Tiverton Schools tap into $1.7 million account

Little-known special ed reimbursement fund raises questions

By Tom Killin Dalglish
Posted 3/13/19

[UPDATE: Wednesday, March 13, 2019, 6:25 a.m.] TIVERTON —Following a Tiverton School Committee meeting Tuesday night, School Committee member Deborah Pallasch released the following …

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Tiverton Schools tap into $1.7 million account

Little-known special ed reimbursement fund raises questions

Posted

[UPDATE: Wednesday, March 13, 2019, 6:25 a.m.]
TIVERTON —Following a Tiverton School Committee meeting Tuesday night, School Committee member Deborah Pallasch released the following open-session announcement from Tiverton School Superintendent Dr. Peter Sanchioni at 9:33 p.m. on Tuesday:

"Due to an increase in 13 out-of-district special education placements for FY 19, ranging in cost from $65,000 to $200,000 per student, the Tiverton School district will exceed its budget for this (current) fiscal year by $1.6
million. That overage will need to be covered by the medicaid reimbursement funds held by NCRSE [Newport County Regional Special Education]."

An estimated $1.7 million in Medicaid special education reimbursement funds is being held, for the benefit of the Tiverton School Department, in a Medicaid reimbursement account with the Newport County Regional Special Education Program.

There are no restrictions on how funds can be used, officials say.

The discovery prompted Town Council member Justin Katz to call the disclosure yet another example of the schools sitting on “another pile of off-budget money” while claiming that budget cuts are squeezing it to the bone.

"We very recently learned of the funds that are available to us resulting from Medicaid reimbursements for special ed," said School Committee member Diane Farnworth, one of several committee members contacted, all of whom said they were not speaking for the committee as a whole.

The existence of the reimbursement funds became publicly known when the matter was first mentioned briefly in open session to the school committee last Tuesday, and will be the subject of a more detailed school department report to the committee this Tuesday (March 12, after this paper goes to press), and again later this week to the budget committee on Thursday.

"We are still working to finalize the exact amount available, and expect to report that information to the Budget Committee when we meet with them next week [the week of March 11]," Ms. Farnworth said last Thursday night.
Superintendent Peter Sanchioni on Saturday said he would defer comment until after he'd met with the school committee and then later in the week with the budget committee.

School committee members Farnworth, and Deborah Pallasch, and Committee Chairperson Jerome Larkin all commented.

History of the account
The regional account with Newport County Regional Special Education (NCRSE) has been "around since 1996," said School Committee member Deborah Pallasch, and had accrued "a large accumulation over the last ten years or so," she said.

NCRSE, Ms. Pallasch said, "is authorized to certify and apply for reimbursement of federal Medicaid funds. These funds are then held in a custodial capacity by them for the various participating districts (in accounting terms these are called Agency Funds)."

In explaining how the funds accrued, Ms. Pallasch said, "the region applies for Federal reimbursements on our behalf for eligible costs. Those reimbursements were not consistently drawn down by the district, so remained with the region where they were held on our behalf." 

"When the districts request a 'draw-down'," Ms. Pallasch said, "that is when it becomes a revenue stream for the district. NCRSE is a separate legal entity controlled by a board of directors. The board is comprised of each of the superintendents from the sending districts. Information to each of the districts (e.g. Tiverton) would be relayed to the boards via that superintendent."

"Had these funds been identified earlier," she said, "we most certainly would have made more technology and infrastructure improvements. The good news is we will be able to make those investments now."

"The ongoing status of the funds had been routinely made known to each of the participating school districts — through the superintendents of the sending districts," said Ms. Pallasch..

Last winter or last summer, the school committee designated a finance subcommittee to take a closer look at finances, said Ms. Pallasch.

"We were just digging into everything. That's what we spent the summer doing. We were just trying to make sure that things made sense," she said. The subcommittee talked with the Rhode island Department of Education, external auditors, and the town treasurer, she said.

"Diane (Farnworth) and I are the board members on the subcommittee, along with Peter (Sanchioni). The director of finance [who resigned her position recently, for unrelated reasons and is no longer employed by the district] is not directly connected to this issue," she said.

Ms. Pallasch is a certified public accountant), and Ms. Farnworth has a bachelors in accounting from Roger Williams, with over 30 years experience in bank accounting and finance project management.

"We have been working diligently since this summer reviewing financials, board minutes, etc. and talking with the external auditors, the town treasurer, and the Rhode Island Department of Education," said Ms. Pallasch. "It's an ongoing review."

"The goal has been to ensure we knew what was being reported and filed. It was within this context that we first asked questions regarding Medicaid reimbursements at the regional level, and the funds were identified," she said.

"Past practice established by the school committee in the 1990's," said Chairman Larkin, "had been to leave the money with NCRSE, where it was used to cover shortfalls when programmatic costs exceeded funding. The total amount of money in reserve has accumulated over more than 20 years.  The news is that it is as large at it is."

Criticisms voiced
"The schools admitted on Tuesday [of last week] that they've got another one-point-something million dollars sitting in a secret off-budget account even as they cry about deficits," said Council Vice President Justin Katz in a Thursday e-mail.

"Given my hope that Tiverton can stop the acrimony and begin working together for long-term planning after this budget cycle, I was disappointed to hear that the school department has yet another pile of off-budget money. This is part of a pattern of accounting maneuvers to have local taxpayers fund things for which other money is available," Mr. Katz said Monday.

Mr. Katz identified other criticisms he had:

  • The school department's lawsuit against the town when some state aid technically came from the federal government and the schools wanted local taxpayers to increase local funds anyway;
  • The restatement of Obama-era stimulus funds to make it look like local taxpayers had to make up for a loss in revenue;
  • The large state-level grant that the school department attempted to carry from year to year, using local tax money instead, until the state forced the schools to take the grant money;
  • The controversy last year when the town's auditor raised a red flag about hundreds of thousands of dollars being shifted from "purchased services" to "salaries" in the middle of the year repeatedly;
  • The use of operating funds to pay for things that had previously been slated to be paid for with from the schools' excess fund balance;
  • Now: the use of local tax funds to pay for Medicaid services without this federal offset.

Mr. Katz drew conclusions from these incidents:

"I hope this Medicaid reimbursement fund is the last example of these efforts to keep Tiverton residents paying for things for which other resources are available. I also hope the school committee decides to join me in a compromise budget that will allow us to move forward cooperatively in the next year."

Use of the funds
"The administration and school committee were only made aware of this, i.e. the total reimbursement amounts held in reserve, in mid-February (actually this past Tuesday night in terms of the full committee)," Dr. Larkin said.

"Accordingly, we disclosed this publicly at the earliest opportunity once we confirmed our understanding of the balance, and any possible restrictions on it. In terms of the latter, there are no restrictions on how the money can be used," he said.

"The question then becomes its disposition, and what is the proper level which should be kept in reserve. We will be discussing this at our meeting on Tuesday," Dr. Larkin said.

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