Digital Exclusive: Deficit in Lehighton Area School District reduced general fund by more than $13M, audit reveals

Digital Exclusive

HARRISBURG, DAUPHIN COUNTY (WBRE/WYOU-TV) — The Lehighton Area School District had operated with a cumulative deficit for half a decade which reduced its general fund balance by more than $13 million, an audit by Auditor General Eugene DePasquale has found.

In the findings released on Thursday, DePasquale revealed that in addition to operating at a severe deficit, the district also entered a supposed “no-cost” contract with a private education company that ended up costing the district an additional $3 million.

“The Lehighton district greatly overextended itself by taking on enormous amounts of debt, then tapping its reserve funds to build a new stadium for which it had not budgeted,” DePasquale said in a statement. “On top of that, the district spent millions of taxpayer dollars on a private education contract that district officials had mistakenly believed would be achieved at no cost.”

Source: Performance Audit of Lehighton Area School District Carbon County, Pennsylvania

During the 5-year audit period, the Lehighton Area School District’s general fund balance dropped from approximately $14.2 million on June 30, 2015 to just $874,439 on June 30, 2019, the audit says. According to DePasquale, the district failed to budget its capital expenditures and borrowed $62 million to consolidate and renovate school buildings.

“The district racked up a stunning $17.3 million tab for debt service during the audit period,” DePasquale said. “By the time the debt is scheduled to be paid off in 2044, district taxpayers will have paid over $43 million in interest on the loans.”

Part of the deficit is from a contract the district entered with the National Education Foundation (NEF), a non-profit private education company. The company, headquartered in Virginia reported over $25 million in assets in 2019, according to the IRS.

The contract between the Lehighton Area School District and NEF said that the company would assist the district in setting up Science, Technology, Engineer and Math (STEM) programs and provide the district with services and other rewards. However, according to the audit, the district “failed to monitor the agreements” and paid $1.36 million without recieving any of the agreed upon services.

According to the audit, the agreement between the district and company came after the district applied for the Qualified Zone Academy Bond (QZAB) Program from the Pennsylvania Department of Education and was approved for $8.5 million in 2014 as well as a second QZAB for $6.8 million in 2016.

The QZAB Program allowed the district to receive interest-free, or nearly interest-free, bonds to finance its construction projects. However, the program requires applying districts to have a written commitment from a private entity that would pledge not less than 10% of the bond.

To comply with the requirements of the program, NEF pledged to give the district the required 10% of the bond proceeds as an in-kind donation.

In a separate agreement, the audit says the Lehighton Area School District signed a contract with NEF’s for-profit subsidiary, CyberLearning. NEF then agreed to extend its in-kind commitment for five years. The separate agreement resulted in the district paying NEF approximately 20% of each of the QZAB bond proceeds and in the 5-year audit period, the district wired a total of $3,072,250 to NEF.

The audit recommends that the district try to recoup some of the money it paid for NEF’s services which it never received.

When the contract issue was reviewed during the audit of the Lehighton Area School District, DePasquale says he directed his team to review other Pennsylvania school districts that have issued QZABs.

According to the Pennsylvania Department of Education, the following districts issued QZABs between 2009 and 2016:

  • Chester Upland School District, Delaware County
  • Greater Johnston, Cambria County
  • Midd-West School District, Snyder County
  • Minersville Area School District, Schuylkill County
  • Shamokin Area School District, Northumberland County
  • Sharon City School District, Mercer County
  • Tri-Valley School District, Schuylkill County
  • Warren County School District, Warren County
  • Warren County CTC, Warren County
  • Williams Valley School District, Schuylkill County
  • York City School District, York County

“While the problem seems to be isolated to Lehighton Area School District, this is a reminder that school district officials should carefully vet every proposal that comes before them, especially as so many districts are grappling with serving students during the pandemic,” DePasquale said. “Not only should all proposals undergo a careful legal review, the full school board should vote on whether to move forward with a full understanding of the costs and benefits.”

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