Isle of Wight County Schools overspent its budget for the 2022-23 school year by more than $600,000.

Superintendent Theo Cramer acknowledged the deficit at the county School Board’s Aug. 10 meeting.

The School Board allocated $67.9 million last year for its general fund, which includes employee salaries and accounts for the vast majority of the $78.1 million budget’s funding sources and expenses. According to Cramer, IWCS ended up spending $68.5 million, leaving the school division $603,163 in the red.

Vice Chairman Jason Maresh, who led the board’s Aug. 10 meeting in Chairman John Collick’s absence, called the deficit an “unprecedented and inherited failure” but asserted Cramer wasn’t to blame.

“This board has to own the budget,” Maresh said.

State law requires each school division to report its finances for the prior school year on a date “to be determined by the superintendent of public instruction,” which for the past several school years has been set for mid-September. To that end, the board voted unanimously, with Collick absent, to direct Cramer to ask Isle of Wight County supervisors for an additional $603,163 to eliminate the deficit by the state’s deadline.

 

What caused the deficit?

Cramer cited three causes, two of which he blamed on former Chief Financial Officer Steve Kepnes, who’d left his employment with Isle of Wight County Schools in May 2022, four months before Cramer’s arrival.

Cramer did not mention Kepnes by name, identifying him at the Aug. 10 meeting only as “the CFO from the 2021-22 school year” who had “built the 2022-23 budget.”

Kepnes told the Times he’s being made a scapegoat.

The School Board, in January 2022, voted to raise the minimum pay to $20 per hour for bus drivers and $15 per hour for bus assistants – with drivers eligible to receive an additional $350 flat payment for each year of verified experience. The board had planned to fund the raises for the then-remaining six months of the 2021-22 school year with the Elementary and Secondary School Emergency Relief, or ESSER, funds the division had received from the American Rescue Plan Act, or ARPA, a $1.9 trillion nationwide coronavirus relief package Congress approved in 2021. Any remaining ESSER funds will expire Sept. 30, 2024.

Todd Christiansen, the division’s director of support services, estimated at the time that it would cost just under $224,000 to fund the raises for the remaining six months of the 2021-22 school year and another $447,000 to continue them for 2022-23 based on the then-current average experience level of the transportation department’s employees.

Cramer’s predecessor as superintendent, Jim Thornton, told the board at its Jan. 13, 2022, meeting that an alternate source of funding would need to be specified in the 2022-23 budget. 

Cramer contends that a 2022-23 funding source was never identified, resulting in a $903,383 deficit for transportation department salaries.

The figure Cramer cited is more than double what Christiansen had estimated the raises would cost. IWCS spokeswoman Lynn Briggs said the division hasn’t identified an exact reason for the difference, but said drivers having received a “step” in pay during the 2022-23 school year, coupled with associated cost of employee benefits, may have driven the expense of the raises higher than Christiansen had estimated. Drivers are to receive a 5% increase for the 2023-24 school year, Briggs said.

Cramer said Kepnes made a similar error when allocating roughly $231,000 for substitute teachers in the 2022-23 budget. The division actually spent $677,000 on substitutes during the past school year, leaving a $445,000 deficit.

The amount budgeted “may have been appropriate during the pandemic time” when Isle of Wight County Schools was operating on a hybrid schedule of in-person and virtual school days, but was “far from adequate for a traditional school year,” Cramer said.

The third cause Cramer cited was a nearly $945,000 reduction in state funding that resulted from a decrease in enrollment.

Virginia school divisions receive state funding based on a per-pupil calculation known as average daily membership, or ADM. During the six-month development of the 2022-23 budget spanning January through June 2022, the state had forecast Isle of Wight’s divisionwide enrollment at 5,568 students. Actual enrollment, according to Cramer, was 5,460, or 2% fewer students.

The total deficit from all three causes totaled roughly $2.2 million, which Cramer said Isle of Wight was able to reduce to $603,163 by freezing spending in several budget categories. The cuts included holding off on buying four new buses at $135,000 apiece to save roughly $540,000.

 

Kepnes reacts

The Smithfield Times reached Kepnes by phone on Aug. 14 at North Carolina State University, where he now works. 

Kepnes contends he accounted for the loss of ESSER money as a source to fund the transportation department raises when working with Thornton and other central office staff to develop the 2022-23 budget.

“We knew we weren’t going to have the ESSER funds,” Kepnes said.

The approved 2022-23 budget available on the school division’s website shows $4.3 million allocated for pupil transportation – a nearly $160,000 increase over what was budgeted for the 2021-22 school year.

Kepnes contends the 2022-23 budget on the website is a “very limited” version of a longer document he had developed with Thornton and other central office staff. That document, he said, included several pages showing how the raises were factored into the $4.3 million transportation department total.

Kepnes blames the $600,000-plus deficit, which he called “a disgrace,” on a “lack of oversight” by administrators following his departure as CFO.

Staying within a budget, Kepnes said, entails moving money around categorically throughout the year to stay within the fixed amounts of revenue local, state and federal sources allocate to the division at the start of each school year.

The state, Kepnes said, provides school divisions with a spreadsheet for estimating their state funding based on enrollment. School divisions receive their allotment in bimonthly payments, the final one in June being a “true-up” based on actual enrollment.

If Isle of Wight waited until June to reevaluate whether the state’s June 2022 enrollment estimate was still accurate, “that’s not my doing,” Kepnes said.

 

State budget error unrelated

Ex-Superintendent of Public Instruction Jillian Balow, who resigned in March, wrote in a Jan. 27 memorandum to division superintendents that the spreadsheet distributed in December for 2023-24 budgeting purposes contained an error that would result in overly generous estimates.

According to Balow’s memo, the December spreadsheet neglected to factor in a “hold harmless” payment that began during the 2022-23 school year to offset the impact to school divisions from the Jan. 1, 2023, elimination of the state’s 1.5% sales tax on groceries.

The impact of the mistake, which the VDOE attributed to “human error,” was estimated as of January to reduce Isle of Wight’s estimated state payments for the remainder of 2022-23 by roughly $282,000.

The VDOE, in January, asserted all school divisions would receive the full amount due to them in the General Assembly’s 2022-24 Appropriations Act, and that only the bimonthly payment estimates generated by the spreadsheet were wrong. According to Briggs, the budget shortfall from lower-than-expected enrollment is unrelated to the state error from January.

 

Budget troubles: a timeline

Isle of Wight County Schools, following Kepnes’ departure, went three months without a CFO. Rachel Trollinger, who previously served in the finance department from 2016 through 2021, rejoined the school division on Aug. 1, 2022, as Kepnes’ replacement, then tendered her own resignation to Cramer on Oct. 24.

Cramer himself is relatively new to the division. Aug. 22 will mark his one-year anniversary as its superintendent. Thornton retired June 30, 2022. During the nearly two-month interim, Deputy Superintendent Christopher Coleman, who’d been Kepnes’ immediate supervisor, assumed temporary leadership of the division.

Trollinger, who did not respond to the Times’ request for comments for this article, had spoken publicly about her resignation during the comment period at a Nov. 10 School Board meeting.

At that meeting, she stated she could “no longer on good conscience” stand before the School Board “and state that the school division was being good stewards with county taxpayer funds.”

Trollinger had stated – and Virginia Department of Education records confirm – that Isle of Wight County Schools missed the Sept. 15 deadline to submit the financial section of its 2021-22 Annual School Report to the VDOE. Isle of Wight submitted the report on Oct. 5.

Trollinger also contended at the Nov. 10 meeting – and a report by Isle of Wight County Schools’ auditing firm later confirmed – that the division had delayed requesting reimbursement from the federal government for expenses to be paid with COVID-19 pandemic relief funds during the 2021-22 school year.

Nevertheless, Isle of Wight County Schools received an “unmodified” opinion for 2021-22, an industry term used by the American Institute of Certified Public Accountants when auditors determine an organization’s financial statements are accurate.

According to Cramer, the financial statements showing a $603,163 deficit for 2022-23 are at present unaudited, but “we are confident the numbers are accurate.”

Cramer stated at the Aug. 10 board meeting that the 2022-23 budget issues came to his attention in early February. By Feb. 17, the division had hired Larisa Harris as Trollinger’s replacement.

Harris, at the Aug. 10 meeting, said she’d sent out a memorandum on March 30 freezing departmental budgets.

The 2022-23 budget took effect July 1, 2022, though students and teachers didn’t return for the start of the school year until September. The nine months of spending that elapsed between July 1 and the March 30 date Harris sent her memo, in Kepnes’ opinion, constitute “neglect.”

“The problem of overspending should have been detected much earlier,” Kepnes said. “To blame the former CFO is ridiculous.”