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Candidates, school board chairman trade blame over financial crisis

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SMITHFIELD — Who, or what, is to blame for depleting the Johnston County public schools’ cash reserves?

That depends on the person answering the question.

School board candidate Rick Mercier is convinced the current school board fiddled why its cash reserves burned. “This failure of oversight ... raises the question of what the school board ... was doing while (its) fund balance and the school food service fund were being drained ...,” he wrote in a blog post.

Kay Carroll, another school board hopeful, blames today’s school board too. “Apparently, the current board of education is clueless as to how to manage funds or even read an audit,” he wrote, also in an email.

Todd Sutton, the current school board chairman, says Carroll, a former chairman, is ignoring his own role in draining in the schools’ cash reserves. “I hope Mr. Carroll has not forgotten about the $30 million of bond money” that his board “overspent on the construction of Corinth Holders and Cleveland high schools,” he said in a statement.

Carroll’s school board borrowed $30 million to cover those cost overruns, Sutton noted. “This loan is being paid back using N.C. Education Lottery money” that could have gone to Johnston County classrooms instead, he said.

Mercier and Carroll have some evidence to back their claims. They note that in a memo last summer to the board of education, the school system’s auditor sounded the alarm about the cash reserves, also called fund balance.

“The board lost a significant amount of fund balance during the year ended June 30, 2019,” the memo states. “The board’s General Fund lost approximately $5.9 million of fund balance, leaving approximately $889,000.”

The news then got worse. “We also noted that the School Food Service Fund has only $132,000 of cash on hand as of June 30, 2019, a decline of over $1 million from its balance three years ago,” the memo states. “This cash level is not enough to sustain the fund through its cash-flow-management needs and will require cash loans from other funds during its operational months.”

The auditor said the School Food Service Fund failed to offset lower sales with cost-cutting in food and salaries.

The school board received the memo on Aug. 25, some two months before interim superintendent Jim Causby, hired in September, disclosed the cash crunch publicly.

Carroll noted that the school system’s cash reserves had been shrinking for a decade, from $24.1 million in 2009, his last year as chairman, to today’s $889,000. Anyone who paid attention to the yearly audits would have seen the trend, he said.

“Our savings that were built up over decades are now gone,” Carroll said. “Where were the warnings? Did anyone actually read the audits? What happened to our money?”

It’s true that no state law requires school systems to keep any cash in reserve, Carroll said. But case reserves are “critical in keeping the system afloat if county, state or federal allocations are late in arriving ... as is often the case,” he said. “It is also imperative for big-ticket items that suddenly need repair or replacement, like roofs, boilers, chillers or damage during severe storms.”

Carroll faults both school leaders and county commissioners for not quickly ordering a probe into how and why the cash reserves evaporated. “It seems that neither the BOE or county commissioners are taking this seriously or the audit would already be underway,” he said.

“The taxpayers in this county deserve to know what went wrong, when it went wrong, where it went wrong and how to correct it,” Carroll said.

Sutton, in a blistering critique of Carroll, offered a partial accounting of where the cash reserves went:

• $800,000 in 2016-17 to help repair damage from Hurricane Matthew.

• $2.5 million in 2017-18 — $1.5 million for a supplement increase for teachers and $875,000 for what Sutton called the cost of a personnel reorganization.

• $1 million in 2018-19 to cover the loss of state dollars that followed Johnston children to charter schools.

• $1.5 million for exceptional children’s programs.

Had Carroll’s school board not overspent on two high schools by $30 million, today’s school board might not have needed cash reserves to pay the above bills, Sutton said.

“Due to the very apparent mismanagement of bond money voted on by the taxpayers of Johnston County, the N.C. Education Lottery money is being used to repay the $30 million loan,” he said. “This has left the board of education with no choice but to use the fund balance.”

“Unfortunately,” Sutton said, “we continue to suffer from former board chairman Kay Carroll’s leadership or lack thereof.”

For his part, Carroll said the cost of the two high schools ballooned because of rising prices, not school board mismanagement.

“Plans were finalized and put out for bid,” he said, “but it did not take long before we began to realize that the steel and concrete cost increases were going to have a tremendous effect on these schools.”

“Construction prices,” Carroll said, “were spiraling upward based on the impact that the Chinese market was having on steel (increases up to 40%), concrete (up 25%) and copper (200%).”

And the fact remains that his school board left its successor with $24 million in savings, Carroll said. “We must have handled it well considering the positive fund balance left to the school distric,” he said.

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