A series of longstanding financial missteps combined to cause the Merrimack Valley School District to unknowingly spend roughly $2 million it didn’t have last year, superintendent Randy Wormald said this week.

Over a lengthy period of time preceding last year, the district – motivated partly by a desire to keep budgets low – failed to maintain the financial safeguards that are designed to withstand fluctuations in a district’s expenses, Wormald said.

Then, when perennially unpredictable special education tuition and transportation expenses both exceeded projections by hundreds of thousands of dollars, the district had little to fall back on.

“These factors combined left the district financially vulnerable and unable to absorb unexpected costs,” Wormald wrote in response to a lengthy list of questions.

The second-year superintendent said the district also lacked certain oversight practices that would have led to more prompt detection of the district’s financial shortfall. District administrators previously acknowledged they didn’t grasp the full extent of the overspending until November of last year, more than four months after the fiscal year ended.

Wormald’s assessment of the underlying factors behind the over-expenditure, which was initially disclosed in January, offers the fullest explanation to date of what exactly went wrong last year. It comes a week after the district released an audit of its finances, which concluded only that the district’s financial documents were “free from material misstatement,” but did not opine on the district’s financial practices more broadly.

The superintendent’s explanation came in response to a series of questions sent by the Concord Monitor seeking additional information on last year’s issues and the district’s financial health this year and going forward.

“While the investigation into what happened is complete, our work is far from over,” Wormald wrote. “We are now shifting our focus to why it happened from a systems and oversight perspective, and more importantly, how we can prevent it from happening again. That includes a thorough review of our internal controls, budgeting practices, and financial reporting processes to ensure stronger checks, earlier detection, and better accountability moving forward.”

What went wrong

By September of last year, two months after the end of the previous fiscal year, top administrators at the Merrimack Valley School District first realized they had exceeded their $45.6 million budget for the 2023-24 school year, according to Wormald. It would take another two months, however, before they understood the extent of that over-expenditure.

In January, Wormald informed the public about the district’s financial situation, vowing to “thoroughly investigate the scope and underlying factors of the overages.” At that time, he indicated that the bulk of the overspending – $1.2 million of $2.1 million – was for out-of-district special education tuition and transportation, services that school districts are legally mandated to provide.

Because these out-of-district expenses can rise into the six figures for individual students and fluctuate as student needs ebb and flow, many district leaders cite these categories as among the most challenging to predict – particularly because budgets are crafted more than a year out from when some of those services will be needed.

But Merrimack Valley’s woes did not stem solely from an unpredictable spike in special education expenses last year, according to Wormald. To a certain extent, the fact that those expenditures would exceed the budgeted amounts should have been anticipated. For multiple years prior to 2023-24, Wormald wrote, the district had “overspent” in those categories “without appropriate increases.”

Compounding matters, while a financially healthy district would have been able to withstand much or all of that overspending by drawing on reserve funds set aside for exactly that purpose, Merrimack Valley had for years failed to adhere to best practices to fully fund its trust funds and keep a larger unassigned fund balance, leaving the district particularly at risk.

Its special education trust fund – which Wormald now believes should hold roughly $2 million – contained only $533,000 last fall. The district’s unassigned funds, money in a that is not earmarked for a particular purpose, had for years been perilously low, averaging 1% of the total budget, despite a recommendation from the state Department of Revenue that it be between 5% and 17%.

Part of the reason for the district’s long-term failure to maintain these safeguards was borne out of a desire by the district and school board to keep taxes low, according to Wormald.

“It’s important to acknowledge that the district has, for years, made efforts to minimize budget increases by underfunding certain lines,” he said. “That approach, while well-intentioned, ultimately contributed to the structural weaknesses we are now working to correct.”

Many aspects of a course-correction will require buy-in from taxpayers. This year, district leaders proposed a budget that included an unassigned fund balance within the recommended range, but voters narrowly rejected it, meaning the district will head into next year without an appropriate buffer once again.

Wormald wrote that the other major issue last year – that the district did not know it had overspent until months after the fiscal year ended – was the byproduct of issues with “internal financial monitoring and reporting processes” that the district is now trying to improve.

“As part of our response, we’ve already begun implementing more frequent financial reviews and clearer internal reporting timelines,” Wormald wrote.

The school administrative unit has since hired a director of student services and is in the process of hiring a new business administrator to replace Hilary Denoncourt, who resigned in February for “personal reasons.”

“This leadership change,” Wormald wrote, “is an important part of our broader effort to ensure more timely oversight, accurate forecasting, and stronger financial stewardship going forward.”

Denoncourt did not respond to a request for comment.

This year

In January, Wormald wrote that the district would attempt to “absorb” about $1 million of last year’s over-expenditure in this year’s budget. This week, he said that now appears unlikely, though he was unable to offer a specific projection for how much money would remain outstanding.

“At this point, without a business administrator in place and with several final bills still outstanding, such as utilities, we’re not in a position to project a final number with confidence,” Wormald wrote. “What we can say is that we are closely monitoring every line.”

It is unclear how the district will come up with any additional money as it heads into next year with a budget that was already reduced by $1.9 million from what administrators had proposed.

In addition, Wormald projected that the district will overspend its out-of-district transportation allocation by roughly a quarter-million dollars, though he said he does not believe total expenditures will exceed this year’s $48.3 million budget.

Communication

In March, when residents gathered in the Merrimack Valley High gymnasium to vote on next year’s school budget, some angry voters accused district officials of a lack of transparency and called for a forensic audit of the district’s finances. Although he was not in charge when the 2023-24 budget was crafted or earlier financial decisions were made, Wormald weathered heavy criticism from residents about his job performance and salary.

He believes now that the vote to reject the proposed budget – which was the first time in at least decades when a proposal failed to garner approval – reflected a “complex mix” of factors.

“There has been a great deal of negative rhetoric surrounding public schools, and that, combined with the real frustration around financial missteps, created a difficult backdrop for voter trust,” he wrote.

Wormald said that district leaders did their best to be transparent with the public about the district’s financial situation, but acknowledged “there is always room to improve communication, and we recognize that transparency and timely updates are critical to maintaining trust with our community.”

“In hindsight,” he wrote, “while we are confident that information was shared as soon as it was received, it’s clear that the timing and complexity of the issues made it challenging to communicate in the way we would have liked.”

This week, several school board members expressed support for Wormald.

“I think that Randy has received an unnecessary amount of negativity from the public,” said Stacie Jarvis of Boscawen. “I’ve been disgusted by the way some of the public has spoken to him. I can’t imagine wanting to be in that role and he’s maintained respect for every single person.”

Since disclosing the over-expenditure four months ago, both Wormald and school board chair Tracy Bricchi have declined the Monitor’s interview requests. Both cited issues with the Monitor’s coverage, with Wormald describing some of it as “unbalanced” and Bricchi taking particular issue with a story about a political campaign that led next year’s budget to be reduced.

The Monitor does not conduct interviews by email because it limits the newspaper’s ability to be clear and accurate in its reporting by asking follow-up questions and requesting more detail.

Bricchi declined to comment in any capacity.

Jeremy Margolis can be contacted at jmargolis@cmonitor.com.