State Short-Changed Montgomery Schools
Error Cut $24 Million From Funding

By Daniel de Vise
Washington Post Staff Writer
Thursday, January 1, 2009

An accounting error in Maryland's budgeting process cost the Montgomery County school system $24 million in lost revenue in the current fiscal year, and some of the money was mistakenly distributed among the state's 23 other school systems, officials said yesterday.

Some Montgomery leaders are vexed about the mistake, which they found out about just before Christmas. Gov. Martin O'Malley (D) said that he would give the funds back to the county and that school systems that were overpaid can keep the money.

"Sometimes state government makes mistakes," O'Malley said yesterday. "The mistake has been corrected."

State government leaders knew of the error by mid-August. Montgomery School Superintendent Jerry D. Weast said state officials sat on the knowledge for months and have yet to notify school systems that received too much money or too little for the 2008-09 academic year.

"The issue isn't a mistake. The issue is a coverup," Weast said. "And this kind of mistake affected every school system in the state."

O'Malley said state officials didn't immediately discover the underpayment to Montgomery because they had more pressing concerns: correcting their math to forecast property tax revenue in a dire budget cycle.

"That was their first order of business," O'Malley said. "We've been working on it at a staff level since August 11, trying to get to the bottom of it."

County Executive Isiah Leggett (D) said he told the governor of the lost revenue last week. Leggett said he did not think information was withheld intentionally by the state. O'Malley handed Leggett an IOU for the money yesterday at an event to reopen River Road in Potomac after last week's flooding, in a lighthearted gesture of goodwill.

"He said to me today that . . . the state owes Montgomery County $24 million, and he plans to make it good," Leggett said.

The school system will receive the money as a "deficiency appropriation" in the fiscal year that begins in July, O'Malley said.

The error occurred when an employee of the State Department of Assessments and Taxation mistakenly overvalued Montgomery real estate by about $16 billion in a complex "wealth" formula that is used to award state aid to school systems in inverse proportion to their affluence. The worker might have counted newly built properties twice, said Timothy Firestine, chief administrative officer to Leggett.

As a result, the $400 million state aid package to Montgomery schools for the current fiscal year was short $24 million, and other school systems received a larger share of aid than they should have.

County and school district officials said they suspected the wealth estimate was high and urged state officials to recalculate the numbers last January.

"We've got it well documented through e-mails and stuff that we started asking a lot of questions," Firestine said.

Weast said his staff was "utterly shocked" by the state calculations and "tried to seek out explanations." School officials had projected a much larger increase in state aid.

"Did they rerun the formula? Did they check the numbers? Somebody got it wrong," Weast said.

The numbers stood until August, when the taxation agency notified other government agencies it had discovered the error. The overestimation of Montgomery's property wealth became clear when tax revenues came in below projections.

"We had some bad information," said John Sullivan, director of the state agency. "I don't know exactly what caused it. We had a change here in my assistant who does the base estimates" of each county's property values.

O'Malley said his staff eventually determined that Montgomery schools were owed money and that other school systems had been overpaid. He said no school system has been contacted because the glitch harmed only Montgomery. It would be difficult, he said, to recoup money from any of the school systems that were overpaid. The overpayments totaled about $7 million, he said.

Firestine said he can't fault the state "in terms of saying there was some coverup, because probably nobody connected the dots." But he said he does fault state officials for not discovering the mistake months earlier, when officials on his and Weast's staffs were urging state agencies to check their math.

"They should have gone back and re-audited their figures," Firestine said. "Somebody should have said, 'That doesn't make sense.' "

Weast said his staff discovered the mistake when reviewing a Dec. 22 memo from the Maryland State Department of Education to all superintendents, offering preliminary calculations for state aid in the next fiscal year. Although the memo made no mention of an accounting error, it showed Montgomery schools reaping three-quarters of all new state revenue for the coming year. The document made clear that the previous year's math had been faulty, Weast said.