Melrose City Council Questions Superintendent, Others Over $2.2 Million Budget Shortfall

MELROSE, MA — Melrose Public Schools Superintendent Julie Kukenberger faced questions alongside school district Director of Finance Kenneth Kelley and city Chief Financial Officer Patrick Dello Russo in a marathon City Council meeting Tuesday two weeks after Kukenberger revealed that the district had discovered an unexpected $2.2 million shortfall as it moved to close its 2022 fiscal year budget over the summer.

Dello Russo confirmed that the 2022 fiscal year budget is now closed after officials paid off the shortfall with a combination of unspent grant money, Elementary and Secondary School Emergency Relief Fund (ESSER) dollars and American Rescue Plan Act (ARPA) funding.

The city’s current bond rating, which can influence how it borrows money, is likely intact despite this issue, Dello Russo continued. Overall, Dello Russo described Melrose’s financial position as “solid.”

Dello Russo noted issues following the shortfall, though, saying the last-minute discovery of budget issues left limited responses available to the school district and the city in their response. It was “poor practice,” to learn about these issues so late in the fiscal year, he said.

As Dello Russo, Kelley and Kukenberger all spoke, city councilors continued to note frustration and confusion over both the shortfall and the school district’s decision to wait more than two months after first learning about it before notifying the public.

“This error didn’t happen yesterday or last week,” Councilor Maya Jamaleddine said on Tuesday.

The City Council’s discussion came in the form of a special meeting called after Kukenberger announced the shortfall in a School Committee meeting on Sept. 27.

The shortfall came to light during a transition from Melrose’s former director of finance to its new one – Kelley.

Kukenberger said high costs associated with transportation, absence coverage for teachers, and lower tuition revenue from the district’s Early Childhood Center amid the COVID-19 pandemic contributed to the shortfall. An accounting issue where the district double counted some grants as part of its main operating budget while also spending from those grants outside of the budget worsened the shortfall situation.

Officials had wrestled remaining obligations down to $775,000 by Sept. 27, according to Kukenberger, with plans to use ARPA money to cover still outstanding costs.

School Committee members last month called the shortfall “stunning” and “heartbreaking,” among other things.

Brodeur said in a now public letter to Kukenberger that he was “shocked and dismayed” by the situation.

Community members at large have leveled their own criticism, voicing frustration over the shortfall and its handling.

City councilors pressed Kukenberger on the timeline of the district’s response on Tuesday, submitting a total of 92 questions in writing before their meeting.

Kukenberger answered, saying the district was aware of cost increases from transportation, absences and decreased Early Childhood Center revenue before the end of the 2021-2022 school year.

She said there was also some concern among district personnel around some elements of the transition from the former director of finance to Kelley.

Kukenberger said she did not have any indication that there would be a budget shortfall, though, saying she even left a meeting on July 8 with Kelley and his predecessor feeling “very reassured” that the district would actually end the year “in the black,” having spent below its 2022 budget.

The outlook began to change in the following week, Kukenberger said, as Kelley and other district staff dug deeper into district finances.

Kukenberger said she communicated with Brodeur, Dello Russo and members of the School Committee in the coming weeks as the school district brought in an outside financial consultant and began to get a clearer picture of its shortfall.

She said the team weighed options about when to go public with the situation, opting to wait until September, in part, to allow for a presentation with more information on the scope of the issue and expected remedies.

Brodeur sent a letter to Kukenberger in late August, himself asking for a detailed explanation of the situation. Kukenberger responded to that letter with a letter dated Sept. 21, saying this week that she then requested time for a presentation at the School Committee's Sept. 27 meeting after finalizing her response to Brodeur.

With the 2022 fiscal year’s budget now complete, Kukenberger highlighted new measures in place that she said aim to avoid a future repeat of this year’s sudden shortfall.

The district will be providing monthly budget reports to the School Committee, Kukenberger said.

District administrators will meet weekly to discuss finances, in addition to meetings with Dello Russo.

The district is eliminating its practice that led to double counted grants to avoid new double counting issues. This practice was previously identified as an issue, Kukenberger said. She said she is not sure how it crept back into use.

The district is also planning to continue recurring meetings with its consultant to help “reestablish best practices.”

All school budgets are eventually audited in part to ensure compliance with state Department of Elementary and Secondary Education standards, Kukenberger said.

Multiple city councilors this week pushed for a separate third party “forensic audit,” though, to further review how and why the Melrose Public Schools racked up its 2022 shortfall.

Looking to the future, Kukenberger separately acknowledged that the use of ESSER money to offset this year’s shortfall will leave the district without that money, which it had previously planned to keep on hand for some future budget cycles.

Brodeur has similarly noted that ARPA money spent in this situation will not be spent elsewhere, representing a lost opportunity for Melrose.

City councilors this week called for more clarity in communication from the school district, especially with regard to budgets.

Current documents, Councilor Ryan Williams said, can be dense and hard to decipher.

“It is not the kind of thing that you can throw in raw format at the general public,” Williams said.

While officials shouldn’t dum the budget down, Williams said, they could create more user-friendly documents to improve transparency at a time where officials have noted a need for such transparency and community trust after this shortfall.

Through this week’s meeting, some questions still remained.

Among them, officials have disagreed over the extent of COVID-19’s influence on Melrose’s recent school budget woes.

“This is not a COVID issue, it is a budget issue, and it is fiscally unacceptable,” Brodeur said in his letter to Kukenberger in August.

Kukenberger responded, saying COVID-19 had, indeed, driven many shortfall-related costs.

Brodeur also said the district has created a “structural deficit” across multiple years, similar to the one that was resolved in the 2020 fiscal year with Melrose’s 2019 Proposition 2 ½ override.

Kukenberger said it remains unclear whether the override was successful in resolving that deficit given the COVID-19 pandemic and its impacts, which took hold in the first fiscal year after the override.

“We just have this other compounding factor that struck at the exact same moment,” she said of the pandemic.

Kukenberger will now appear back before the School Committee at a meeting on Oct. 18. There, she is planning to share a new update on the status of the 2023 fiscal year budget alongside a presentation from the district’s financial consultant working on the shortfall and related issues.