Gary school district requests additional state loan to meet operating expenses

Peggy Hinckley, the state-appointed emergency manager for the Gary Community School Corp., speaks last week to the Indiana Distressed Unit Appeals Board in support of her request for a $3.11 million state loan to cover the district's monthly operating expenses.

Dan Carden, The Times

INDIANAPOLIS — It's taking the Gary Community School Corp. emergency manager longer than expected to get a handle on the district's finances, since none of the processes and technology commonly employed by large enterprises and most public school districts were used in Gary schools.

Peggy Hinckley, of MGT Consulting Group, last week said "total disarray" was the only way to describe the financial structure of the Lake County school district that the Indiana Distressed Unit Appeals Board appointed her to run six weeks ago.

"When I came there, the HR (Human Resources) Department did not have control of payroll or benefits. They were under someone else," Hinckley said. "We had no internal controls for anything, no payroll controls, no processes."

Portions of the district's finances still are managed using text files that have to be manually entered into a DOS-based computer system that dates back to the 1980s, said Eric Parish, MGT executive vice president.

"Just running a report can take a day or more, rather than a few clicks of a mouse," he said.

Parish noted that most other district financial records, when they exist, have been kept by hand, and there was nothing left to him resembling a comprehensive list of what is owed to whom and when.

"We don't have a plan to say, 'Here's the priority,'" Parish said. "It seems that just about every day, or every other day, something falls from the sky."

He said figuring out whom to pay on those days when the district has sufficient funds in its bank account is a matter first of meeting payroll, then balancing more than 20 court judgments against the school corporation with "who is screaming" among the district's vendors.

"It is, for lack of a better term, a shell game," Parish said.

Steps taken

Despite the financial chaos she inherited, Hinckley is confident that her team is rowing in the right direction to keep Gary's schools afloat.

The State Board of Finance on Tuesday is expected to approve a $3.11 million loan, requested by Hinckley and recommended by DUAB, that will enable the school corporation to retire a portion of its outstanding accounts payable, cover payroll through late October and invest in essential business equipment.

Parish indicated that the district likely would be paying significantly less for numerous services, including health insurance, if its vendors knew they would be paid on time — making on-time payment a key priority going forward.

His staff also is scouring the books to seek any "lost" money or opportunities to grow revenue in an effort to relieve some of the pressure on the district's general fund.

For example, the school corporation recently purchased new textbooks for all students using approximately $2 million in previously awarded federal funds that had to be spent by the end of the month or returned to the federal government.

"Had we not found that and taken advantage of it, that would be money lost," Parish said.

More challenges

Sorting out the district's payroll is another of Hinckley's top priorities.

She recently explained to DUAB that there was no payroll roster when she took over Aug. 1, and it's been a struggle to figure out who is working for the district, when they're getting paid and from which account.

"We have heard from people here that we have ghost employment. But you have to prove that," Hinckley said. "With every payroll we're getting a better handle, and we think we're close to getting that roster in place."

She said the payroll situation is complicated by a state law that allows reductions in force, that is, layoffs, only during the spring semester.

So even though Gary schools are projected to have some 500 fewer students compared to last year, which translates to a loss of $4 million in state funding, the district cannot reduce its staff despite the state's taking away some of the money needed to pay them.

"Our hands are somewhat tied, because statutes prevent us from taking bolder action," she said.

Prior to being supplanted by Hinckley under Senate Enrolled Act 567, the Gary school board trustees could have taken more aggressive steps to maintain a balanced budget and put in place standard financial processes and procedures.

Instead, the district's chief financial officer post was left vacant for long stretches of time. Also, many reform recommendations by state-appointed financial consultant Jack Martin were ignored, and examinations by the State Board of Accounts repeatedly found an abundance of unaddressed financial deficiencies.

In 2015, State Auditor Paul Joyce, a DUAB member, wondered whether the district even could continue functioning much longer.

"The deficit cash balances of the school corporation, as well as the school corporation's procedures performed to operate without addressing the root causes of the deficits, raises substantial doubt about the school corporation's ability to continue as a going concern," Joyce said at the time.

The first-of-its-kind state takeover of the district seems to have answered that question.

Nevertheless, Hinckley remains optimistic that she will meet DUAB's Dec. 31 deadline to devise an effective strategic plan that will carry the district forward, despite what she described as a "daunting task" ahead.

"We have found many, many people in Gary that want to find solutions, that want to see the school corporation improve," she said. "As we get our hands around things, we continue to try to work toward those solutions."

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Dan is Statehouse Bureau Chief for The Times. Since 2009, he's reported on Indiana government and politics — and how both impact the Region — from the state capital in Indianapolis. He originally is from Orland Park, Ill.