Money for Nothing

Seattle classrooms get pinched so the school district can pay off its fancy new headquarters.

"It's not funny," a dour Mary Bass said, shushing her fellow Seattle School Board members when they chuckled during a lighter moment at last week's meeting in beautiful SoDo. "It's serious." So serious that, well, Mary, you really have to laugh. The jerry-rigged accounting system, the Rube Goldberg oversight machine, the districtwide failure in Bean Counting 101, all revealed in a new outside audit of Seattle School District finances. Blindly overspending its 2001-02 budget by $23 million and being forced to cut $12 million more this year, the district formally discovered the $35 million hit last summer, a crisis not publicly revealed until October. The cause, said accountant Tom Krippaehne of Moss-Adams Advisory Services, was a Balkanized financial system which "wasn't speaking the same language." On the plus side, it didn't appear that funds were ripped off, although the money trail has several shaded cul-de-sacs, he noted, and unknown amounts remain unaccounted for.

Sorry, Mary, but the incongruity had some of us on the floor, too. This latest act in a tragicomedy of accounting errors was unveiled in the freshly minted surroundings of the new school headquarters, a former Postal Service annex renovated into what appears to be a new Postal Service annex. Across from the Rabanco recycling center, next to the train tracks, the boxy John Stanford Center for Educational Excellencea.k.a. the school support centerwas advertised as a $30 million headquarters when first proposed. It was the longtime dream of Stanford, the ex-Army general and the district's motivational superintendent who died in 1998. But when finally opened last fall, taxpayer costs had soared to $54.5 millionmore than $100 million with interest.

It was built in an industrial zone where the whistles of passing trains compete with speakers at meetings like last Wednesday's. And, arguably, it was an unnecessary consolidation. The headquarters was essentially to be paid from the savings gained by centralizing operations. But with cost overruns and the kind of economic planning that Enron would appreciate, the building has obligated the district to pay $3.1 million annually, rising incrementally to $5.6 million at the end, to retire the bond mortgage over the next 25 years. For the plan to work, savings must match those payments. But even the dreamiest forecasts are now coming in $190,000 short annually. The district has already broken its promise not to take funds from education to pay for its new home. The new, wider district financial crisis, requiring even more cost-cutting and savings, now guarantees the headquarters will become the biggest single wretched excess on school books. It's a transaction the state auditor is reviewing. And according to the audit introduced last week, officials knew at least six months before moving into the building that their districtwide budget was millions off track, and the full depth of the financial hole was revealed prior to move-in time last year. But no one pulled the plug or, as school critic Chris Jackins has proposed, put out the for-sale sign. Had the center not been built, and if the money had been borrowed for a smaller headquarters or used for actual education, the district might be stable today. Really, laughter is the only medicine.

IN THIS SETTING, dealing with an embarrassing deficit while reclining beneath the lights in their expensive new chambers, board members sat glumly and uncomfortably Wednesdaynone, though, more so than lame duck, saucer-eyed Seattle Schools Superintendent Joseph Olchefske, perched directly in front of the speaker's podium. He sat in controlled silence as first his employees, then the public, and finally the outside auditor rose in turns to bury Caesar. "It was a really cool birthday present I got Monday when the superintendent resigned," said Theresa Cardamone. "You should dismiss him right now," said Maggie Metcalfe-Hess, "before any more damage is done." Another speaker tried hard to give Olchefske, whose under-pressure resignation is effective Oct. 15, a morale boost: "Joe gets it," she said. "He just doesn't show it." If he does, he didn't. Through an hour of audience participation, he looked each speaker in the eye, casting upon them a face of poured cement.

Then Krippaehne of Moss-Adams, the district-hired accounting firm on the money trail since December, unfolded his $200,000, 134-page audit report, the Book of Joe. It was a general review of the district's financesultimately the responsibility of the board and onetime private financial guru Olchefske. Krippaehne said he'd pretty much figured out what went wrong. To understand, he said, do this with your checkbook at home: In the "balance" column, write in a number, any amount you like. Then begin writing checks. Money? Deposits? Who needs that? You've got checks. For at least two years, the district had been kiting its funds until, one day, the hole got so big the future fell through it. In 2001, when former chief financial officer Geri Lim first found the gap$6.6 million due to errant revenue forecastingshe quietly "plugged" it by borrowing from money on the come, rather than making budget cuts. "Word did not filter up" to Olchefske and other top managers, Krippaehne said, noting that Lim "did not understand the severity of the problem" and, besides, "there was very little review over the CFO's actions." (Lim has since been pushed out the door with $53,000 in a cash-and-benefits buyout; see "Accounting 101," Nov. 20, 2002.)

THE GAP EVER widened, and the district blithely went on writing checks. In reconstructing the train wreck, Krippaehne found there were seven budget managers in seven years, the budgeting process was changed every few years, andthis is the most memorable line of the nightthe budget department did not monitor the budget. There might be other failures, but because of the district's "sloppy" bookkeeping, "information isn't readily available in a most comprehensive way" and "records are missing," Krippaehne said. He could positively account for just $21 million of the $23.3 million overspent last year. Best he could tell, "We believe the monies were spent." Not stolen. Which, at any rate, makes them unrecoverable.

At least the district does have a workable system on which to rebuild, Krippaehne added, speaking into the mike and giving the district a loud "attaboy" for that and a few other pluses. School Board President Barbara Schaad-Lamphere was so moved by the rare "attaboy" that she quickly pleaded, "Say that again!" He did. To laughter. But you had to be there.

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