02-07-2011 letter to Liberty LSD from Dave Yost - Auditor of State
WITH A FAILED CONVERSION SCHOOL AND FINANCIAL RECORDS THAT ARE UNAUDITABLE,
LIBERTY TOWNSHIP school district MUST CUT $1 million from next year’s budget
It's no secret that the Liberty Local School District has been in
financial turmoil for the better part of a decade.
Voters have rejected five levies from 2001 to 2010.
Not even the board of education members knew just how bad the district’s finances were when the state began to probe its books in 2011.
Last February, the state announced the financial records were such a mess that an audit on the 2010 budget was impossible.
Last April, the district’s treasurer stopped coming to board meetings and stopped responding to board inquiries. She resigned days before the district was placed under fiscal emergency May 26, 2011.
Adding to the tumult, board members learned that its two 2009 conversion school projects — LEARN and LEAD — did not stop the financial bleeding as had been promised.
LEARN and LEAD are conversion- school programs that were pursued by a board desperate for both a fiscal quick fix and academic success. What exactly was supposed to have happened is still debated today.
The conversion program was touted to double the per-pupil state funding for the 260 Liberty students projected to attend the conversion schools — bringing in an anticipated $1 million.
Instead, the plan yielded no additional revenue at a time when the district might have focused on alternative plans to balance its budget.
As pressures mounted in 2011, the school board was slow to answer questions posed by Liberty taxpayers.
Emails obtained by The Vindicator shed new light on a board seeking damage control.
“There is no benefit in explaining that at this time to the public in response to the ‘what is going on’ question,” wrote former board member Jeff Grinstein on May 12 to other members in advance of a community event.
When others on the board sought an investigation into the conversion schools, a majority of the board saw it as a distraction to the district’s progress.
“It is promoting a NEGATIVE image of Liberty schools and creates anxiety!” wrote board member Christine Flanagan. “Who would want to send their child there with all of this craziness!!!!”
In 2008, Liberty of- ficials attended a presentation by Atty. Adam C. Miller, then based out of the Columbus office of Ulmer & Berne. Miller spoke on the benefits of opening a conversion school in the district. Records from the district indicate Treasurer Tracey Obermiyer and Superintendent Mark Lucas met with Miller on Sept. 8, 2008.
After the presentation, the district retained Miller to set up Liberty’s conversion- school program.
Miller, who now works for the Benesch law firm in Columbus, would not comment for this article, citing attorney-client privilege.
“They’re good people” is how he described the board of education to a Vindicator correspondent in Columbus. “It’s a tough situation.”
The plan was to have the public school district’s board sponsor the conversion schools. Those schools would lease rooms within Liberty’s school buildings but function as separate entities from the school district while competing for students. The conversion schools would then pay for the leased space, staff salaries and benefits and educational equipment.
The district had been hemorrhaging money since 2005 when E.J. Blott Elementary fell into academic watch. This triggered the state’s costly voucher program — Ohio Educational Choice Scholarship. It allows students at low-performing public schools to attend private schools with tuition paid by the district. Officials said EdChoice has cost Liberty $700,000 a year.
That cost is in addition to the annual loss of funds due to open enrollment, which has been in place in Ohio since 1993. In 2009, that cost to Liberty was $2 million.
Board members told The Vindicator what they have repeatedly said in public: By creating conversion schools, Miller and Obermiyer led the board to believe the district could begin to chip away at the deficit. The belief was it would double its per-pupil state foundation money via students attending the conversion school.
Former board President Diana DeVito explained it this way: If 100 of Liberty’s 1,500 students attended the conversion school, the district would continue to receive state funding for the 100 students. Plus the conversion school also would receive the same funding for the same students, in effect doubling the revenue.
In addition, board members said $225,000 in federal grants given annually to Liberty’s conversion schools could allow for devices such as iPads to be shared between conversion and non-conversion students, thus enhancing education for all.
When the administration and board members were told the district would benefit financially and academically, the plan received broad support.
On Jan. 13, 2009, the board authorized LEARN — Liberty Early Academic Resource Nest — to operate within E.J. Blott. By its second year in the fall of 2010, it had eight teachers on staff and received $908,330 in state funding and a $225,000 federal grant.
THE HAVEs AND HAVE-NOTS
The community- school-within-a-public-school idea enticed families right away.
When current board President Joe Nohra and his wife, Ann-Marie, moved to Liberty, they sought a school for their two sons. Admittedly, they looked elsewhere first. After attending a meeting about LEARN in the summer of 2009, both were impressed by the curriculum and enrolled their oldest son in the program.
After becoming a board member in 2010, however, Nohra began to realize there was a flip side to the conversion schools.
“It became the haves and the have-nots,” Nohra said. “You could feel the tension just walking into [Blott].”
He said students of Blott and the students of LEARN walked side-by-side into the school building. But when classes started, LEARN students had iPads and iPod Touches while the Blott students in the room next door did not. LEARN students took a field trip to the Canfield Fair; Blott students watched their peers load onto buses.
“We didn’t go out of our way to explain the differences to our students,” said Charleen Lazzeri, fourth-grade teacher and president of Liberty Association of School Employees. “But that was hard to ignore.”
In May 2009, the board approved another conversion school for the middle school called Liberty Exemplary Academic Design — LEAD. When it opened in fall 2010, it essentially served as a third separate school on the Liberty campus.
LEAD received $275,000 in federal grants and $619,000 from the state.
Throughout that time, board members contend they knew of the growing tension in their district.
As for the money, they were continually reassured by Obermiyer that the district was receiving the additional $1 million that made the conversion school plan fruitful.
In reality, payments to fund students attending school outside of Liberty increased from $2 million in 2009 to $2.2 million in 2010 and $2.9 million in 2011, according to the Liberty schools deficit report released in October.
“Every meeting, two or three board members would question [Obermiyer] on the financial gains,” Nohra said. “[She] kept telling us we’re on a guarantee. And we thought, ‘Well it’s two for one, we’ve got to keep this.’”
“We were told there were no worries and to just keep doing what we were doing,” Gloria Lang, former board member, said of Obermiyer and Miller. Lang resigned without explanation last September.
Stan Watson, Liberty superintendent since August 2010, said Obermiyer also reassured him.
“When I came here, and I was given the explanation of the financial background, I was very skeptical of that,” Watson said.
In early 2011, Liberty received letters from the state auditors and Ohio Department of Education outlining the district’s financial mess. Watson asked Doris Pearce, an ODE fiscal consultant assigned to the district since 2010, if the extra funding was indeed coming in.
Watson recalled the puzzled look on Pearce’s face when he explained to her the double-funding system he thought was occurring.
“She kind of validated what my suspicions were, that there was this double-payment business that didn’t take place,” Watson said.
In reality, by the end of 2011, the district was losing more than $1 million a year in state funding because of the 260 students who attended LEAD and LEARN, according to the official deficit report. But it also saved about $976,000 in employee costs for the 12 teachers who taught in LEARN and LEAD, Watson said.
“It was not detrimental financially, but it wasn’t the financial benefit it was purported to be,” Watson said.
DeVito said both Miller and Obermiyer reassured the board of the double funding so many times that there was no way the board could have misunderstood the plan.
Obermiyer — the treasurer at the conception of Liberty’s conversion schools — denied the claims made by board members and Watson of a double-reimbursement system.
“The board knew at best it was a break-even situation with [the conversion schools],” Obermiyer told The Vindicator last fall. In June 2011, two years into LEARN and 51 days after Obermiyer resigned, Liberty suspended the conversion schools’ operations.
It’s fair to say LEARN and LEAD and the financial mess left in their wake were not the sole reason Liberty fell into fiscal emergency last year.
But it is also fair to conclude the financial mirage created by the conversion school program distracted board members from taking other actions to deal with the district’s financial plight.
This is evident in letters and emails provided to The Vindicator and interviews with school officials, which paint a picture of the foggy communication between the entities and the community divide created by the conversion schools.
The first signal of trouble came from a letter from the state auditor to the district. In a February 2011 letter, Chief Auditor Martin Kubic called the district’s financial records “unauditable.”
This was followed by a more-detailed letter in March from the ODE to then-board President DeVito that claimed Obermiyer was not forwarding monthly reports.
For a year, the ODE said, financial reports that Obermiyer presented to the board were not reconciled with the district’s bank. An initial audit revealed the district’s deficit was at $2.5 million, making the district in danger of falling into fiscal emergency.
The board demanded answers from Obermiyer.
By then, board members said, she had stopped coming to board meetings, did not answer phone calls and did not keep regular working hours. Obermiyer told The Vindicator she was dealing with “serious health problems” during this time.
DeVito confirmed that Obermiyer did discuss health issues with her just before her resignation.
The board confronted her in a letter April 17, 2011, on the “profound lack of communication from your office.” The board requested a written response to that letter by May 2.
On April 29, Obermiyer resigned.
A week later, she was hired as a business consultant by LEARN and LEAD, a position she still holds today.
“I resigned for a better professional opportunity at that time,” she said. “When I left [Liberty], the books were in order.”
After her resignation, Treasurer James Wilson took over Obermiyer’s role.
“The books were in complete disarray,” Wilson said.
The state audit of the district’s financial records began in May 2011 and continues today as three auditors work to ascertain how money was spent in fiscal year 2011.
It wasn’t until last October that state auditors confirmed the Liberty school district was $1.9 million in the hole.
Dating back to May, emails among administrators and board members provide a sample of the audit’s early findings.
A May 20 email from Wilson said that he and auditors found Obermiyer used $2.3 million borrowed from the state to bolster the district’s financial outlook without telling the board or the financial consultants. The money came from the use of House Bill 264, a state loan for school districts to make energy-efficient improvements to their buildings. The authorization requires no vote from the board of education and is paid back by the savings in energy.
“I can say that I am more than overwhelmed at this point,” Wilson wrote in the May 20 email to Watson.
In June, the board found out the district had paid $126,223 in health-insurance claims for LEARN and LEAD employees.
“Since they were ‘their teachers,’ equity dictates that they should pay,” board member Jeff Grinstein wrote in a June 15 email. “I want our $$$$!!!”
In another email, then-board member Gloria Lang sought a full investigation into LEARN and LEAD.
“I said I would remain quiet until after graduation. Well that is over,” she wrote June 2, describing a visit earlier in the day with a community group.
“... I told them the truth, and I said that I want a complete investigation of Liberty, LEARN and LEAD and I want everything told to the public.”
In July, auditors found payments from the district and the conversion schools to Obermiyer.
“Never was she to be paid extra from the District or directly from LEARN,” Grinstein wrote.
In a Nov. 3 interview, Obermiyer said the same, that she never received payments from LEARN and LEAD, including overtime payments.
“I was a salaried employee,” she said. Her salary was $59,000 in 2011, district records show.
But public records obtained by The Vindicator and memos show:
An October 2009 payment from the district to Obermiyer for $4,920. A memo attached to the payment, the email says, references “16.4 days @ $300/day” and “conversion school.”
An April 2010 payment from LEARN payroll to Obermiyer for $3,269.64, with a memo referencing “LEARN.”
A July 2010 payment of $1,634 to Obermiyer with a memo referencing “CCIP/ARRA,” which are federal funds for educating students in poverty.
An October 2010 payment of $4,950 to Obermiyer with a memo referencing “LEAD set up.”
Obermiyer did not answer phone calls from The Vindicator for an additional interview to discuss the individual payments.
Even a working contract between LEAD, LEARN, the district and staff was never finalized.
A draft agreement between the district and LEARN, written by Miller, was dated Dec. 13, 2010 — almost a year and a half after the board authorized LEARN.
The conversion schools’ articles of incorporation — something all for- and non-profit corporations must file with the secretary of state — were not filed until May 18, 2011, two years after the board approved the schools.
Obermiyer said there was no service agreement because the “board refused to place it on their agenda.”
Watson countered that the draft was insufficient and written “as if someone was renting a space in a plaza for a business.”
Therefore, he refused to bring the draft to the agenda. By the time they began pursuing a rewrite, “everything blew up,” he said.
“It was an experiment that started with the best of intentions,” DeVito said in an interview. “But it soured by the second year. We took a shot; it didn’t work out.”
TO DISCLOSE OR NOT TO DISCLOSE
The communi- ty wanted answers after news spread of Obermiyer’s resignation and the district’s deficit. In emails, board members instructed one another on how to address the public.
In May, Grinstein sent an email to board members with a list of ways to respond to the public at the upcoming Liberty Relay for Life cancer fundraiser, admitting two intended omissions: “Obviously the details regarding the [House Bill] 264 money and the health-insurance funds are not on the list.”
The board also worked on ways to separate itself from the LEARN and LEAD conversion schools. By July, it seemed the majority of board members believed the best option was to lift the suspension of the sponsorship on the conversion schools, agree to a financial settlement and allow the schools to open elsewhere rather than deal with closing them.
“I continue to believe that the District will be better off if [LEAD and LEARN] get a new sponsor and continue, thereby relieving us of the responsibilities of a sponsor of a closed school,” Grinstein wrote in a July 28 email.
“To me, suspended or closed is a distraction. They are done in our buildings and that is all that matters. To rile people up with the distinction will only blur the message and reality that going forward, Liberty is unified for the benefit of our students.
“I would keep things quiet. This reminds me of something my father told many years ago ... stirring up the mud only makes the water cloudy; it does not make it less wet.”
On Sept. 6, the board voted to accept a $250,000 payment to settle with LEARN and LEAD.
Board members said they feared the LEAD and LEARN attorneys would drag the cash-strapped district to court if the district simply closed the conversion schools. Instead, lifting the suspension allowed the Portage County Educational Services Center to take over as the community schools’ sponsor.
On Oct. 14, 38 days later, Portage ESC also suspended the schools’ operations due to a lack of students and lack of a place to teach them.
Today, Portage ESC is keeping LEARN and LEAD suspended as the schools seek a building near Akron in which to teach classes.
All of the teachers who taught for the conversion schools have returned to work in the Liberty district, implementing the same teaching tactics that made the conversion schools academically successful.
In August, the state rated E.J. Blott Elementary — the school that fell into academic watch and started the $700,000-per-year draining of school funding — as excellent.
Nevertheless, the cash-strapped district faces $1 million in cuts to be announced at Monday’s board meeting.