EPISD is in the middle of a financial disaster. Here’s what to know
Diego Mendoza-Moyers: Today, we’re talking about the financial disaster underway within El Paso’s largest school district.
This week, the elected trustees of El Paso Independent School District learned of a $52 million hole in the district’s budget that became apparent in early May. The school district’s leaders blamed the problem on the district’s former finance chief, Martha Aguirre, who resigned a couple of weeks ago when an external audit revealed the financial blowup.
The message from the district’s consultant was clear: EPISD must slash spending, or it will risk running out of cash to fund school operations and public education throughout the district.
EPISD isn’t the only school district in El Paso facing huge financial challenges caused in part by state policies. But EPISD is planning to ask voters to approve a bond later this year to generate funds for school repairs. After the budget blowup that the district’s elected trustees said they were shocked to learn about, it’s far from clear whether El Paso voters will be comfortable granting the district bond funds that could increase property taxes.
It’s a mess at EPISD. So, I’m going to talk with the most qualified person I could have on, El Paso Matters education reporter Claudia Lorena Silva. Claudia attended the board meeting where trustees discussed how the district can climb out of the deep hole it’s in, and she also spoke with the district’s recently-hired superintendent about how this happened and what comes next.
Before I speak with Claudia, I want to mention that this El Paso Matters Podcast episode is brought to you by our podcast title sponsor Tawney, Acosta and Chaparro, truck crash and injury attorney. Their team of local, seasoned trial attorneys are ready to help if you’ve been injured in a crash.
And you can read our free reporting or sign up for our newsletter at elpasomatters.org.
On to our conversation.
Claudia, thanks for joining me.
Claudia Lorena Silva: Thanks for having me again.
Diego: So, one of EPISD’s trustees, Jack Loveridge, said at the EPISD board meeting this week that the district’s current situation is “one of the biggest crises to face a school district that I can imagine.”
Can you just bring us up to date on where EPISD is at in a disaster that the district is facing?
Claudia: Yeah, this is pretty big and it might be even one of the biggest disasters in El Paso right now.
To try to explain this as briefly as possible, EPISD basically got hit with a massive surprise deficit worth $52.8 million. They’re actually even expecting a deficit of $42 million for the next school year. So, this is a big deal because both of these deficits can dwindle the district savings and basically make it impossible for them to operate.
So, Texas law actually requires that they have about 75 days worth of funding. So, that’s enough money to keep the district operating, pay expenses for 75 days in an emergency. If they don’t have that amount, they can actually get failing grades in the state’s financial monitoring system. After this year and next year, EPISD is expected to only have 12 days left.
So, because of that, an outside auditor that came in and was hired by the district recommended that they declare financial exigency. This is essentially the same as bankruptcy. And what it allows the district to do is it allows them to break contracts. So, that could actually mean layoffs. And even if teachers or employees get a contract, the district would be allowed to legally break it after they declare financial exigency without having any additional legal repercussions.
Diego: Wow. So, it’s a pretty extreme measure?
Claudia: Yeah, pretty extreme.
READ MORE: What financial exigency means for EPISD: layoffs, budget cuts, broken contracts
Diego: So, I just wonder if you could talk a little bit about how we got here, Claudia? And you did an interview with the current superintendent, Brian Lusk of EPISD, who was hired pretty recently. And he basically said that the prior CFO – who just resigned a couple of weeks ago, right, from EPISD – that Martha Aguirre, she was withholding information from the board and from district officials.
And she was also an interim superintendent for a time last year. Can you talk about your interview with Brian Lusk and the comments that the CFO was basically hiding bad financial information, right?
Claudia: Yeah. Well, to answer the first question, there’s a few different reasons why this happened.
So, one is the district is dealing with declining enrollment. All the districts in El Paso have actually been having that problem in recent years. But they lost significantly more students than they expected, close to 1,000, actually.
Diego: Which means less funding from the state, right?
Claudia: Yes. So, student attendance is tied to funding. So, when there’s less students going to school, attending class, there’s going to be less funding coming in from the state.
Another issue that the district had was having high payroll. So, about 89% of the district’s budget goes directly to payroll costs. So, once they made all those adjustments and amendments to their expenses, that’s about $502 million. Now, normally most school districts have payroll closer to about 83% of their budget, so, it’s a bit higher than some other districts.
Another issue was poor financial tracking and making purchases hoping that savings would later be realized and kind of cover that. A lot of those savings that they were expecting were going to be through vacancies, but a lot of those vacancies just didn’t come through. And the big reason that this all came to a surprise is because the board and the superintendent both said that they did not get accurate information.
Lusk, when we were in that interview a few days before the actual – the week before the meeting actually – he said that the former CFO, Martha Aguirre, deliberately withheld information about the budget. As you know, Martha Aguirre resigned a little bit earlier this month. From my understanding, her resignation just came a couple days after she informed the board that the deficit was going to be a lot higher than they initially adopted.
And to kind of give you a little history lesson, last year the district adopted a budget that would have had a $6 million deficit. So, from June of last year to May of this year, that deficit went up to $52 million. And the big problem discovering it right now is the school year is about to end. The fiscal year comes to an end on June 30th. So, any cuts that would have addressed that deficit would have needed to have been made much earlier. At this point, it’s just much too late to make any significant budget cuts for this school year.
And one thing with the interview that we had with EPISD last week is, since we talked about it with them as we prepared to cover it, at the time they told us that they had a $38 million deficit and they were actually trying to reduce it. So, before the meeting this week, we actually were expecting the deficit to be a little bit lower than $38 million.
But since then, MoakCasey, which is the consulting firm that they hired from Austin, they looked into it and they found out that it was actually $52 million. So, a lot of this all happened very quickly, within the last week or so.
Diego: Kind of a sudden storm hitting the district?
Claudia: Yeah, very sudden.
Diego: So, I’m curious what you expect to be the next steps for EPISD, Claudia, to get out of this really deep financial hole? I think budget cuts are going to be a guarantee, right? You alluded to the fact that most of EPISD’s spending and budget is made up of staff wages and salaries, right? So, that would suggest that layoffs are likely. I just wonder what steps you expect EPISD to take to get out of this hole?
Claudia: Yeah, budget cuts are definitely going to be necessary. And since most of the district’s budget goes towards payroll, that is probably going to be the most likely cuts that are going to be made. It’s probably also the fastest cuts that could be made because a lot of the other things are utilities and expenses that need to continue to keep the district operating. Some of it is for different educational programs that are definitely needed just for students to be able to do their work.
So, it does look like there’s gonna be layoffs. We estimate that they may be in the hundreds. Before any decisions are made, though, they would have to go to the board for approval. The superintendent would essentially need to recommend them to the board and they would have to vote.
And financial exigency also allows the district to do furloughs and make pay cuts, but I’m not really sure if that’s going to be the option that they take, mainly because MoakCasey, they said that the district needs to make changes that are going to be longstanding. Obviously, furloughs are only temporary and pay cuts, that could really affect morale. So, a lot of times districts don’t usually look at cutting pay.
Diego: Yeah, I thought that was an interesting point in your story where you talked about the consultants really focusing on the district creating recurring savings, right? Not a one-time thing. I think we’ve seen the district before like, “Hey, let’s sell some schools, let’s do these one-time things to bring in some cash immediately,” but not a recurring thing.
And, so, that, again, points to layoffs, right? Because you’re talking about saving ongoing, if you’re cutting staffers, you’re saving on an ongoing basis. So, that just pointed, to me, to more likelihood of layoffs. So, that was kind of an interesting point in your article.
I wonder, Claudia, what was the board meeting like? It just seems like this kind of bomb went off and I’m just wondering the reaction you saw from the board of trustees as well as just anybody in the audience?
Claudia: Yeah. Well, the meeting was definitely very disheartening for a lot of people. I think the mood was tense throughout the entire presentation.
One thing that I noticed is that most of the public comment focused on families asking for increased access to translation, which is actually something that I’ve been working on for a bit. And, really, it just made me wonder how easy it will be for the district to address this issue and other issues with such a big financial hole. And I think that’s what was sinking in for a lot of people that were at that meeting. A lot of them were activists or parents or families who are very actively involved in wanting to get things done for the district, wanting to improve things. And I think it might be daunting now to keep asking for those improvements while knowing that the district is in a really tight situation.
Diego: Yeah, and I’m glad you brought that up, because that’s a good point that we talk about this budget deficit and layoffs and so forth, but really the impact is to the students when there’s cuts and when the district has to just reduce its spending, the ultimate people impacted are the students and the loss of programs and translation and things like that you’re talking about. So, I think that’s a good point for us to remember.
I know a lot of people are thinking about accountability, right? And who’s to blame? Who do we push the blame of this whole disaster onto, right? And, so, I know that’s going to be like a big talking point going forward and something that will be figured out in the months ahead. But I just wonder what you heard as far as the trustees seeking accountability for this and what you expect to come in that regard?
Claudia: I think, in general, the question about accountability is just always really difficult to answer because accountability does look different to everyone. But one of the things that I think makes this situation even more difficult is a lot of the leaders who were in place when the budget was approved earlier this year and a lot of these issues were happening are now gone.
Something that was mentioned throughout the meeting and was also mentioned by Lusk when we discussed with him is that this was a pretty wide systemic issue. This isn’t something that you could have just blamed on one single person. And this had to have been occurring for several years. Some people are even assuming or guessing that this has been going on since the last two superintendents. So, it’s going to be difficult to really hold people accountable when the issue has been going on for so long.
Some people do think that the employees who are still at the district who were involved with this may need to be fired or punished in some way. I think whatever happens may be really dissatisfying to the public.
One of the reasons is because some of the people who could have been held accountable are now gone. And because, a lot of times, when it comes to issues with employees or any kind of disciplinary action, that is not open to public disclosure. A lot of that stuff is private. So, we may never find out who was responsible and if anything came of it.
Diego: Do you think there was a sense among the trustees, like, “We want to find someone to blame or someone to hold accountable for this?” Do you think that’s something they’ll prioritize in the months ahead?
Claudia: I think that’s something that the trustees wanted. I’m not really super sure if that’s gonna happen. When Bob Moore, our editor, talked to Dr. Lusk, he didn’t seem like he was very interested in going back and investigating. It seemed like he was much more interested in moving forward and trying to correct the situation.
So, there were some board members who, yes, they want these proverbial heads to roll and they want something to be done. But it just, at this point, to me, it seems really unclear what could happen and what will happen.
Diego: I wonder, too, what do you think, Claudia, of the school board, which is all elected, right? Like, what do you think about their role in this whole financial disaster? Because I know, on the one hand, Jack Loveridge said, this whole – really, one of the worst things that a school district could go through is happening under our watch.
But at the same time, I think if the board’s relying on information from the staff and if staff is withholding information, there’s a level of – how could the board know, right? But I just wonder – I mean, part of me says, “Hey, you’re the ones that are managing and governing this district. It’s a really bad look that this would happen without you knowing at all.”
But, again, I get that if there’s withholding of information, it’s hard to know that something’s wrong. But I just wonder, how do you think about the board’s role in both this financial crisis and the reaction to it?
Claudia: I do think that the board may have known about some of the issues, but it probably wouldn’t have been possible to know the full extent of the problem.
I do think that they should have known about some of the purchases that were never amended to the budget. So, some things that happened, for instance, the board approved separation incentives for teachers. They also approved purchases for a transition in leadership. So, they should have known that all those costs should have gone to them for approval to make amendments to the budget. And they never did. And that should have at least raised some red flags for them.
But those purchases would have not added up nearly close to the $52 million deficit that they’re at right now. And the reality is that board members do kind of have a limited scope or limited view of the exact budget situation. They have to rely on the employees of the district or the finance department to give them basically reports and information on how it’s doing. So, if they were not given accurate information, it would be difficult for them to vote in accordance and make better decisions.
So, the way that leadership works in a district is that the board hires a superintendent and the superintendent delegates and is in charge of all the other employees. So, it technically would have been the superintendent’s responsibility to ensure that the financial department was doing their job. But we have to remember that there was a change in leadership. A lot of these employees were in place before Dr. Lusk came into office.
So, when a lot of this started coming out, at that point, I think he just is like, “OK, well, we have to fix this.”
Diego: Yeah, I’ll be really curious to see.
We saw several EPISD trustees just elected, I think, last year. And, so, A, I don’t think when they were entering office they were expecting such a disaster that they would have to face. But I’ll just be curious if, down the line, if voters look to blame the trustees or put new trustees in office or whatever. That’s down the line and that’s just the political side of it. But I’m curious to see how future board elections take place after this happened.
I want to come back to EPISD, Claudia. But, just for a second, EPISD is not the only school district in El Paso facing some financial troubles. And we know Socorro ISD has had state conservators kind of managing their district. But Ysleta ISD is also facing potentially some financial challenges, right?
Claudia: Yeah. So, Ysleta is somewhat in a similar situation. The thing that makes it a little bit different is that they’ve known that they’re in a deep financial problem for quite some time now. Their chief financial officer, she’s actually been warning the district that they need to make some drastic cuts or else there’s going to be some serious consequences for the district. I don’t have those numbers right in front of me right now, but what I can tell you is that over the last several years, the district had been adopting a budget deficit.
FROM THE ARCHIVES: YISD approves budget deficit, employee pay raises, depletes reserves
The CFO in previous years was able to recommend that they adopt a balanced budget, but, oftentimes, the board would approve additional expenses that went beyond that. In more recent years, the CFO was having a much harder time actually getting the budget balanced. And even while she was struggling to cover all of the district’s costs, the board was sometimes still approving additional expenses, like raises for certain employees last year that weren’t funded by the state.
SEE ALSO: YISD eyes tax ratification election as enrollment declines, future layoffs possible
So, that ended up digging into their savings. Now, at this point, if the district doesn’t do anything drastic, which could mean layoffs, they’re also going to be facing financial exigency. And the CFO has been warning about this for quite some time. This isn’t completely new.
But I think now the superintendent, Xavier De La Torre, is using slightly harsher words and saying, “Hey, layoffs could happen if we don’t do something.” In the past, anytime I talked to him, he was pretty positive that layoffs would not be an answer. But at this point, looking at the budget and the financial challenges, it seems like that may be something that they have to do.
READ MORE: YISD leaders warn tough budget decisions ahead amid shrinking fund balance
Diego: Pretty scary times for public school districts in El Paso. Just appreciate that little breakdown, Claudia. We’ll have to keep up with Ysleta and kind of see how that plays out.
But, so, back to EPISD, and we’ll wrap up pretty soon here, Claudia. But I wonder – so, this is all going on. There’s this massive hole in EPISD’s budget. They’ve got to make some rapid budget changes and take some big measures to get their financial house in order, basically.
At the same time, EPISD is seeking a bond, right? They want to put a bond to voters to raise some funds to do various things and make repairs and stuff, right, at schools. And, so, I wonder if you can tell us, like – I know probably some details are to be worked out, but what do you think EPISD, what are they asking money for from voters? And curious how you expect that to go given the situation they’re in?
Claudia: Yeah. So, one issue that EPISD is facing – like I mentioned, they’re facing several issues – is that they have old buildings and lack of adequate air conditioning. And there has been talks of a bond to try to correct that. There’s even a bond committee that’s supposed to be looking at the finances and kind of making recommendations on what changes need to be made and what improvements there should be.
Bonds, they come with raises in property taxes, essentially, to allow the district to generate more revenue and this will allow them to do building projects. And in this situation, what the district wants to do is they want to renovate some of their older facilities and they want to make sure that all their campuses have adequate air conditioning and cooling.
Now, one of the tough things about this is there’s already been a lot of distrust with the district due to prior decisions. The change in leadership really upset some people.
Diego: When they fired the previous superintendent, Diana Sayavedra, last year is what you’re referring to, right?
Claudia: Yes. So, that change in leadership was very upsetting to some people, and that kind of already made them distrustful of the district.
Then you had the school closures. So, last year, the district ended up deciding to close, I believe, eight schools, and a portion of them closed this year. And there’s going to be a few more that are closing the following year. So, a lot of people were already really unhappy about that.
And now, with this issue, taxpayers are likely going to be worried if the district is going to be able to handle the money properly. Now, the district is promising transparency to try to fix the problem. But, I mean, I think we’ll have to wait and see. In the past, districts have promised transparency, and now we’re finding out that really wasn’t the case.
Now, I can say that I do think that this superintendent has been more open and willing to talk to us in the media, so I do think that’s a good sign. But I think, ultimately, the big picture here is that there is a significant need in the district. But without trust, there’s probably no way that the district is going to be able to convince voters to approve that. And as someone who has been in the district, has been on campuses, talked to students and families and talked to – learned about what they need and the resources that they’re lacking, it’s just disheartening at this point from someone looking at it from the outside.
Diego: Yeah, I think it’s a natural reaction for voters to say, “Man, your financial house is very much in disorder right now, EPISD, so why should I entrust you with more of our tax dollars?” And I think that that’s a fair viewpoint that voters will have.
But, at the same time, I am reminded by your comments about, like, the translation service potentially going by the wayside, right? And students maybe not having – sitting in hot classrooms because they don’t have good enough air conditioning and their AC units are old and inadequate, right?
And, so, I can kind of understand both sides. Voters not wanting to hand EPISD’s finance department a bunch more money supported by property taxes that they clearly, I think, have a good example of not being able to manage money well. But, on the other hand, I do think that the students lacking facilities and good AC and so forth, that’s a pretty bad outcome.
And, so, I’ll be curious if maybe EPISD – I don’t know the rules around it – but I’ll be curious if voters reject it, maybe they come back, try to get their financial house in order and come back to voters for a bond. I’ll have to see.
I guess just kind of last thing here, Claudio, I mean, what are you expecting going forward? Should we see a plan from EPISD here in the next couple of weeks to sort of outline a path forward? I just wonder what you think the immediate next steps are?
Claudia: Yeah. Well, things are going to be happening pretty quickly, because they have to adopt a budget by June 30th for the next school year. So, they did say that they’re going to be having a meeting in the next few weeks. We don’t know exactly when. And we don’t know exactly when they will declare financial exigency. They may do it before the end of the fiscal year. And in that case, they may have to request that they extend it to next year because every fiscal year, that sort of starts over. But whatever happens, it is going to happen very quickly and we need to keep an eye on it.
Diego: Yeah. I’m sure you’ll be having a lot of conversations with district administrators and elected school board members and so forth going forward, right? It seems like it’ll be – you’ll have your hands full for the next few weeks and months.
Claudia: Yeah, definitely. And I think though what’s really important to remember is something that board members had mentioned, and I think several members of the community have mentioned, is whatever happens in the next few weeks, it’s all going to fall on the backs of the students and teachers. And, so, not only are we going to be needing to take a look at the budget, but we’re also really going to need to talk to them to see how this has been affecting them.
Diego: Yeah. We’ll leave it there, Claudia. Just really appreciate your very detailed reporting. When you had a story come out during the board meeting the other day, it was very in-depth and I thought did a good community service as far as trying to lay out exactly what the problems EPISD is facing.
And, so, just appreciate your detailed reporting and we’ll just hope you keep us informed with all the stuff going on with the district’s finances.
Claudia: Yeah, well, it’s my pleasure to be here. I’m hoping that maybe next time it won’t be so dreary. But I’m glad to keep everyone informed.
Diego: Hope so, too. All right, thanks, Claudia.
Claudia: All right, bye-bye.
The post Podcast: As EPISD looks to ‘extreme measures’ to avoid financial exigency, imminent layoffs create anxiety, uncertainty appeared first on El Paso Matters.
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