Photo credit: Ted Heinonen
Only a month late, the school board reviewed the fiscal ‘18 audit report, during its January Business Committee meeting. The auditing firm’s presenter was a nice, young Millennial Man, who — I think most readers will agree — seemed a bit out of his depth.
The most eye-popping revelation from the audit was that — 11 years after the first Red Bonds were sold and 8 years after Keith Dixon skipped town — ISD 709 is still saddled with nearly $300 million ($294,530,425) of debt.
Our school district obviously has a checkered record in regard to financial decisions, and I’m always looking for signs of improvement in the boardroom.
One hopeful sign is that a few of our representatives do now seem more focused on good money management. One Board member who has tried to get her head in the game is Sally Trnka. I wish she’d press harder, but member Trnka does ask good questions. As Chair of the Business Committee, she’d clearly gone over the auditor’s report quite thoroughly before this meeting. Her first question zeroed in on that huge mountain of debt: “Could you bring us down from the 30,000 foot level (of understanding,) to, like, a 5000 foot level on the $294 million of total debt, outstanding?”
“Oooooof!” Our young auditor huffed, before starting his bumbling climb up the mountainside. “I — well — auuuuuhhh, so, I, I don’t have a great answer for that, just because Duluth is by far the largest school district that we work with. Ummmmm, but, you know, I — well, I — I don’t want to say something that I, that I, don’t have a good answer for — ?” He paused on the question mark.
“Sure.” The Business Committee Chair responded graciously. “I appreciate that.”
“Ummmmm, BUT (spoken with a sudden, loud emphasis) — it’s kind of all over the board, but if I was just to kind of pick from my brain as far as where schools are at from a population and enrollment perspective, some have a priority of — you know — maintaining minimum debt levels; some have a levy--you know--they want a new school (or 13 of them, with huge swimming pools) and they try and pass a referendum for it (or them.) Ummmmm, BUT, as far as Duluth goes — aaaaaaahh — well, I guess I just really don’t have a fantastic answer…”
Kind of all over the board, BUT, you know, I thought his explanation was fantastic. Basically it boiled down to: “Oooooof! Well, aaaaaaahh, some people live within their means and conscientiously save for a rainy day; some people want a new sports car--a McLaren or Maserati--they can’t afford, and recklessly run up a huge pile of debt to get it.”
Ummmmmm: which one do you think Duluth is?
More Q & A
“The (budget) information that was supplied by the Finance Dept last year,” Business Committee Chair Trnka began, building the basis for another question, “we had some doubts about its accuracy, as a Board. Did you, did you not find — ?”
“So,” our young auditor said, releasing another long, almost-whistling gasp of breath, “you know, if that was a problem, as far as the audit goes, we would have probably had a material weakness for audit adjustments.”
“Ummmmm, but, you know, from our standpoint, based on the procedure that we performed, and it doesn’t mean that — you know — an audit is not looking at every single transaction, every dollar, BUT, based on our procedures, and we have to follow very, very strict standards — we, we didn’t find anything that came as a red flag, because — ”
“Ok, that’s good to know.”
“Yeah — .”
Committee Chair Trnka also asked for an explanation of a bullet point included in the financial statements. As he considered his answer, our worthy auditor read the bullet point out loud: “District’s total net position decreased $34 million, versus 2017”…OK!” He exclaimed, then paused, murmuring, “Ummmmmmm, ummmmmmm,” with another gasping sigh. “Sorry, I’ve got to look at, at a quick, aauuuuhh--it’s gonna probably relate to--so, a lot of that has to do with--you know, and, and Peggy (Blalock, the district’s Finance Manager)--you can jump in, if I’m off-base, here, but we find that any time net position really decreases, ummmmmm, there’s a lot of stuff in this statement about this position that is — I don’t, I, I, I--there’s a way of putting it off the balance sheet. It’s not really recorded in the district’s financial software…”
He eventually managed to explain that a lot of this big expense is related to pension and other post-employment benefits. “So, these liabilities or assets are determined by an actuary. We basically just take the information they provide us, and plug it into a district.”
What the actuary determined is that, in a future five-year period — 2024 through 2028 — depending on the performance of the retiree pension and benefit plan, there could be an additional liability of $118 million the state and the district would have to cover.
Another tangential point, rising out of this discussion, was that there is an “aid component” tied to the Long-Term Facilities Maintenance (LTFM) bonds. I actually interrupted the meeting and asked the Finance Manager to repeat the statement she made about this. Her microphone wasn’t on and I wanted to make certain it was recorded. A few days after the meeting, I pursued clarification from the CFO.
A crucial, but largely invisible issue rising from the district’s fiscal problems is that, just like a financially-struggling individual often loses money through late fees and other losses occurred from juggling insufficient funds, the same is true for a broke organization. If a district is in debt, state aid for facilities maintenance is required, under statute, to go into payment of that debt. ISD 709 is currently diverting $777,063.64 of aid into debt service that would otherwise go into the general fund.
Another under-reported loss the district has suffered over the past decade or so is a vanished investment opportunity from its depleted reserve fund. Even a pedestrian savings account of $30 million adds up to some real money.
Weighing in on possible long-term liabilities during the meeting, the CFO said ISD 709 was looking for more “effective and efficient ways to spend our dollars and start building our reserve for those future costs.”
To give readers a sense of that rebuilding task, ISD 709 ended 2018 with total unrestricted general fund expenditures of $104,288,428, and a minuscule unrestricted reserve of $399,166, which the auditor listed as 0%.
Exiting the boardroom after one of these financial meetings, I generally feel like I’ve been through a presentation on the Tower of Terror carnival ride, during which the ride’s designer repeatedly assured me all human-made systems were flawlessly safe and there was absolutely nothing whatsoever to be concerned about: “You know, ummmmmm, we follow very, very strict standards.”
Contemplating the Terror Tower’s intimidating vertical climb, the only mono-syllable I can muster is: Oooooof!!
Another win for A.J.
During a special school board meeting on January 14th , the Board went into closed session in its conference room behind the dais for nearly an hour, before emerging for a public announcement. District 709 and Art Johnston had reached a settlement agreement in an ongoing lawsuit, and the school board was poised to approve it.
The district’s attorney, Trevor Helmers, did most of the speaking. Good with words, as lawyers are, Mr. Helmers spun the message in the district’s favor, publicly telling the Board that, in settling, “You are not admitting any wrongdoing. You are expressly saying that you deny any wrongdoing.” He added that the only reason the district was settling was to “compromise with a disputed claim. And you are also getting the benefit of making sure that these same parties aren't involved in any future data fights or data requests.”
Of course, the district was also getting the benefit of not losing in court for a much larger sum. Our flat-footed government found itself once again tussling with a man of uncommon resourcefulness, and Mr. Johnston had a pretty good ace up his sleeve. The Data Practices Office of the Dept of Administration had issued an advisory opinion in his favor last July. For those who don’t know, the Data Practices Office (formerly known as IPAD) is a panel of legal and policy experts who weigh in on disputes concerning government data requests. An advisory opinion is not an enforceable ruling in anyone’s favor, but it is given considerable deference by the courts if the matter is litigated.
To the few citizens in the boardroom, Mr. Helmers announced that a settlement agreement had been reached “in the case of Art Johnston vs. ISD 709. This is a case that has gone on for several months now, surrounding data requests.”
Attorney Helmers waxed about the “very difficult and onerous” burden these types of requests are for school districts. “In this case, in particular,” he continued, ostensibly addressing the school board, but in reality addressing the video camera and a larger audience, “there were roughly 300,000 discreet pages of documents that were requested.” Elaborating on the sheer weight of this burden, and not so subtly painting his client as a put-upon victim, attorney H. went on about the “extremely long time” required to gather and “wade through” this mountain of documents, the “huge expense,” and great difficulty for district administrative staff “to pull and review the documents.”
“This litigation,” he told the school board, “was about some of those data responses.” Had we been in a court of law, I would have been tempted to raise an objection and point out that actually, more accurately, this case was about data un-responses.
A violinist should have accompanied the silver-tongue lawyer from the upper balcony of the old auditorium, as he went on about “all the myriad laws that come into play when it comes to data and the privacy rights of data,” which required many billable hours for legal review, and even more “difficulty and spending and district time.”
Satisfied he’d filled the room to near-brimming with a heaping dollop of pr and passionate client advocacy, the able barrister finally announced: “Your insurance company has asked me to bring you this settlement agreement, in which they are putting forward the funds…”
The violinist should have started playing again, as he now launched into a “cost/benefit analysis” and the “time and expense (of) going into the defense of this litigation” and how the district’s poor insurance carrier had concluded it was wiser to “just get rid of it early (before our insured client is found guilty,) for a relatively small amount (compared to what we’d get whacked for, when that client lost.)”
Mr. Johnston will receive $55,000. Before anyone considers this a windfall, remember he’s paying legal fees out of his own pocket and that he was still $75,000 in the hole from his last legal skirmish with ISD 709. The district put its tail between its legs and retreated from that battle also, once again realizing it had a legal loser on its hands. There was no payout from that victory, however--just another cowering of his adversaries by Duluth’s famous Lone Ranger.
Some, of course, will accuse him of being “anti-district.” From my long association with Art Johnston, I’m absolutely certain the only thing he’s been fighting against is bad government. ISD 709 has been awful in following the law and spirit of Minnesota’s Data Practices Act. I could fill up this entire publication on the subject.
Much of the 300,000 pages of documents the district was claiming from this “difficult and onerous” burden consisted of superfluous things such as meeting minutes. If the district had communicated, instead of stone-walling, a lot of items could have been easily omitted from the request.
An informed citizenry is the strongest rampart of democracy and the gallant Lone Ranger was fighting to make his government do a better job of providing information the public has a right to. The settlement agreement contains an explicit acknowledgement from the school district in regard to “its obligations,” and a promise “to follow all requirements outlined in the Minnesota Government Data Practices Act related to future data requests that it receives.”
We’ll see--but I, for one, applaud the effort. Whatever effect his actions actually have on our government’s behavior, we’re fortunate to have people like Mr. Johnston who care enough to lay their own money and time on the line.
I apologize for missing the “s” on the word “meetings” in my last article. I also somehow put a quotation mark where one didn’t belong. I made a grammatical error in my previous article. I don’t know how many people noticed a singular verb linked to a plural subject, but I regard good writing as being analogous to good carpentry. I want every corner perfectly mitered. I didn’t like the sound of the plural verb as a made a last-minute change to a sentence, and used the singular. I should have eliminated the verb entirely and used a colon.
I know grammar usage is in free fall and old rules are becoming increasingly arcane and unimportant. To extend the construction analogy, the forms created out of language today often resemble matchstick houses with rusted tin roofs in shantytown. If I had teach English Composition in this world of texting and tweets, I’d probably weep into my pillow every night.
The bottom line — pun intended--in any piece of writing, however, is content. You don’t have to be Shakespeare to make a point. Recently, out in the public realm, I was approached by someone who I suspect didn’t notice any of my typos, misusages and misspellings. She was clearly not a fan of my content.
I actually prefer such face-to-face encounters to the spineless fluff out on social media. In an appropriately dyspeptic tone, this person told me that my piece about the school board’s organizational meeting was “even more biased than usual.” I responded that I’ve never claimed to be unbiased and that an open bias can sometimes be more valuable than a fake claim of objectivity. I added that just because a viewpoint is biased doesn’t necessarily, by definition, mean it’s inaccurate.
I stand steadfastly by every word I wrote in that article. Insider politics treated Alanna Oswald unfairly in the boardroom of ISD 709. If member O’s DFL-endorsed opponent had won in 2015, she would have already held a number of leadership positions, likely including Chair of the Board.
One of my primary motivations for writing this column is to counterbalance the overweening bias of Duluth’s ruling elite. In that pursuit, I’ve defended Art Johnston unreservedly, and commended Harry Welty for the brave stand he took during the Johnston witch hunt. My only regret is that I didn’t have a venue from which I could support the brilliant, reputable Gary Glass, when he was being picked on and ostracized by the same power clique.