Shoreline district goes back to school in dire straits

For generations of parents frustrated by Seattle schools, Shoreline has seemed a beacon to the north. There was much to envy: overachieving test scores, sterling student-teacher ratios and enthusiastic support for levies, year after year.

But this year, Seattle may seem like a financial rock compared to the Shoreline School District. It is in such dire financial condition that it will end the 2006-07 school year — and the next school year too — deeply in the red. Five top administrators, including the superintendent, are gone. Students staged a walkout last spring to protest cuts. State school regulators even put Shoreline on the equivalent of financial probation.

All of that would have seemed inconceivable last summer.

The district was projecting a $2.3 million year-end surplus and riding a wave of voter support to passage of a huge bond issue to give all middle- and high-school students a laptop computer.

Instead, the district is projected to end this school year in a $2.9 million hole and, despite huge budget cuts, is projected to end next school year with a $1.9 million deficit. Even if all goes well, it won't be until Aug. 31, 2008, that Shoreline will again have a savings account.

The School Board will be presented with plans for cuts at a meeting on Aug. 21 and is scheduled to vote a week later. The plans call for elimination of 40 teaching jobs, fewer nurses and support staff, and eight fewer administrators. Other controversial proposals, such as cutting security at the high schools and increasing sports fees, have since been abandoned.

The district still expects to face a $1.9 million deficit the following school year, though, and will take up possible school closures, reduced bus transportation and property sales to save money.

How the budget suddenly slipped into the red is still somewhat murky.

What is clear is the district's former budget team had a string of accounting errors so confounding that the School Board considered the potential for intentional fraud. No criminal activity was found during reviews by the district's attorney, its insurer and its bond counsel, but the mistakes cost Superintendent James Welsh his job in June.

"I'd like to use a different word, but in the end it was incompetence," said Welsh's successor, Sue Walker. Welsh declined to comment.

Shoreline is one of only a half-dozen or so districts — mostly small and rural — of the state's 296 school districts that ended the school year in the red. It must follow a set of conditions imposed by the state Office of Superintendent of Public Instruction (OSPI) or the Olympia regulators will step in and take control of the district's budget.

Unlike Seattle Public Schools, which also overspent its checkbook, Shoreline did not have a reserve to tap, said OSPI'S Calvin Brodie. Instead, it had to borrow against next year's per-student state payments.

"Our oversight is simply a safeguard," he said. "If they don't do responsible management to deal with the issue, we can step in. But it can be a nonevent if they're responsible."

Errors came to light

Welsh was hired from the Reno, Nev., school system in 2001, where he was praised for his visionary use of technology in classrooms. He hired two friends for top finance positions, including one from the trucking industry in Wisconsin.

The district, despite strong voter support for levies, lived with scant savings during Welsh's tenure. He began weekly budget-monitoring meetings to end the cycle.

It didn't work.

In May 2005, four months before the end of the school year, the district's comptroller, Paul Flemming, estimated the district would end the year up $3 million. On Aug. 5 the estimate fell to $2 million, and on Aug. 22 to $1.7 million. In reality, it was $248,000.

While the 2004-05 budget was imploding, Welsh's team was building a 2005-06 budget that also was flawed, according to Bob Boesche, a school-finance expert hired by the district last winter to unravel the problems.

The biggest error involved a vast overestimate in the number of vocational students in the district — 3,583, rather than 706 — which inflated the district's incoming revenue by $2 million.

More errors were later found in the district's capital budget, deepening the hole.

The School Board adopted a budget on Aug. 22 assuming $83.9 million in revenue for the year. But eight days later Flemming gave OSPI a budget that told a different story — and didn't tell the board. He quit several months later. He did not return a phone call for this story.

"It's the kind of action, where if you thought he was pocketing money, we'd be after him without question," said Joe McKamey, Shoreline's in-house counsel at the time. "But that didn't happen."

Welsh offered his resignation as the errors came to light last winter.

"This was something that Jim and the board learned together," said David Hokit, Welsh's attorney. "He's sitting in the big chair, so he becomes vicariously responsible for some of this stuff."

In May the School Board accepted the offer and agreed to pay $113,000 — less than a third of what he was owed on the remaining two years of his contract.

In January, as accounting errors were coming to light, Shoreline voters nonetheless approved a new levy and a $149 million bond issue, used in part to buy student laptops.

But it wasn't until this spring that the cost of the accounting errors became clear. Parents packed School Board meetings, protesting proposals to cut teachers and charge for sports.

A second chance?

Cheryl Ricevuto, head of the Shoreline teachers union, said the union has warned for years that the district was heading toward financial trouble. Classified staff were even told that local merchants would not accept Shoreline invoices.

"The most frustrating part is we feel like we've been sounding the alarm for quite some time and haven't been listened to," said Ricevuto. "It may not have prevented it entirely, but it may have lessened it. It's just sad."

Superintendent Walker, who previously worked as Welsh's assistant, acknowledges that mismanagement has hurt the district's reputation. But she noted the district's test scores remain high.

"The mismanagement was on the business side. We still have an incredibly strong school side in this district," she said.

Wes Brandon moved his family to Shoreline 25 years ago for the good schools and helped get the bond issue passed last winter. Like other parents, he is willing to give Walker and her new staff a chance to put the books in order.

There is still strong support for operating-fund levies, but Brandon wonders if voters may feel too stung by the errors to pass another bond issue soon.

"We'll live, as long as we don't cut each other's throats in the meantime," said Brandon.

Jonathan Martin: 206-464-2605 or jmartin@seattletimes.com