How Brockton Public Schools Overspent by $18 Million
BROCKTON, MA - In August 2023, officials in Brockton, Massachusetts were stunned to learn their public school system had overspent its budget by a staggering $18 million in the 2022-2023 school year. The revelation sent shockwaves through the city and prompted multiple investigations into how such a massive deficit could occur seemingly without warning.
Three separate independent investigations have now shed light on a perfect storm of financial mismanagement, poor communication, and external pressures that led to the budget crisis: Open Architects financial review in February 2024, Nystrom Beckman & Paris LLP’s August 15, 2024, independent investigation, and RSM’s report on the FY23 budget deficit released on September 10, 2024. Let's break down how Brockton's schools managed to overspend by such an enormous sum.
A Flawed Process
At the heart of Brockton's fiscal woes was a fundamentally flawed budgeting process for the 2022-2023 school year.
Typically, school districts create detailed line-item budgets allocating specific amounts to different departments and expense categories. But in Brockton, something went seriously awry. According to auditors, a staggering 80% of the district's $219 million budget was dumped into a single catch-all account known as the "199 account" or "Undistributed P/S".
This account was meant to be a small reserve for overtime and variable expenses. Instead, it became a $174 million slush fund with little oversight or tracking.
Why would officials construct such an opaque budget? The answer appears to be a combination of staff turnover and absent leadership at a critical time. The employee responsible for entering detailed budget line items into the district's financial system had retired. Meanwhile, the district's Chief Financial Officer, Aldo Petronio, was on leave from January to June 2022 - precisely when the budget was being finalized.
With no one minding the store, the budget was entered as one lump sum rather than being properly allocated across hundreds of line items. This made it nearly impossible to track spending against budgeted amounts throughout the year.
Crucially, the school committee that approves the budget was presented with a different, more detailed version that didn't match what was entered into the financial system. This created a dangerous disconnect between what officials thought they were approving and how money was actually being spent.
Spending Without Limits
With most of the budget sitting in an amorphous slush fund, the stage was set for unchecked spending. Auditors found that the district's financial controls were woefully inadequate:
- Anyone with access to the financial system could override budget limits and enter expenses even when no budget remained for a particular line item.
- Purchase orders were consistently dated after invoices were received, indicating spending was occurring before approval.
- There was little to no communication to departments about how much of their budgets remained throughout the year.
In essence, the district was operating with no real budget constraints. Department heads used the lack of detail to conduct business as usual assuming the accounting would be handled by the school’s finance team, even as red flags emerged.
This lack of oversight extended to staffing decisions, which are typically a school district's largest expense. Superintendent Michael Thomas reportedly declined to cut approximately 100 positions as suggested by the CFO and deputy CFO, hoping instead for increased student enrollment because he believed staffing levels were appropriate for the district’s needs.
External Pressures Compound the Problem
While poor financial controls set the stage for overspending, several external factors pushed expenses even higher:
Special Education Costs: In FY2023, one of the district's therapeutic day schools was shut down. This forced more students into expensive out-of-district placements, dramatically increasing both tuition and transportation costs.
Transportation Inflation: Like many districts, Brockton saw its transportation costs skyrocket. The budget increased transportation spending by only 6% from the previous year, but actual costs rose much faster.
Homeless Student Transportation: When a moratorium on evictions was lifted in September 2022, it increased the number of homeless students requiring specialized transportation.
Electricity Costs: Utility expenses came in $1.3 million over budget, likely due to rising energy prices.
End of Pandemic Aid: In previous years, federal ESSER funds helped paper over budget gaps. The district spent about $7 million more than budgeted in FY2022 but was able to cover it with these emergency funds. That cushion was no longer available in FY2023.
Warning Signs Ignored
Perhaps the most frustrating aspect of Brockton's budget fiasco is that district leaders appear to have been aware of looming problems months before the deficit became public.
Emails uncovered by auditors show that as early as July 2022, Deputy CFO Chris Correia was warning about a potential shortfall and the need for "conservative spending policies." By late September, he was sounding even louder alarms about staffing levels and millions in unbudgeted special education costs.
In an October 2022 email, Correia told CFO Petronio that without getting transportation costs under control, they were "headed for a very serious budget shortfall for Fiscal Year 2023".
Yet despite these internal warnings, it appears little was done to rein in spending or alert oversight bodies to the brewing crisis. The school committee and city leadership claim they weren't informed of the deficit until much later - possibly not until August 2023, after the fiscal year had already ended.
This breakdown in communication meant that by the time the full scale of the problem became apparent, it was far too late to make the necessary cuts or find additional funding sources.
The Aftermath
The revelation of Brockton's $18 million school deficit threw the city into crisis. To close out the 2023 fiscal year and set tax rates, the city was forced to:
- Drain its entire $7.9 million Chapter 324 Stabilization Fund
- Allocate $2 million from free cash reserves
- Increase local receipts by $9.1 million
But the fiscal pain is far from over. Open Architects projected the school district on track for a $19 to $25 million deficit in the 2024 fiscal year back in February. Even after identifying $15 million in one-time funding sources to mitigate the shortfall, achieving a balanced budget remained a challenge. The school committee may have closed out FY24 with a modest surplus after that report.
Looking ahead to fiscal year 2025, the outlook remains grim. Despite a projected $19 million (8%) increase in state funding, Brockton schools still face a potential $7 to $19 million deficit according to Open Architects. Meanwhile, the city must find at least $20 million in additional local funds to meet school spending requirements and replenish its drained stabilization fund.
Lessons Learned
Brockton's budget disaster offers several key lessons for other school districts and local governments:
1. Maintain strong budget controls: Dumping most of the budget into a single account eliminated crucial oversight. Detailed line-item budgets with regular monitoring are essential.
2. Ensure continuity in finance leadership: The CFO's extended absence during budget season created a dangerous leadership vacuum.
3. Improve communication: Internal warnings about the looming deficit should have been quickly escalated to oversight bodies who could have taken corrective action.
4. Plan for known cost increases: The district failed to adequately budget for predictable rises in areas like transportation and special education.
5. Be cautious with one-time funding: Relying on temporary federal aid to balance prior budgets masked underlying structural deficits.
6. Maintain strong IT controls: Allowing any user to override budget limits in the financial system is a recipe for disaster.
As Brockton works to dig out of its fiscal hole, other communities would be wise to examine their own budget processes and financial controls. The city's cautionary tale demonstrates how quickly things can spiral out of control without proper oversight and transparency.
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