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Testimony on the DCPS FY 2001 $80 budget shortfall to the
City Council Committee on Education, Libraries, and Recreation
September 24, 2001




Dorothy Brizill
Bonnie Cain
Jim Dougherty
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Peggy Cooper Cafritz Paul Vance
Natwar Gandhi John Catlett
Letter from Board of Education to Superintendent Vance

President of the Board of Education

PHONE: (202) 442-4289
FAX: (202) 442-5198


I feel uncomfortable submitting a written statement because I do not know what the truth is and I only want to speak truth to the City Council. I am open to answering any questions you have of me. 

Thank you.

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Kevin P. Chavous, Chairman
Roundtable on Budget Year 2001 Deficit
Testimony by Paul L. Vance Superintendent District of Columbia Public Schools
SEPTEMBER 24, 2001

Good afternoon, Councilmember Chavous and members of the Committee.

We come before you today to discuss an important problem that has arisen at the District of Columbia Public Schools -- and the steps we are taking to address this problem.

The Problem

As you are aware, we were informed in late August by our new CFO that DCPS had a potential deficit for FY 2001 of approximately $80 million.

This projected deficit is composed of approximately $38 in unrealized Medicaid revenues and approximately $42 million in projected overspending -- most of which is special education-related.

Several factors contributed to our receiving late notice of this problem:

  • The previous CFO did not share financial reports with DCPS management,

  • Medicaid audit drafts were received on August 31 for 1995-96, 1996-97 and 1997-89 showing a projected $38 million Medicaid problem, and

  • DCPS does not have a system of program performance indicators to track the key drivers of the overspending and - in the absence of reliable and timely financial reports - provide early warning of spending pressures.

It wasn't until our new CFO in late July began examining the assumptions underlying the projections in the DCPS financial reports filed by his predecessor that the problem was identified.

The Solution

In response to this problem, our Board of Education adopted gap-closing measures of $27 million, including spending freezes expected to yield $17.2 million and reallocation of $9.9 million in unused revenues.

Spending Freeze ($17.2 million)

  • Discontinue non-emergency OTPS spending ($6.7 million)

  • Liquidate Requisitions ($3 million)

  • Liquidate Encumbrances ($7 million)

  • Close DAPS Accounts ($500,000)

Reallocate Unused Revenues ($9.9 million)

  • Spend grant funding for indirect costs from prior years ($5.5 million) 

  • Move appropriated fund expenditures to eligible grants that will. lapse ($1.5 million) 
  • Realize additional lease income ($1 million)
  • Other revenues and non-appropriated accruals ($1.9 million)

In addition to the $27 million in gap-closing measures taken by DCPS, the District of Columbia Chief Financial Officer has made available $14 million to cover the remaining portion of the shortfall caused by overspending.

In addition to gap-closing measures, the following steps have already been taken or are being developed for short or medium term implementation.

  • The District of Columbia's CFO has replaced the DCPS CFO and other top staff with responsibility for financial controls and reporting and budget planning, execution and monitoring.
  • DCPS is implementing all the financial modules of the PeopleSoft system, including the Budget, General Ledger, and Accounts Payable modules.
    When operational in the spring of 2002, this system will provide real-time financial and budget performance information for DCPS executives and programs managers.

  • Prior to the full implementation of PeopleSoft, the DCPS CFO will prepare and share with the School Board, Superintendent and executive staff newly developed financial statements and budget reports.
  • DCPS executive staff will work with program managers to develop a system of program performance indicators to track key budget drivers, beginning with those items that contributed to the overspending to provide early warning of spending pressures.
  • The DCPS Board will require monthly written and verbal reports from program managers on the key issues that drive the budget.

These steps will assure the availability of independent, accurate financial statement and budget reports - and the tracking of program performance indicators for key budget drivers, especially those items that contributed to the overspending.

Finally, and central to the solution, is addressing special education costs. To do so, we have developed a management plan that encompasses every facet of special education programs. The plan addresses:

  • the role of non-public providers and the placement of special education programs
  • strengthening DCPS special education capacity and quality
  • establishing new cost management systems
  • building a new legal strategy for addressing all special education issues
  • restructuring all school-based and central office special education operations.
In addition, we will identify a Special Education "Czar" to oversee and implement the plan with authority to develop and implement new solutions and practices for special education

Thank you.

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Before the Committee on Education, Libraries and Recreation Council of the District of Columbia
Councilmember Kevin P. Chavous, Chairman

September 24, 2001 
2 PM 
441 4th Street, NW 
One Judiciary Square, Council Chambers 

Testimony of Natwar M. Gandhi 
Chief Financial Officer 
Government of the District of Columbia 

Good afternoon, Chairman Chavous, members of the Committee, and other members of the Council. I am Natwar M. Gandhi, Chief Financial Officer for the District of Columbia. I am here today with Mr. Bert Molina, recently appointed Chief Financial Officer for the District of Columbia Public Schools (DCPS), to report on spending pressures faced by the school system as we near the end of Fiscal Year 2001.

Let me begin by first stressing that the primary duty of the Chief Financial Officer is to maintain the overall financial viability of the District of Columbia. To that end, I must take all necessary legal steps to ensure that financial problems are identified and addressed quickly and effectively.

As soon as we found out about the spending pressures at DCPS, we immediately alerted key stakeholders. We then took necessary corrective actions to remedy the situation. It is, after all, not uncommon for any state or local jurisdiction to have spending pressures. The key is how you manage them. And, we are effectively managing our spending pressures in 2001 and are working with Superintendent Vance and the School Board on resolving the pressures. Let me assure you, Mr. Chairman, the spending pressures currently at DCPS will not impact the overall financial viability of the District of Columbia. We will end the fiscal year with a balanced budget across the City, and the financial health of the District of Columbia is solid as we begin Fiscal Year 2002.


For Fiscal Year 2001, DCPS is facing spending pressures totaling $80 million. The root of the problem at DCPS is with special education expenditures, which are often imposed by external forces such as mandated court orders by the special master. I must also note that expenditure problems need to be resolved programmatically. It is the CFO's duty to alert program managers as to the state of their finances and help them resolve their financial problems. Managing business processes is a programmatic function.

From a financial perspective, the shortfall is primarily the result of one program area within DCPS. The special education portion of the shortfall amounts to $68.7 million, or about 86% of the total shortfall, and is comprised of:

  • Medicaid revenue shortfalls, $38 million;

  • special education program, $24.6 million; and
  • special education transportation, $6.1 million.

In addition, DCPS overspent on utilities by $8.6 million, and had various unanticipated expenditures of $3 million.

Without significant intervention, it is very likely that many of these spending pressures will repeat in FY 2002. This is true because none of the factors that contributed to creating the spending pressures have diminished over the course of FY 2001. For example, the special education population of DCPS continues to grow. DCPS' hearing officers had roughly 1,600 special education hearings in FY 2001. This is a slight increase over the number of hearings in FY 2000 (1,390). The continued high rate of referrals contributes to DCPS' inability to reduce the number of non-public placements and the need to provide a high level of transportation services. In fact, the Transportation Administrator has indicated a substantial increase will be needed in the FY 2002 budget to successfully transport students for the 2001-2002 school year.

Similarly, Medicaid poses a spending pressure for DCPS in FY 2002 for two reasons. First, the FY 2002 budget was built using the same assumptions that were used for FY 2001. As these optimistic assumptions proved false in FY 2001, they will likely prove false again in FY 2002. Second, during FY 2002, we expect DCPS to receive Medicaid audits for FY 1999 and FY 2000. If the patterns hold from prior audits, DCPS will again be forced to return payments from these audits.

I think it is important to note that were it not for a breakdown in financial and program management in the special education area, we would not be here before you today. DCPS had early on identified its utilities and miscellaneous spending pressures and was confident they could be addressed by reprogramming from other sources.

When the new CFO notified me in mid-August of the extent of the shortfall in the special education area, I asked both him and my budget staff how this could have happened. There is no way to put a good face on this. The financial cluster at the schools and my office, as well, did not have in place the kinds of financial monitoring systems that would have provided an early alert to a problem of this magnitude. Working with Superintendent Vance and the School Board, we will remedy this situation immediately to prevent a reoccurrence.

Before discussing our analysis of the causes of this failure and the steps we are taking to improve our oversight operations, let me again assure you that this shortfall will not compromise the District of Columbia's overall citywide FY 2001 financial position. The District will end the fiscal year with a balanced budget. The OCFO will offset revenue surpluses to address the $38 million revenue shortfall, and DCPS has already made spending adjustments to cover $28 million. The balance of the shortfall--$14 million--will be covered by reprogramming from other accounts to DCPS. 


The shortfall at DCPS was immediately reported to Superintendent Vance and myself by the school system's newly appointed agency Chief Financial Officer, Bert Molina, who was empowered to improve the school's financial operations. Three senior individuals directly responsible for reporting the financial health of DCPS to key stakeholders -- including the CFO, budget director, and deputy controller--have been terminated or removed and are being replaced with seasoned professionals with direct experience dealing with large city school budgets. In addition, 22 employees within the financial cluster at DCPS have been dismissed in order to restructure that office to be more vigilant and effective.

A number of internal control weaknesses led to the failure to identify the major financial deficits at DCPS much earlier in the fiscal year. Below, I will summarize what we believe to be the primary weaknesses that led to this budget shortfall, as well as the steps we are now vigorously engaged in with DCPS to correct these weaknesses for FY 2002 and beyond.

1. Revenue Analysis and Tracking

The budget shortfall at DCPS is not merely about the agency's overspending. Nearly half of the spending pressures are attributable to a Medicaid revenue shortfall. Simply stated, DCPS and its CFO organization used a set of assumptions to project their revenues that proved faulty, and the assumptions were not checked and updated systemically. This means that even if spending is in line with total appropriated resources, overspending can occur if revenues are less than estimated.

Medicaid is the most significant non-appropriated revenue source for DCPS, and the school system is highly dependent on Medicaid payments to defray its special education operating costs. As a result, having an accurate estimate of probable receipts and actual revenues realized is critically important.

One of the most difficult challenges with Medicaid is the timely processing, collection, and reporting of accurate data. By the time paperwork is processed, a significant amount of time has passed, and Medicaid routinely denies claims because of inaccurate information or because the claims were not filed in a timely manner. This loss of revenues results in an unbalanced budget.

In short, revenue analysis is critically important and was critically missing-in the area of Medicaid. We are working with the City Administrator to establish an improved Medicaid revenue estimating and tracking system for the future, which will track on-going collections against last year's actual collections to assess shortfall potentials, not only in DCPS, but in all agencies that are reliant on Medicaid funds. (This amounts to approximately 20% of the City's budget, or roughly $1 billion of $5.3 billion.) This information will now be required as an additional element of each agency's monthly Financial Review Plans that are reported and explained to the City's stakeholders.

However, until this system is perfected, the OCFO will track DCPS and report actual Medicaid receipts against DCPS' monthly projections. If there is a discrepancy, OCFO will view this as a spending pressure for which gap-closing actions will be immediately implemented at DCPS.

2. Special Education Planning Assumptions

Special education programs comprise nearly one-third of the costs for the entire school system ($269.7 million) in spite of the fact that only about 17% of the students in the DC public schools are special education students (11,545 students).

Special education is facing $25 million in spending pressures largely due to a higher-than-budgeted number of students and increased attorneys' fees for a greater number of special education cases than projected. To begin to address this problem, the DCPS Chief Financial Officer--in concert with DCPS special education program managers--will revisit all spending assumptions with respect to special education to validate their accuracy and update, as necessary. We will then monitor actual experience against these assumptions throughout the year to assure currency of financial projections. In short, the OCFO will continue working with DCPS to stabilize special education budgeting and spending. 

It is imperative that agency administrators and directors be responsible for managing their programmatic costs. Without a doubt, the school system faces ongoing challenges in this arena; however, Superintendent Vance and I will be working diligently and cooperatively to address rising costs in special education and Medicaid reimbursements so that DCPS operates within its allocated FY 2002 budget.

3. Appropriation Controls

As the Chief Financial Officer, it is my responsibility to assure that all agencies remain within the amounts budgeted by the Council of the District of Columbia and appropriated by Congress as required by law. This means that, as we enter the new fiscal year, DCPS will be required to strictly adhere to the funding levels appropriated by Congress in the FY 2002 Appropriations Act. This will be achieved by the OCFO imposing an expenditure alert and apportioning the total of all DCPS appropriations, so as to prevent obligations or expenditures in a manner which would result in a deficiency.

However, it is important to recognize that financial improvements alone will not solve the overspending problem. As noted earlier, much of the special education expenditures are externally mandated. Nevertheless, the DCPS will have to manage its programs more effectively. If there are not any business process changes at DCPS, the appropriation controls are not going to fix the problem. For example, the special education budget is developed by using prior year enrollment numbers, rather than current enrollment, which affects the funding levels. Our goal is that, working together with the school administrators, we can jointly solve the problem.

The District is authorized, subject to approval by the Council of the District of Columbia, to augment the DCPS appropriation to a certain degree. We are currently exploring how to use this latitude to recommend that funds be redirected from other sources to address the projected DCPS Medicaid revenue shortfalls.

4. Quality and Timeliness of Financial Reporting

While the Office of Budget and Planning receives a monthly financial report from all agencies, including DCPS, it is clear these reports were not sufficient to spot problems early in the year. To remedy this situation, we will require that each financial report from DCPS contain specific information on the special education program, and that Medicaid revenue receipts are tracked in addition to expenditures. We will also begin tracking expenditures against a monthly spending plan that is based on last year's actual expenditures to assess overspending potential. For FY 2002, DCPS (as well as other agencies) will be required to include prior year spending and explain any variances between the prior and current year of 5% or more.

5. Timely Entry of Transactions

Proper monitoring using the SOAR system cannot occur unless all transactions are entered into the system on a timely basis. Complicating factors prevented the OCFO from obtaining an accurate financial picture of DCPS. For example, in reviewing the school system's finances, the new CFO discovered that approximately 3,800 invoices had not been posted to SOAR in a timely manner.

The new Chief Financial Officer for DCPS will be charged with assuring that such entries are made timely. The Chief Financial Officer for DCPS will also receive a monthly report of the status of vendor payments that will track the lapse time between receipt of invoices and vendor payment. The standard for this lapse is 30 days.

6. Regular Briefings with DC Public School Board

Finally, I will meet with Superintendent Vance and the Board of Education on a regular basis to apprise them of progress in executing DCPS' budget and any related issues.

In conclusion, we have carefully identified the problem areas at DCPS and we are committed to working with the Superintendent and School Board to solve these problems immediately. Let me reiterate that the budget shortfall at DCPS does not imperil the overall fiscal viability of the District of Columbia in FY 2001.

This concludes my testimony. Mr. Molina and I will be pleased to answer any questions you may have. 

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Council of the District of Columbia
Committee on Education, Libraries and Recreation
Public Roundtable on DC Public Schools
$80 Million Budget Deficit
September 24, 2001
Testimony of John D. Catlett 

My name is John D. Catlett. I am president of Teamsters Local #639. Teamsters Local #639, along with Teamsters Local #730, represent approximately 1,600 DC Public School (DCPS) employees. These employees are in the classification of engineers; custodians, including skilled tradesmen; truck drivers; warehousemen; cafeteria workers; and cafeteria managers.

I am here today to ask the Council and the community that this group of essential, dedicated DCPS employees be treated fairly. They have suffered long enough. They had nothing to do with creating any deficit spending.

Teamsters Local Unions #639 and #730 are responsible for negotiating labor agreements with DCPS for these DCPS employees. Items to be negotiated include wages and benefits. The CMPA prohibits District employees from striking; instead, it requires that disputed items (called final offers) be submitted to an arbitration panel if the Union and District cannot reach an agreement. The arbitration panel then issues an award, granting either the Union's proposal or the District's proposal. The award is supposed to be final and binding, but the CMPA requires funding and Council approval.

The Teamsters have gone to interest arbitration four times, starting in 1987. The first three awards were never fully complied with. Indeed, the pay raises awarded for the periods of 199093 and 1993-96 were never funded. The DCPS employees went from April 1990 to December 1997 without a pay raise. They did receive a payment in December not because the arbitration awards were fully complied with but because the Teamster employees were so frustrated that they were going to strike.

Efforts to negotiate a new labor agreement for the period from October 1, 1996 through to the present have been difficult. The constant turnover of DCPS officials and the arrogance of the Authority and then Superintendent Arlene Ackerman caused the threat of a strike about 18 months ago. DCPS sought and obtained an injunction against the Teamsters preventing strikes.

Teamster Locals #639 and #730 agreed to comply with the interest arbitration procedure. The arbitration lasted five days. Both DCPS and the Teamsters presented voluminous evidence, including wage surveys of the surrounding jurisdictions.

The award will be issued any day now.

When it is issued, I am asking that justice be done. The justice that has been denied these dedicated employees 11 years now.

I have addressed the Transportation department problems in previous testimony before this Council. The Teamsters represent only the full-time bus drivers and attendees of which there are only about 100. The other 800 or 900 employees are part-time. As I said in my prior testimony, a part-time work force any place brings with it turnover and attendance problems. Full-time career employees are a much more stable, dedicated work force.

In closing, the DCPS Teamsters did not cause the deficit. I am asking the Superintendent, the School Board, the Council and the Mayor to give these workers justice and comply with the interest arbitration award. 

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(202) 442-4289 OFFICE (202) 443-5198 FACSIMILE

June 1, 2001

Dr. Paul L. Vance
Chief Executive Officer
District of Columbia Public Schools
825 North Capitol Street, N.E.
Washington, D.C. .

Dear Dr. Vance,

Thank yon for your consideration of our request to meet with Mr. Bart Molina, the District of Colombia's Associate Comptroller for Financial Operations ad Systems.

1t is our understanding that Mr. Molina is the person Mr. Gandhi would him to have replace Mr. Rickford as the DCPS CFO mice Mr. Gandhi transfers Mr. Rickford, because of his specialized skills and talents, to the Department of Health. After yesterday's meeting between Mr. Molina, Mr. Lockridge, Mr. Erste and you. I met with these gentlemen and wish to convey our thoughts on the important issue of who serves as the DCPS CFO.

We appreciate your willingness to accommodate out input on this issue, gives that all DCPS staff decisions are your prerogative and not within the scope of the Board's responsibility. We understand that your willingness to include us in this situation is based an the critical role played by our CFO, our joint responsibility for achieving the important goal of maintaining financial stability, and the unique arrangement under which our CFO is appointed by the District of Columbia's CFO.

In the meeting, Mr. Molina demonstrated clearly the high level of skill, experience, and qualifications needed to serve as the CFO of DCPS and the following comments are not intended in any way to diminish his abilities, professionalism or character. However, we share your positive views of Mr. Rickford and, along with you, have been pleased with his performance and his service to DCPS.

We therefore ask that you work with Mr. Gandhi and other DC officials to keep Mr. Rickford as our CFO.

Thank you for your consideration.

Peggy Cooper Cafritz 

William Lockridge 
Vice President

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