Reasons found for $14 million in red ink in West Allis-West Milwaukee

Cost overrun details shock some school officials

West Allis-West Milwaukee School District’s administration building has been the center of discussion on budget details.

West Allis-West Milwaukee School District’s administration building has been the center of discussion on budget details. Photo By Brian Vissers/West Allis-West Milwaukee School District

Dec. 3, 2015

West Allis — The reasons for the West Allis-West Milwaukee School District running $14 million in the red over the span of two years have been determined to be unexpected expenses and expenditures that were not in the budget.

That was the conclusion of a newly released independent audit report by the accounting firm of Baker Tilly Virchow Krause.

The school board was surprised that the overspending was for two years and that it totaled $14 million. Administrators had warned that last year the district was an estimated $6.4 million in the red. However, the accounting study showed the district overspent by nearly $8.8 million last year and by nearly $5.3 million the year before.

Despite the overruns, the report, as well as the annual state Department of Public instruction audit, found no negligence or misconduct. And no money is missing from the school district, Superintendent Marty Lexmond clarified.

The $14 million in overspending in the 2013-14 and the 2014-15 school years wiped out the district's fund balance, similar to a savings account that is used for unexpected expenses. The district has borrowed money to replenish the fund balance.

Lexmond, hired by the school district earlier this year, said spending in the current 2015-16 school year is being tightly controlled, given the deficit rollover. (The 2015-16 budget started $4 million in the red.) School officials hope to make that up with their tight spending controls, budget cuts and other measures. To assist in that effort, an accountant will be hired.

Reacting to the info

Employees and parents received a letter from the district last week explaining the results of the school district's inquiry into the reasons for the overspending. The reaction among school district officials was a mix of relief and concern.

Lexmond said he is relieved to finally find out what happened.

"It's helpful to understand what occurred so we don't repeat it," said the superintendent, who also predicted that the schools will be back on an even financial keel in two years at most.

School board members said the study was thorough but questions remain for some.

"I was shocked that in 2014 we overspent," said board President Jeff Sikich. "I was believing that things were fine."

But the audit report answered his main question.

"It answered the biggest question for me which was I hope there was no wrongdoing or illegalities and that is not the case," Sikich said, noting that everything that the money was spent on what was needed — though he had been "under the impression that (the expenditures) were all in the budget."

Board member Pat Kerhin's reaction was one of surprise concerning the extended period of time in which the overspending had occurred, as well as the sheer amount.

"That caught a lot of us by surprise," Kerhin said. "There was a breakdown in trust."

Board member Dan Bailey still wants some details tied down.

"Why did this take place and what took so long to find out? And who is responsible?" Bailey asked

Where overruns were

Officials offered some pieces to the puzzle.

For one, unexpected payments due on investments in connection with retirement benefits accounted for about a third of the overruns over the two years.

Also, the previous administration had expected millions to flow into the district from the successful outcome of a lawsuit involving investments gone bad to finance some retirement benefits. That money didn't come because the lawsuit is on appeal.

"They were expecting it and the shortfall was hard," Kerhin said.

The district had planned on using the proceeds to buy what is now Lane Intermediate school, which officials considered as a sound investment to relieve school overcrowding, especially given the cost of the building compared with its actual market value.

"Unfortunately, it was undertaken during a year when other areas in the budget were overspent," district officials said in a press release.

Another 25 percent came from higher than expected pay and benefits costs — largely because of the large exodus of teachers following passage of the state's controversial Act 10, Lexmond said.

For decades, pay balanced out as teaches at the high pay end retired and new teachers were hired at the low end, he said.

But with so many slots to fill, sometimes the schools couldn't hire at the low end, said business manager Andrew Chromy, who came to the district in October 2014 and has had responsibility only for this year's school budget.

Now budgeting is done using actual data.

Unexpectedly pumping up benefits was the federal Affordable Care Act that created an annual health insurance enrollment window that the district didn't have before. Suddenly, a large number of employees switched from single to family coverage, a difference of $10,000 each for the district, Chromy said.

Also playing a role is higher-than-expected staff compensation for good performance, Kerhin said.

Another nearly $1.5 million or 10 percent of the overrun came from unexpected costs involved with putting artificial turf on the West Allis Athletic Complex soccer field and from putting a new playground in at Jefferson Elementary School. Both the turf and the playground were free but infrastructure to install them turned out to be costly.

The district got a $250,000 grant for the artificial turf, but it wound up spending $1 million to prepare the field for it, Kerhin said.

More info coming

The board will receive additional updates and will review the overruns again early next year.

"I'm frustrated that it was not caught sooner," said board member Stephanie Emons.

The accounting study laid bare all the pieces of what was a confusing puzzle and the district is putting safeguards in place, she said.

"I definitely feel that better controls are in place now," she said. And beyond that she said, "I feel the deficit is being handled fairly well, we we focus on education."

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