MT. HEALTHY, Ohio — A performance audit done by the state into Mount Healthy City School District shows a widening budget deficit so deep the district "would not be able to fully eliminate the projected deficit, even if it implements every recommendation contained in this report."
The audit, released on Thursday, is the latest report detailing funding hemorrhages that have been plaguing the school district; the state placed the district on fiscal watch in March after a five-year budget forecast revealed it would find itself more than $90 million in deficit by 2028.
According to the audit, that fiscal watch status was upgraded to "fiscal emergency" on April 5. This came after the state discovered a 5-year forecast created by the district in November incorrectly projected its deficit as lower than the reality, according to the audit.
The Auditor of State's Local Government Services reviewed the district's forecast, but found that where MHCSD projected a $7.4 million deficit for 2024, there was actually a deficit totaling $10.7 million.
Reports released by the district in May of 2023 and November differed, detailing higher deficits each time, before releasing another in February that forecast even higher deficits.
According to the audit, the beginning cash balance in the fiscal year of 2024 was $3.5 million less than what the district projected it would be in its November report. The state found the November report's estimated deficit of $78 million by the end of 2028 was incorrect but the February report, done by a different treasurer, forecast it would, instead, be in an over $90 million deficit.
Mt. Healthy schools' officials said they discovered the district's former treasurer had submitted inaccurate forecast reports, which created discrepancies and a lack of understanding as to where the district actually stood, according to a release from MHCSD.
"After initially discovering that the processes noted by the performance audit were lacking in the treasurer's office I immediately started creating and implementing strategic planning and processes that will greatly improve our budgetary planning in the future," reads a statement from current district treasurer Kimberly Hughes. "We will also use an outside agency to audit the 5-year forecast each year to ensure that the inaccuracies linked to that report are not repeated.”
Following that report, the state announced the district was in fiscal emergency, the "last and most severe stage of a school district's financial solvency problems."
How did the district get here?
The state's audit cites a combination of factors that have led to the wide deficit amounts plaguing Mount Healthy City School District.
However, one crucial thing that brought the district to this point was how it utilized emergency relief funds issued to offset learning loss during the COVID-19 pandemic.
According to the audit, the district used Elementary and Secondary School Emergency Relief (ESSER) funding to hire two dozen more teachers to shrink class sizes "without a strategic plan to maintain or remove those teaching positions as funding expired."
The ESSER funds were a one-time investment, and the audit says the Ohio Department of Education and Workforce cautioned school districts statewide to avoid using them for ongoing services, since the funding would eventually expire.
"This decision, along with several others related to spending, has led the District to a financial cliff where it required emergency financial assistance to pay staff salaries," reads the audit.
The report found that expenditures within the district relating to staffing increased from $20.6 million in 2021 to a projected amount of $29 million in 2024.
In addition, the audit points out the school district hasn't successfully passed a levy since 2003 — over 20 years ago. So, despite rising costs and inflation impacting the spending of the school district within those 20 years, the district's revenue did not increase.
"Because no new taxes have been approved since that time, the local revenue received by the district has experienced limited growth for nearly two decades," reads the report.
When compared to peer school districts of similar size and structure within Ohio, MHCSD's revenue was in line with primary peer average for fiscal year 2023.
However, that same year, MHCSD spent 26.7% more than the average peer schools the compared by the state. Those school districts include Maple Heights City, Sandusky City, Painesville City Local, Alliance City, Whitehall City and Zanesville City.
Per pupil in 2023, MHCSD spent $17,836 — over the peer schools' average per pupil spending of $14,099. In addition, MHCSD's per pupil spending exceeded its general fund revenue per student by a difference of $3,283 per student.
That resulted in a net loss from the general fund of $9.5 million in 2023, the state said.
Cutting down to state minimum requirements still won't absolve the deficit
MHCSD announced in March that it would eliminate 96 full time positions throughout the district, which will take effect for the 2025 fiscal year.
"However, the district still faces significant financial problems," reads the report.
According to the audit, the district's biggest expense is from human resources, including salaries and wages and benefits.
However, purchased services, which are generally things a district chooses to use a vendor for rather than providing the service directly, made up nearly 30% of the district's overall expenditures. Those services include the district's transportation contract, custodial contract and its utilities.
According to the audit, that's more than double what MHCSD's compared peer districts spend on purchased services.
This is predominantly because of the contracted busing and contracted custodial services, the report said.
Planned staffing cuts will reduce the district's expenditures by 2025, but the audit says the district required an emergency loan from the state totaling $11 million — which must be repaid by the end of the 2026 fiscal year.
"Using the most recent forecast, which was approved in February 2024, the District would not be able to fully eliminate the projected deficit, even if it implements every recommendation contained in this report," reads the audit.
Where does the district go from here?
The audit spans multiple pages describing recommended changes the district make in order to balance its deficit, or at least to improve it. Among those are additional cuts to staffing — and programming.
The recommendations include:
- Reducing the general fund subsidy for extracurricular activities
- Eliminate 11 administrative staff, half from central office and half from building administrator staff
- Eliminate 45 teachers, 1 counselor, 2.3 tutors, 12 full time substitute teachers, 1 dietitian/nutritionist, 1 nursing staff member, 9.5 monitors and 1.5 family and community liaisons.
- Changes to healthcare and insurance provisions
- Eliminate 2 bus routes
All of those changes combined would net the district roughly $8,233,000 in savings annually — a total of $33 million gained over the course of the district's five-year forecast period, if the district implements all of the state's recommendations.
Even still, the state says the savings identified using industry standards and peer comparisons "would not address the projected deficit of more than $90 million in FY 2028."
To cover the gap, the state recommends further cuts, including eliminating an additional 6 administrator positions and an additional 53 teacher positions. The state also recommends the district fully eliminate subsidies for extracurricular activities, which would likely put students into a pay-to-play structure.
The district likely needs to strip itself down to state minimum standards, the audit says, in order to fully close its deficit. However, the report acknowledges this will result in a very different district once it's done.
"While aligning with state minimum standards would change the type and level of services that the district is able to offer, it may be necessary for MHCSD," reads the audit.
According to the report, as of fiscal year 2023, MHCSD had 2,743 students enrolled in its district.
In Mount Healthy, however, 36.9% of students living in the district have instead chosen to attend community schools, nonpublic schools or another public district that accepts students through open enrollment. Of those students, 486 have chosen to participate in the EdChoice program or another state program, and 750 have chosen to attend community schools.
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