Amid a massive financial crisis spurred by an accounting error, the Orleans Parish School Board has agreed to dismiss a years-old lawsuit against the city of New Orleans for $20 million in cash and $70 million in funding guarantees.
While school leaders across the city may be reassured by the quick $20 million payment, which will help plug budget holes for the 2024-25 school year, charter officials are still anxiously awaiting final details on the district’s promise to directly support their school budgets and students in the face of the shortfall that remains, which is estimated at $16 million – but may be more, depending on what financial advisors find as they look through district ledgers.
This settlement has both short-term and long-term implications. By the end of this calendar year, the city will pay the school board $10 million, with another $10 million to follow by April 1; the agreement also directs the City Council to pay an additional $70 million through education-program funding over the next 10 years. A promise education advocates are happy to have in place with council and mayoral elections coming up.
The City Council had set aside $8 million last year, to deal with the lawsuit, but in light of the district’s financial crisis, the Council came up with extra money and hastened the agreement, Councilman Joe Giarrusso said.
“Everybody’s been talking,” Giarrusso said. “This is a result of two parties who wanted to make sure we could make something happen right now.”
In the long-term, the compromise mandates that the city hand over all property-tax money designated for schools through city millages.
Starting in 2025, in an apparent acknowledgement that its collections were an overstep, the city will hand over 100% of that money. “This agreement will ensure our schools get the money we are entitled to from now on.” Orleans Parish School Board President Katie Baudouin said.
OPSB sued the city, for taking a cut of property-tax money
In 2019, the district sued, alleging the city was illegally taking a cut of tax money that had been constitutionally designated to the school board.
In New Orleans, the city collects about $150 million each year in property taxes earmarked for schools – but some of that money was being skimmed off the top each year to satisfy state retirement-pension obligations. Over the years, the city may have taken millions of dollars.
Think of the money taken as a collection fee, the city argued. Not possible, district officials contended: the property-tax millages were voter-approved to fund schools; every penny from those collections should go to the school district.
Previous Attorney General opinions support the school board’s suit, as do court decisions. Some court decisions specifically support the School Board, including a 1959 ruling, in a lawsuit brought by the Orleans Parish School Board because the city was making a “deduction for the expense of collecting the School Board tax.” In stern terms, the Louisiana Supreme Court enjoined the city “from making any deductions whatsoever from the taxes which it or they collect for the Orleans Parish School Board.”
It is unclear if the deductions ever stopped, or if they did, when they resumed.
Though Monday’s settlement puts an end to the city’s collection fees, it is still unclear if the district is recouping all that was allegedly misdirected.
A 2020 ruling from the 4th Circuit Court of Appeals found the city improperly withheld the funds and must stop collecting the money in the future. But it stopped short of ordering the city to pay back the money.
The district estimates that the city kept an additional $9 million per year in its improper tax collections, said board member Olin Parker. Based on other agencies’ allegations, the practice could date back at least 10 years. But for Parker, making sure that the district got the money now was worth more than attempting to claw it back in a years-long dispute.
“It’s bird in the hand versus two in the bush,” Parker said. Also, given that math, the district will receive $9 million per year and hopefully more as sales taxes increase, he said.
Education funded largely by local property taxes
Education in the United States is viewed as a state and local responsibility – only a small fraction of annual school funding comes from the federal government. So, how the city of New Orleans disperses property-tax money is crucial to NOLA Public Schools, because a substantial portion of school funding comes from those taxes, paid through City Hall.
In Louisiana, local property taxes contribute about 43% of annual school funding; with the state providing roughly 44%, according to the state Department of Education.
Each year, the city of New Orleans collects property taxes on behalf of several parish agencies. The School Board has the largest millage, annually its total payout is nearly three times as much as other municipal obligations, to the Sewerage and Water Board and Downtown Development District, for example.
It was the DDD who first discovered the problem and filed suit in 2018, alleging that the city improperly diverted funds to pension accounts that were meant for the DDD. After making similar findings, NOLA Public Schools officials went into talks with the city, then filed suit about a year after the DDD.
The dynamics of the lawsuit were not discussed at the Orleans Parish School Board’s Thursday evening meeting. Instead, after an executive session, the board simply approved the settlement offer “as recommended by board counsel.” No dollar amount was publicly discussed.
That vote paved the way for Monday’s announcement, all working to clean up the budgeting fiasco discovered this fall.
On October 9, interim Chief Financial Officer Nyesha Veal brought the accounting error to the board’s attention, board member Olin Parker said Monday. The error’s root was in the district’s financial forecast, which was based on an inflated amount of sales and property taxes from the city.
First announced in October as a $20 million shortfall, the amount grew to $36 million this month, once the district added estimated shortfalls for deferred revenue. But district officials cautioned that $36 million is not necessarily a final number.
The district’s budget was based on projections that the city’s property taxes would increase by 18%; but they only went up 8.75%, according to an analysis by the Louisiana Association for Public Charter Schools. The budget also projected that city sales tax would increase by three percent; instead, sales tax decreased one percent.
The $20 million infusion from the city settlement may help offset the district’s estimated $36 million miscalculation. Yet it still remains unclear how the district’s projections fell so far from the mark.
Since all charter schools in the city based their budgets on inflated revenues, cuts in staff and key services are still likely, just so that individual schools can finish the 2024-25 year with balanced budgets.
What’s ahead: difficult, inevitable budget cuts
Charter schools that have been scouring their budgets, trying to find cuts to make up for the budget mistake, have continued to receive the inflated payments based on erroneous estimates.
At Thursday’s OPSB meeting, staff from NOLA Public Schools’ central office announced that the monthly payments to local charter schools will continue at the same, higher rate to schools through November. Starting in December, the monthly payments will be reduced to account for the budgeting-forecast error, the central office staff advised.
Now, as the shortfall could affect school payments starting next month, the Louisiana Association of Public Charter Schools would like to see OPSB give all the money directly to schools, rather than offer it through loans, as board members proposed during committee meetings last week, said Sarah Vandergriff Kelley, legal and policy director for the Louisiana Association of Public Charter Schools.
Other school leaders argue that the most vulnerable students could otherwise be harmed the most as the shortfall is resolved. To address that, the money should go directly to schools through the district’s “differentiated funding formula,” said RENEW CEO Tanya Bryant.
Developed with an eye to providing more equitable funding to schools that enroll unique student populations with varying needs, the district’s differentiated formula provides additional per-pupil funding for students with disabilities or English-language learners. “The funding can immediately assist schools in offsetting any gaps caused by the prevailing issue with the revenue projection,” Bryant said.
On Thursday, the board directed the district to return in December with a short-term plan. Board members also discussed how to soften the blow of this year’s inevitable cuts. Like Bryant, they were particularly concerned about schools with the most urgent needs. They tried to determine how one school could save its band while another kept its after-school tutoring program afloat. They wondered whether larger charter-management organizations would fare better than single-site charters.
But in some ways, the immediate financial effects of the ongoing budget woes were overshadowed by that day’s news, the resignation of Superintendent Avis Williams.
Williams will stay on until Dec. 1, when Deputy Superintendent Fateama Fulmore will step in, as interim superintendent.
But before she goes, she may need to steer schools through this problem, said Nolan Marshall Jr., the longest-tenured board member, as he asked the district to carefully outline next steps.
“Slow down a little bit. Task the superintendent with figuring out all the ramifications,” Marshall said. “Who is at the emergency level and who can withstand this?”
Securing Harrah’s Funding for Orleans schools and services to school kids
As part of Monday’s announced settlement with the city, the City Council announced a new partnership that will direct to the district a special pot of casino funding known as Harrah’s Funds.
The money had historically gone directly to the district. But the casino’s new lease in 2020 broadened the council’s ability to award the grants. And for the next four years, the district received a significantly smaller share of Harrah’s Funds, which instead went to other youth programs that support the city’s students, like the school at the juvenile detention center. Now, those funds, which amount to about $3 million a year, will all go to the district, board member Olin Parker said.
The new partnership will also direct an additional $3 million annually to ThriveKids or a program with similar services. ThriveKids provides mental health services to Orleans Parish school children through Children’s Hospital. ThriveKids believes it will be able to raise matching money from donors based on the city’s funding commitment, allowing them to serve even more students, Parker said.
Additionally, the council will give $1 million each year to YouthForce NOLA, the New Orleans Career Center, or any other trade/vocational training program.
Though the legal matters are separate from the Harrah’s partnership, the partnership was the added incentive that made the settlement possible, Giarrusso said.
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