School officials say millions in state funding at risk, could close schools Oct. 1

Schools want city to cover $250,000 shortfall, could require 2.5-cent tax increase

It’s a high-stakes battle between the city and the schools, with a potential loss of up to $1.87 million per month in state funding—and a possible shutdown of the school system on Oct. 1.

School officials said the Oak Ridge system has failed a state maintenance of effort test that requires local funding to remain at least the same from year to year. After some budget adjustments, there is a $250,000 shortfall, school officials said, and they want the city to cover it. It’s the equivalent of a 2.5-cent property tax rate increase.

“Unfortunately, we’re just in the position to ask the city to help us,” Oak Ridge Superintendent Bruce Borchers said Thursday. “They’re going to have to find that $250,000.”

But city officials suggest education officials are overreacting. The municipal staff said it’s not realistic to expect the state to withhold $1.87 million per month in Basic Education Program funding starting Oct. 1 simply because of a possible $250,000 shortfall—equal to roughly about $25,000 per month during a 10-month school year. They said the Tennessee education commissioner has the discretion to withhold all or part of the BEP funding, if, in fact, a shortfall exists.

“Everyone’s jumped out on the ‘sky is falling,’” Oak Ridge City Manager Mark Watson said. A “knee-jerk reaction” to increase school funding would be permanent, he said.

School officials have pressed to have two special meetings of the Oak Ridge City Council and Oak Ridge Board of Education to amend budgets and cover the shortfall, all before Oct. 1. But so far, it’s not clear that the city will agree to that schedule.

“We’ve got to get some questions answered, but it’s not going to move fast,” Watson said. “They don’t have the money. We don’t have the money. So, we have to figure out what’s happening.”

The BEP is about one-third of the school system’s funding, said Karen Gagliano, director of business and support services for Oak Ridge Schools. To put the $1.87 million per month in context, she pointed out that the school system’s payroll is $3 million per month.

“It’s catastrophic if you lose it,” Borchers said of the BEP funding. “We can’t change the revenue, but we bear the consequences.”

Watson said the reaction so far is based on an administrative e-mail from the Tennessee Department of Education. Having Oak Ridge school officials announce that the state will withhold all the BEP funding starting Oct. 1 unless the city comes up with $250,000 is “really unfair and puts us in a hold,” the city manager said.

Maryanne Durski, chief financial officer for the Tennessee Department of Education, was not available for comment Tuesday, and a spokeswoman has not returned a phone call seeking comment.

Oak Ridge education officials have said the schools could temporarily close on Oct. 1 unless the funding issue is resolved this month.

“Should the maintenance of effort situation not be resolved by Sept. 30, Oak Ridge Schools has been advised by legal counsel to not use fund balance to continue operations, and therefore, the only option would be to temporarily close school on Oct. 1 until a resolution is reached,” school officials said.

This particular dispute between the city and schools has its roots in the debate over debt repayments for the $66 million renovation of Oak Ridge High School. That debate centers on whether new revenues generated in Anderson County outside of the city limits under a 2006 sales tax referendum should continue to flow through the schools to the city and be used for ORHS debt repayments—or stay in the school system to be used for operational expenses.

A budget approved by the City Council in May 2012 withheld about $766,000 from the school system, keeping it in reserve until school officials transferred the new revenues raised under the Anderson County sales tax increase.

“They basically just moved away from the referendum, and took that allocation,” Gagliano said of City Council members Thursday.

School officials had argued they can keep that portion of the new sales tax revenues that are collected outside the city of Oak Ridge. Previously, all of that money, as well as the revenues collected inside the city, were used for high school debt payments.

School officials warned the city last year that the move to keep the $766,000 in reserve would put the school system’s budget out of balance, and they suggested it could violate maintenance-of-effort requirements. Municipal officials disagreed.

The $250,000 shortfall now reported by the schools is about equal to the new sales tax revenues said to be collected in Anderson County outside of Oak Ridge.

On Thursday, Watson said the $766,000 was not necessarily withheld since it was used for educational purposes.

“We’re paying the debt for the high school buildings, which we’ll pay until 2041,” he said.

City and school officials have had a series of meetings to try to resolve the funding issue. The meetings have included Watson, Borchers, Gagliano, and Oak Ridge Finance Director Janice McGinnis, but so far no resolution has been announced.

“We want to fix this,” Watson said. “I want to fix this. But I want to do it right.”

Borchers said the Oak Ridge Board of Education made difficult budget decisions earlier this year, and now the city might have to make some tough calls of its own. He said school officials want to get past the immediate problem of resolving the maintenance of effort issues and move on to debt issues.

“We want to fix all of this,” Borchers said.

Read an editorial Watson wrote here.

Read the school system’s explanation here.

Note: This story was updated at 1 p.m.