” Vecchio said. “We’re playing catch-up with what we’ve been left with.”

No more ‘low-hanging fruit’

The shrinking district of about 3,800 students in the sprawling northeast suburb of Pittsburgh has been flagged as financially flailing for several years, including via a scathing audit by Auditor General Eugene DePasquale in May 2016 and an ensuing grand jury investigation into the district by the Allegheny County District Attorney’s Office. Aside from financial challenges, multiple audits found evidence of poor internal controls, bad business decisions and alleged mismanagement.

Its debt burden of more than $172 million and climbing is approaching nearly double the amount of the district’s annual revenues of about $89 million.

A Tribune-Review investigation found, aside from declining enrollment and charter school competition, factors such as unrealistic expectations, pricey wish lists, poor planning, rampant turnover among key leaders and the ignoring of expert advice in favor of personal or political agendas contributed to the financial problems plaguing the district.

Eileen Navish — the district’s fourth business manger in four years — lamented there are few places left to cut and “no low-hanging fruit” after years of teacher furloughs, pay freezes, slashing of administrative positions and scaling back of programs.

Navish pointed to possible remedies of seeking additional types of employees to take pay freezes, streamlining more positions and reviewing “non-required programming” — but she warned that doing so could result in “possible upset of current stability in discipline and academics.”

“Everyone is doing more work with fewer staff,” Navish said. “We certainly don’t want to cut programs to the point where parents send their kids to charter schools.”

Proposed tax hike still leaves $8M hole

During Tuesday’s meeting, Navish presented a preliminary 2019-20 budget that calls for a property tax increase of 1.972 mills, from a millage rate of 28.55 up to 30.5818 — a change that would require permission by the state to surpass the typical maximum increase allowed under Act 1. The final budget will go up for approval on May 20.

The 30.5818-rate would amount to the owner of a home assessed at $100,000 paying about $192 more in taxes next year.

In comparison, the 2018-19 millage rate was 21.0757 in Plum, 24.32 in Mt. Lebanon, 25.35 in Woodland Hills and 26.972 in East Allegheny 29.5 in Wilkinsburg.

The proposed tax increase would reduce the district’s 2019-20 deficit from $10.9 million to $8.2 million, in an annual budget that includes $98 million in expenditures and $89.9 million in revenues.

“Now, that’s assuming there is no extra support or no support at all from the state,” Hines said. “If they (state officials) give $2 million again, it will drop more. Perhaps they double that, they triple that, we just don’t know at this particular point.”

Penn Hills received $4 million in state grants in the past two years, following an $18 million short-term loan in 2015 and at least $5 million in advances in 2016-17. Hines and fellow district officials said they are hopeful the state’s oversight decision could free up access to more state funding, either through additional multi-million dollar grants or loans.

“There is no known solution at this point,” Hines said. “Nobody has offered anything yet.”

Hoping for a turnaround

A handful of people attended Tuesday’s meeting. One of two non-district employees in the audience, Corey Young, 29, moved to Penn Hills in 2016, shortly after DePasquale published his scathing audit. Young said he has been keeping an eye on board finances and meetings since, and he’s worried the district’s troubles will deter young families from settling in Penn Hills.

“It’s unfortunate because they furloughed 24 positions and they still had to raise taxes, and that still doesn’t even really put a dent in the situation,” Young said. “I love where I live and I love my house, but it doesn’t help when you have the municipality just raising rates on their own to pay for garbage and refuse and, then, we’ll find out here shortly, through the finalized budget, how much taxes will increase just though the school district. So, it’s almost a race to the bottom at some point.”

Hines said she agreed that “going to the taxpayers” alone will not resolve the situation. She also emphasized that financial recovery status does not mean the school board yields its autonomy.

The state-chosen recovery officer “doesn’t necessarily have authority over us,” Hines said.

The recovery officer will be located in Penn Hills and charged with working with the school board, administrators, consultants and a committee that includes residents and officials from neighboring schools to develop and implement a financial plan that incorporates goals for academic success. The officer will submit monthly reports and solicit feedback from a special committee formed by the board.

“Moving forward, if we can’t resolve this situation through financial recovery, then it is receivership. That would be the lowest level,” Hines said. “At that point, the chief recovery officer, from what we understand, then takes on authority.”

In 2013, the state sued Duquesne City School District and won, placing it under a three-year receivership after the school board rejected their chief recovery’s plan.

Other districts that have undergone financial recovery include Harrisburg, York City and Chester Upland.

RELATED: Officials see better financial days for the beleaguered Penn Hills School District

Natasha Lindstrom is a Tribune-Review staff writer. You can contact Natasha at 412-380-8514, nlindstrom@tribweb.com or via Twitter @NewsNatasha.