The nebulous financial hole in the Rochester City School District has now come into troubling detail, as district leaders are now saying they're short about $50 million just a few months into the budget year.

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That is according to four people with direct knowledge of the situation. They requested anonymity to discuss an ongoing investigation into how the district managed to overspend its 2018-19 budget by 5% without anyone noticing.

The district cannot yet answer a number of questions: how and where the overspending came about; why it didn't surface earlier; and how it managed to keep paying its bills after having overspent by $50 million.

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The person who would know those answers best, Chief Financial Officer Everton Sewell, is out of town dealing with an unexpected death in his family.

Annmarie Lehner, chief of staff to Superintendent Terry Dade, said Saturday the district is convinced it is not a matter of an employee stealing or redirecting money.

The district is still investigating the problem, which it first learned about last week from its contracted internal auditor. School Board President Van White said he felt obligated to inform the public because the city of Rochester recently went out to borrow money based on a representation of the city and district's combined finances.

No matter the cause, the district will almost certainly need to trim its budget during this school year, including layoffs. $50 million represents the cost of more than 600 teachers with benefits, for instance.

City spokesman Justin Roj said in a statement Saturday, "The city of Rochester has not received any specific information from RCSD regarding their reported deficit despite repeated requests for information on Friday. If the size of the district’s shortfall is accurate, then the result will be disastrous for taxpayers, teachers and students in our district."

The revelation presents an immediate crisis for Dade just three months into his tenure. It is all the more vexing considering that the district, in December 2017, received a consultant report with blunt criticism of its budget process.

The consultant, Rick Timbs, found inefficiencies and opportunities for error throughout the budget department and district more generally.

His most significant takeaway now seems prescient: "There is a prevailing belief among some of the leaders that funding will always be available, budgeted or unbudgeted, for initiatives or enhanced levels of staffing. ... It cannot be overstated that (district employees) must begin to realize that the funding for the district is not unlimited."

Details coming this week

Broadly speaking, the overspending seems to have happened as the district was seeking to redesign its special education department once again while simultaneously closing a recurring structural budget gap.

That gap remains a factor on top of the current financial disaster. Last December, the district projected a $56.1 million budget gap in 2020-21 without any major cost-savings measures such as closing schools or drastically reducing the size of the workforce.

The letter White sent to State Regents Chancellor Betty Rosa mentioned the district's self-insured health care fund as a second driver of the problem. Rochester Teachers Association President Adam Urbanski said, to his knowledge, that fund has a surplus.

The brief mention in the letter, Urbanski said, "is absolutely contrary to the condition of (the fund). ... Self-insurance has saved the district tens of millions of dollars and continues to be one of the healthiest health care funds for any district in this area."

The district did not immediately respond to a Freedom of Information request for its draft audit report and other related documents.

Lehner said the district's finance team, without Sewell, will report by Tuesday what it can determine about the cause of the crisis. They will brief Dade Wednesday, when he returns from a work trip.

The district will present in public what it knows at an Oct. 8 school board audit committee meeting, at the latest.

I don't know how they closed the books flush in May then discovered a deficit in September," Urbanski said. "If this proves to be true, I don't know how they'll try to rectify it. ... We're sort of in a holding pattern waiting to hear further details."

JMURPHY7@Gannett.com

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