Payroll not met in W-H; Agency says district wrong on timing of state aid, is using revenue illegally

By Joshua Benton
Staff Writer

Page 1A

It became clear Wednesday what a Wilmer-Hutchins official meant this week when he said the school district was “pretty much broke.”

The district failed to meet payroll, leaving teachers, other employees and parents wondering if the district has a future.

“It just doesn’t make any sense,” said Sharon Coleman, parent of a Wilmer-Hutchins High School sophomore. “It’s not a surprise, though. They’ve been doing this sort of thing for years.”

Suzanne Marchman, a spokeswoman for the Texas Education Agency, said district employees who receive their paychecks through direct deposit were paid Wednesday. Those who normally get paper checks received none.

The district’s chief financial officer, Phillip Roberson, said Monday in a court hearing that the district was “pretty much broke” and facing a $100,000 deficit. But he gave no indication, as recently as Tuesday, that paychecks were at risk. The district has more than 400 employees.

District officials did not want to discuss Wednesday what might happen next.

When a Dallas Morning News reporter reached school board President Luther Edwards on his cellphone and identified himself, Mr. Edwards hung up.

When reporters arrived at district headquarters Wednesday afternoon, Superintendent Charles Matthews left by a rear entrance, got in his Cadillac and drove off, ignoring reporters seeking to ask him about the apparent financial collapse. Dr. Matthews had previously said financial matters are his administration’s strong suit.

Dr. Roberson said Tuesday that the district planned to take out a short-term bank loan to cover the district’s expenses until the first installment of state aid arrives in the bank accounts of all Texas school districts this fall.

But the date of that state payment, Sept. 9, appears to have created some confusion in Wilmer-Hutchins’ administration building.

Ms. Marchman said a Wilmer-Hutchins official called the TEA Wednesday and asked where the district’s August state payment was. Last year, the Legislature chose to push back August payments to September – into the next fiscal year – to balance the state budget.

“They said they were waiting for the August allotment,” Ms. Marchman said of Wilmer-Hutchins officials. “They seemed to say they were unaware what was going on.”

The postponed state payments have been public knowledge for more than a year, and Ms. Marchman said the TEA had sent several reminders to districts over that time.

She said no other district in the state appears to have made the mistake Wilmer-Hutchins has.

Ms. Marchman said “there’s nothing the agency can do” to help the district. “They might try to find a short-term loan to pay their employees.”

The cash shortage isn’t the only bind Wilmer-Hutchins officials are facing.

State officials also say the district is illegally using property tax revenues intended to pay off construction bonds to instead pay off a short-term loan from a Utah bank.

District leaders insist that everything about the $500,000 loan, taken out in May to meet maintenance bills, is legitimate. But the TEA has given the district until Tuesday to stop spending the bond money and to replace the money it has spent. And the loan is now part of a criminal investigation, the TEA said.

“There are very clear rules about it, and the district cannot do this,” said Ed Flathouse, the TEA’s associate commissioner for finance and compliance.

Dr. Roberson, the district’s chief financial officer, said Tuesday that he would not discuss the loan or the district’s reaction to the TEA’s concerns. “I’d rather not even comment on that,” he said. “We’ll just pretty much wait and see what we can do.”

Questions about the loan are the latest in a series of financial problems in the district. TEA officials said Tuesday that they will send an investigative audit team to examine the district’s books next week.

Documents not released

On Tuesday, The News requested from the TEA a series of documents relating to the Utah loan. But agency officials said Wednesday that the documents could not be released publicly because they are part of a criminal investigation.

A Dallas County grand jury is considering allegations of financial improprieties.

School districts levy two kinds of property taxes on residents: maintenance and operations taxes, or M&O, and interest and sinking fund taxes, or I&S. M&O taxes fund regular district operations, like teacher salaries and gas for school buses. I&S taxes are used to pay off bonds, which typically finance school construction and renovations.

The disputed pool of money is Wilmer-Hutchins’ debt service fund, which is where all I&S tax dollars go. The money in that fund is supposed to be used to pay off bond notes – not for any other purpose, state officials said.

A 1940 attorney general’s opinion made it clear that the money in districts’ debt service funds cannot be spent on anything else until all the district’s bonds are retired.

“The voters voted on those bonds, and you’re taxing voters to pay off that bonded debt,” said Linda Fredlund, a TEA auditor. “You cannot remove those funds and use them on anything else until those bonds are paid off.”

Ms. Fredlund informed Wilmer-Hutchins of the state’s objections in an Aug. 3 letter. Ten days later, the district’s attorneys prepared a memo arguing that Wilmer-Hutchins should be able to use the I&S tax money for other purposes if it chooses to.

The key to its argument: The district has accumulated too much money in the debt service fund and needs to spend some of it.

But Dr. Flathouse said there is an easy solution to reducing a debt service fund: Lower the tax rate.

Lawyers defend district

It’s unclear how much money is in Wilmer-Hutchins’ debt service fund or how much debt the district is working to retire. TEA officials said such information is part of the investigation and couldn’t be released.

Two law firms advised Wilmer-Hutchins on the loan and wrote a memorandum defending the district’s approach. A spokesman for one, Winstead, Sechrest & Minick, said it would not comment on the case while the district was considering its options.

The other, West & Gooden, did not return calls seeking comment. West & Gooden is the law firm of state Sen. Royce West, whose firm has done a significant portion of the district’s legal work in recent years. Mr. West has not returned multiple calls seeking comment over the last week.