It is a matter of $31 million, and one school official wants it back, or at least what he can recover, back.
The recent revelations of an $8 million deficit in the Board of Education’s spending as found by auditors this year, Superintendent of Schools Neil Cavallaro has put the city, the auditors and state officials on notice that a situation he has been raising alarms about for several years is reaching critical mass.
At issue is the so-called “Alliance District” funding received by the school system. The General Assembly approved the program to help fund “distressed” districts in the state that are funded by distressed cities. The program is designed to help cushion some of the costs associated with education and are to be put into Board of Education coffers.
In a sidebar set of emails sent this week in the aftermath of defending the district and the deficit it now faces, Cavallaro is taking the offensive regarding the Alliance Funds. It is Cavallaro’s contention that all the money allocated to West Haven by the Alliance over the years has not gone into BOE accounts but been siphoned as revenue on the city-side of the budget. He estimates up to $4 million has been redirected, and amounts to $31 million.
Cavallaro sent a copy of spreadsheet indicating the missing funds and their allocation to city revenue.
“Keep in mind the spreadsheet that I sent you indicating the amount of money ($31 million) that went to the general fund instead of coming directly to the Board was analyzed by the auditor who has been doing work for the city for years,” he said.
The auditor, PKF O’Connor Davies, LLP was sent a “Notice of Claim” by outside counsel Brian T. Henbry, of Waterbury-based Carmody, Torrance, Sandak and Hennessey, LLP. It is contended the auditing firm may be the subject of a lawsuit by the BOE. It is contended the firm should have seen the separation of funds from the Board to the city in documentation from 2024 to 2021. That’s the firm we may be suing, if I’m right and as the letter states, ‘If there were issues regarding its use, administration, and/or accounting treatment of Alliance Funding, or its compliance with state laws relevant to such funding, then such issues arose from the acts and omissions of PKF and/or from PKF’s failure to properly perform the services performed under the references above.”
The superintendent said the ESC funding for the city has been steady for the last 15 years, going back to FY 2011, and is about $41.4 million. Alliance District funding is then allocated and sent to city officials for deposit into education accounts.
“The city has been taking, illegally, a portion of that increase, about $4 million and putting it to the general fund. The second illegal act is that by doing so, they decreased the city’s actual share towards education, thus violating the minimum budget requirement, which basically says you cannot give less money to the Board of Education than you did in previous years,” said Cavallaro.
Cavallaro said this is an issue he has been raising alarms about since at least 2018 and to several state agencies as well as the city and MARB.
“I have correspondences going back to 2018 to the CFO of The Department of Education in which we asked for clarification on the rules for the Alliance Grant. I have conflicting minutes from MARB meetings. One says West Haven adequately funds education, and this was the city’s license to take the increase. I also have one in which an official from OPM clarifies how the grant is to be used. Without guidance or firm direction from MARB, who approved all of the city’s budget, the process never changed. I believe that many felt because MARB had the oversight it did, no one questioned them. However, they did not have the authority to not follow the law. When I began following it more closely, that is the conclusion I drew,” he said.
In recounting the correspondence he has sent to several agencies, he said he got little help or feedback.
“I have countless emails to the State Department of Education and Office of Policy and Management questioning it, but as I said before, no one wants to get involved. In fact, Secretary Jeffry Beckham, from OPM, was the one who suggested an audit because he understood my concern. I believe that the Department of Education should have interceded, but to date, has chosen not to,” he said.
Cavallaro said he is not blaming the current administration for the practice but believes it should be part of solving the current matter. In fact, the city has changed its practice.
“While I certainly, don’t believe this administration is responsible for the error, it is now incumbent upon them via working with state agencies or by reviewing the audit, we must now work to make the adjustments,” he said.
Regarding the current $8 million deficit, Cavallaro draws a direct line between the missing funds and the current shortfall.
“Blaming the Board of Education is not the solution. Again, had that money come to the Board per state law, there would be no deficit, and if I am wrong, why has the city changed its practice and is allowing us to take the full amount of the grant? he asked.
While he has put in a notice of claim, Cavallaro is still in consultations concerning a possible lawsuit.
“I understand that there were timelines and the auditor needed to be put on notice, but I’ve yet to speak with those representing the city to understand the logic of a potential suit. In full disclosure, the Board’s attorney has been contacted by that law firm, but I am not satisfied with the little I have heard,” he said.
He said, finally, he had three questions that need answering from city officials.
“Finally, while I cannot speak directly to what the city did with the $31 million, here are a few questions I have: What is the city’s current fund balance? If a mill is about $3-$4 million, and the city has been taking that amount of money each year from the Board, are taxes being kept artificially lower as a result? Wasn’t one of the criteria to be released from MARB, a healthy fund balance? he posed. “Let me be perfectly clear, while the city must now be held accountable, this the first and foremost a failure of OPM and its secretary and the negligence on the State Department of Education to allow this practice to begin and occur over the many years that it has.”
Mayor Dorinda Borer, meanwhile, is trying to understand what happened in the years leading up to this year.
“It appears that in 2013 the methodology for how the funding was provided to the Board of Education by the city changed I cannot locate any records showing why this change occurred, but it is flawed as the city is supposed to provide funding to the BOE in two separate buckets and separate out the Alliance so that it can be accounted for separately,” she said. “While we have all confirmed that this methodology the city changed back then is flawed, there has been no certified confirmation that the city submitting the funds in one lump sum rather than separated out resulted in a shortfall to the Board of Education and if so how much.”
Borer said she has taken steps to look into the matter and provide steps for the future.
“As mayor, it is of course my responsibility to perform due diligence to now sort this all out to ensure that funding the city received was allocated appropriately and to determine the path forward. Therefore, I have engaged an independent legal and accounting analysis to be performed. This review takes time as it is not a simple formula but instead many nuances have to be considered such as; how much the city received vs what was provided to the BOE, but also how was the BOE able to balance and return funding to the city in the years in question if the BOE was short (e.g. in 2021 Boe returned $2.7million to the city in excess of what they needed) or how would the MARB or anyone involved in the Board of Ed not recognize the issue and require the process to be changed if it was shorting the education funding. How did the Superintendent submit the annual report to the State confirming the Alliance was received properly? For me to be able to back track all of this and pull the records out and reconcile is quite a task but one we are working through but as I said I need assistance through an outside accountant,” she said.
Once the facts have been nailed down, she said, the city will work with state officials to finalize a solution.
“Whether it is determined there is a shortfall or not, once the review is completed, Superintendent Cavallaro and I will continue to work together, which we have ,and will meet with the State Department of Education for guidance, but the state’s initial reaction was to suggest we perform our own analysis internally first,” she said.