Commissioners slam Board of Education for deficit, lack of financial oversight

The Wayne County Board of Commissioners agreed to allow Wayne County Public Schools some flexibility in how it will use locally provided facilities funds in the coming year, but not without asking some tough financial questions — including why nobody seemed to be watching over taxpayer dollars in the county schools for the last several years.

The commissioners’ comments came as County Manager Craig Honeycutt asked them to take up a proposal by WCPS to allow the district to use part of its annual allotment from the county, specifically Fund 4 monies, which are designated for small capital projects, to fund two facilities maintenance contracts and to buy out another.

But the move would leave very little money for facility repairs in the district — and even less for building emergencies that should arise.

And that, as well as continuing questions about the financial solvency of the district and the Board of Education’s spending decisions, concerned the commissioners.

It started at the Board of Education’s regular meeting Monday, when assistant superintendent Dr. Tim Harrell presented the district’s facilities spending plan. He outlined not only WCPS’ expectations for repairs and maintenance at district buildings in the coming year, but also three outstanding, long-term facility contract obligations expected to total a little less than $1.4 million in fiscal year 2020-21.

Among them is Cenergistic, a utility cost-savings performance contract, which has a buyout clause that Harrell estimated would cost the district $483,837.

Harrell said the district is looking to “exit the contract,” which costs WCPS an estimated $500,000 a year.

Also included on the list are Brady Contract Mechanical Systems and Brady Contract Solar Systems — both of which will cost the district more than $90,000 in the coming year. Those contracts are for maintenance of solar power systems that were put in Grantham and Spring Creek middle schools.

The idea, Harrell said, was to save money on utilities by having the schools utilize solar power to produce their own energy. But the savings have fallen short of what the district expected.

“We are not generating power when we need it,” he said, adding that he is looking for ways to reduce or eliminate the Brady expenses.

The district also signed an agreement with Trane Comfort Solutions in 2008 for work on heating and cooling systems in the schools.

Harrell did not detail the stipulations of the contract or what the company was supposed to provide, but did say that the performance contract was funded by a loan.

He said that the annual loan payment for Phase II of the agreement, which was due in September, was $737,478.

The contract, which was financed originally through one bank at a higher interest rate and recently refinanced through BB&T, is now a debt of a little less than $7 million and is financed at 3.59 percent.

Harrell said that the proposal the county schools would make to the commission was to use a portion of its $2 million allotment — as well as an approved $500,000 one-time increase from the county — to cover those payments and to fund several must-do projects and cover the costs of some work that has already been done.

That $2.5 million would be added to $248,958 in carryover funding from 2019-20, for a total of $2,748,958.

After the contract amounts are deducted, that would leave $1,435,895 for school facilities work.

Harrell said the district has identified $1.6 million in projects that need to be completed at local schools, from replacing leaking windows at Eastern Wayne Elementary and wall repairs at Northeast and North Drive elementary schools to installing new baseball lights at Rosewood High School.

That number does not include an estimated $2.7 million in roofing repair recommendations at Carver Heights, Rosewood High, Dillard Middle, Brogden Middle and Charles B. Aycock High schools.

Harrell said the district has designated three projects as “must do,” including replacing the boiler at Greenwood Middle School, addressing leaks in Wayne Academy’s roof that are threatening to damage the recently painted gym floor as well as replacing the chiller at Wayne Academy, which is more than 30 years old and has corrosion on its coils.

Those projects, including the ones already finished or in process, will bring the district’s facilities spending to $899,915.

That cost, subtracted from the balance in the Fund 4 account, will leave $535,980, which would be used for “emergencies only,” Harrell said.

That proposal is what the commissioners reviewed Tuesday and discussed in detail during the agenda briefing, which precedes the board’s regular meeting.

And the details of the contracts — as well as the potential for a catastrophic building failure and no way to pay for it other than by seeking additional county funds — are what concerned them.

Performance contracts that the school board obligated itself to are the crux of the issue, the county manager said.

Honeycutt explained that performance contracts are evaluated based on savings realized from the company’s work — but that in the school board’s case, the savings were not used for those payments.

“They never accounted for debt service. They just used the savings in the general fund,” he said.

Commissioner Ray Mayo pointed out that the district also did some moving of money to cover costs — including a $3 million loan from the School Food Services Fund that has yet to be paid back.

“I think there has been a lot of moving of money between funds,” Honeycutt said.

“Why didn’t the powers that be catch this?” Wayne Aycock asked.

“Sooner or later, you run out of money,” Commissioner Bill Pate added.

The idea of the one year of flexibility with the sales tax funds is to help the district get its financial picture in order, Honeycutt said.

But it is a risk, he said, as WCPS will not be doing deferred maintenance this year.

“It is rolling a dice a little bit on some of the maintenance, Honeycutt said. “If it fails, then they will go in and fix it, but deferred maintenance, right now, they want to put toward the contracts.”

“(If something fails) then they will come back to this board,” Pate said.

Aycock added that the BOE is “swimming and they don’t have a life raft.”

Commissioner Adrian Worrell asked about the risk of deferring maintenance on, for instance, a roof — and the concern that it might collapse.

Honeycutt said WCPS will have a small fund balance, which it will use accordingly on priority projects, while waiting on completing the full list.

He also reminded the commissioners that the county is holding $1.2 million in funds to finish the gym project at Southern Wayne.

“It was $1.5 until we used about $300,000 to buy the land for Fremont Elementary,” Honeycutt said.

The district and the commissioners have applied for a grant from the Needs Based Public School Capital Fund (North Carolina Lottery Commission), which will allow them to get a significant portion of the money to construct a new Fremont school, which both boards say is needed because of the growth in the northern end of the county and increasing space problems at Northwest and Northeast elementary schools.

Aycock asked why the school board members did not know about the financial miscues and bad decisions that led to the financial crisis, which currently has the district facing a roughly $2.5 million deficit.

The county has independent auditors who are hired to look over its books each year to make sure concerns like this are identified, he added.

“Why did this go on so long and nobody caught it. Shouldn’t the auditor have caught stuff like this?” Aycock said.

Mayo said it was his understanding that the auditors did note the concerns, but added that “no one was paying any attention to it.”

“If this goes south, what kind of bind is this going to put this board in?” Aycock said.

“It is going to put us in a big bind,” Commissioner Joe Daugherty said.

Honeycutt said that district officials are hoping that taking a chance on deferred maintenance this year, and rolling the dice that there will not be any big maintenance concerns, “will help with their cash flow problems.”

Board attorney Borden Parker pointed out that some of the deferred maintenance was for roofs — as Worrell pointed out.

“It gives them a reason to put the blame back on the Wayne County Commissioners,” Mayo said.

Aycock pointed out that county residents are already blaming the commissioners for the poor management of the county schools.

“Just look at Facebook. We are getting the blame for it. The county commissioners are getting the blame for all of this,” he said.

Mayo pointed out that most people do not understand the relationship between the school district and the county, which is mandated by state law.

“People have the wrong idea,” he said. “They think we have control of the Wayne County School Board. Ninety-eight percent of the people in Wayne County think that we control the Wayne County School Board. You cannot get it across to them.”

Honeycutt said the district is hoping that it will not face a large project. But if WCPS does have a major concern, there will be only one place to turn.

“If you do have a roof collapse or a boiler collapse, they would have no more money other than coming to us,” the county manager said.

Daughtery asked about the termination fee for Cenergistic.

“Who would sign an agreement that if I cancel the contract, I am going to pay you a half a million dollars?” he said. “Who is looking after the finances in the school district?”

He also agreed with a statement made by Aycock earlier in the meeting, pointing out that the district financed one of the contracts at 3.59 percent — which he argued was substantially higher than most financing options.

“Who is in fact over there looking over the budget and the spending at our schools?” Daugherty said. “I better hush before they run me out of town.”

Daugherty also questioned the solar contract with Brady.“We were told absolutely that if we went with the solar schools that they would be self-sufficient, that they would produce more energy than they will use,” he said.

He noted that the schools did indeed produce a savings in electricity costs, asking if the savings was used for more solar projects.

Aycock pointed out that the district did not have anyone on staff who could maintain or work on the solar panels, so the district had to sign two maintenance contracts — for about $90,000.

“They should have gone back to electricity,” Worrell said. “They would have saved money.”

Daugherty added out that commissioners were told that the solar plan for the schools would eliminate electricity costs. The numbers, he said, do not support that claim.

“Over the last five years, four years, that they have paid out $127,650 at Grantham Middle for power, for electricity. So I am assuming that was over and beyond what they received back for the solar,” Daugherty said.

Aycock also pointed out that the solar panels put extra stress on the roof.

Daugherty commented that “surely they would have engineered it” for the extra weight.

Several commissioners mouthed the word, “No.”

“That’s the problem. We have been assuming,” Mayo said.

As the commissioners began to consider the question further, Daugherty asked about the county’s future financial liability.

“Am I to understand that if there is a major structural issue over the next year, the board of education would be coming to the board of commissioners to fund that?” Daugherty said.

Honeycutt said the school district would have some funds available — about $2 million — the approximately $885,000 they would have after making the contract payments (about $350,000 of which is already allocated for must-do and already completed projects) and the aforementioned $1.2 million in reserves.

“Those dollars were supposed to be for new facilities. They were not supposed to be spent for other facility needs,” Daugherty said.

Honeycutt pointed out that the district had money other than the $1.2 million.

“One roof replacement will take care of that,” Mayo said.

“You can see why that quarter-cent sales tax for school facilities is kind of needed,” Daugherty added.

But Aycock said it is because of the district’s mishandling of money and bad decision-making that the public did not support the sales tax ballot issue.

“These very reasons right here are the reasons the sales tax did not pass. The general public sitting down there paying taxes, look, they are not stupid. They are not going to pass a tax that they know the money is not going to be spent wisely,” he said.

Mayo said he has talked to many members of the public who say they lack confidence in the school board.

“This is the lowest public opinion of our board of education that I have seen in my term as a commissioner. The public out there is completely ‘flusterated.’ It is everywhere, ‘Get rid of all of them. We need a whole new game here.’ How is a quarter-cent sales tax ever going to pass with that kind of reputation?”

Despite their frustration, board members agreed that they “would do what they had to do.”

Worrell asked why the district is looking to build new schools when there is so much work to be done in the older schools, especially in light of continuing budget shortfalls.

“Why are we continuing to add on if we cannot care of what we have now?” he said.

Daugherty explained that the cost of maintaining older buildings is “astronomical.”

It is cheaper, he said, to start over.

“We are sitting here right now with 100-year-old schools, one in Rosewood and one in Fremont,” he said.

Honeycutt said that the state-mandated class size order for primary grades also caused a concern, especially in the already crowded northern part of the county.

“It kind of made sense to go ahead and build some additional classrooms at Fremont while building a new school,” he said.

Aycock pointed out that the school district made the class size change well before it was mandated.

“How many millions did that cost?” he said.

Mayo added that there are health concerns as well in dealing with old schools, including mold and large roaches. Rosewood has a serious problem as well, he said.

“We have already been told that part of that school is sinking into the ground,” Mayo said.

Mayo said that when he and most of the members of commission came into office, the school district was already “10 years behind” in replacing or improving its facilities.

Now, it is time to catch up.

Mayo added that while it is important to have programs and books and other needs, safe schools are vital, too.

“You also have to have a place where you can meet and teachers and students can feel safe,” he said, adding that older schools are not set up for the internet needs education necessitates today.

“We have got to try to do all these things together, and that is what makes it hard,” Mayo said.

Aycock added that the school district has not asked for any money to do anything with for years.

“It is kind of like your children. If they don’t ask for nothing, you are probably not going to give them the stuff they want,” he said.

After joking about who would make the motion, the board agreed that the decision had to be made.

“I don’t like this one bit. But I just don’t know that we have any other choice,” Commissioner Bill Pate said.

Mayo and other members agreed, adding that the questions that they asked about the district’s finances should be answered — and that the district should be open with its financial dealings, sharing budget information with the county.

“Why haven’t they done things to conserve the tax dollar that we do automatically?” Mayo said.

Honeycutt said that the school district has already agreed to share financial statements with the county.

“This school board issue has to be addressed sooner or later. Where is the money going and who is responsible?” commissioner Freeman Hardison Jr. said.

The vote on the measure during the meeting was unanimous.