A $34 million crisis of confidence in D.C. schools

By Bill Turque
Washington Post Staff Writer
Sunday, April 25, 2010; C01

Follow the money, if you can.

First, Chancellor Michelle A. Rhee announces that an extra $34 million is available in the D.C. schools budget for teacher pay raises. Two days later, Chief Financial Officer Natwar M. Gandhi declares that not only is most of it nonexistent but also that Rhee is running a projected $30 million over budget in her central office operation.

Within hours, Rhee says an unspecified $29 million has been "identified" to fund the raises.

How this happened, why and how it will be resolved still isn't clear. Rhee and Gandhi are saving most of their answers for scheduled testimony before the D.C. Council on Friday. Hanging in the balance is the fate of the District's $140 million tentative agreement with the Washington Teachers' Union, which is contingent on Gandhi's certification that the pact is financially sound.

The remarkable back-and-forth between the chancellor and the chief financial officer also has parents, teachers, District officials and business leaders asking: Why do the school system's finances appear to be such an impenetrable mess?

"It's a good question. I'm not sure there's a good answer," said D.C. Council member Jack Evans (D-Ward 2), chairman of the council's finance committee.

Gandhi declined to comment for this article. Rhee said in an interview Friday that she accepts some responsibility for the disarray.

"It's unfortunate that we're in the situation that we're in," she said. "But I think it's important to make clear what we have responsibility for and what we don't."

Rhee is referring to the peculiar division of power between the school system and Gandhi's office. A legacy of the District's Control Board era, the law gives Gandhi control over the agency's budget and financial operations. In other words, Rhee runs the schools, but Gandhi -- through a top deputy assigned to Rhee's office -- keeps the books. Information on where the school system stands financially at any given time comes primarily from his staff. Congress established the structure to address chronic financial mismanagement within the D.C. government. But critics say that in the case of the schools system, it has obscured accountability and enabled interagency finger-pointing.

Rhee has clearly signaled that she is using numbers she regards as not completely reliable. At the April 13 council meeting during which she revealed the surplus, council member Kwame R. Brown (D-At Large) asked, "Do you have confidence in the CFO process?"

"We are working with them," Rhee said.

"The answer is no," Brown said.

But the financial muddle also grows out of tensions Rhee has created with her high-velocity, high-profile quest to transform the city's long-struggling public schools. Mayor Adrian M. Fenty's huge political stake in the success of the education overhaul makes Rhee the 800-pound gorilla of his administration. Early in Rhee's tenure, the Democratic mayor put out the word that D.C. officials said "no" to her at their peril.

In less than three years, four Gandhi deputies have served as the school system's chief financial officer. At least two have left under a cloud of controversy over school system spending.

Evans said the instability has hurt. "Lately you've had too many CFOs. The lack of continuity is a problem."

The dispute has also shaken the confidence that the city's business leadership has in Rhee and Gandhi.

"It doesn't seem like anybody knows how much money is being spent on a regular basis," said James C. Dinegar, president and chief executive of the Greater Washington Board of Trade. He calls that "inexcusable."

Problems predate Rhee

Although some issues have surfaced on Rhee's watch, others predate her arrival in June 2007. Since 2006, the District has been considered a "high-risk" grant recipient by the U.S. Department of Education, a seldom-used designation that signals weaknesses in accounting practices, audits and monitoring of spending -- all within Gandhi's portfolio. It means that the Education Department can impose special conditions and restrictions on grants.

In 2007, an outside audit conducted for Rhee by Alvarez & Marsal found a $155 million deficit amid "numerous deep-rooted structural issues and a system of insufficient checks, balances and controls." Michael Casserly, executive director of the Council of the Great City Schools, which works with urban school systems to improve their operations, said little has changed since the audit.

"It surprises me that confusion like this doesn't happen more often," said Casserly, who has studied the D.C. school system's finances. He said that although the District government's overall financial health has improved dramatically under Gandhi's leadership, his agency has been unable to provide timely information to Rhee's office on budget and spending matters.

He added that recent events make a case for considering a change that would give the school system more power over its own budget.

"No other CEO of any other urban school district in the country has as little control" as Rhee does, Casserly said.

Council member David A. Catania (I-At Large) calls the bifurcated system an unwieldy "duck-billed platypus."

Rhee "is responsible for some part, and [Gandhi] is responsible for another. If she were responsible for her own budget, we could lay the blame at her feet."

The clash over the $34 million surplus seems to be a case in point. George Dines, the Gandhi deputy now assigned to Rhee, reported in late March that expenditures for teacher salaries and benefits were running significantly lower than the systemwide average budgeted for 2010 ($81,000). Those savings became the basis for the "surplus" that Rhee announced to the council on April 13.

Dines said that he based his finding on data provided by Rhee's human resources department and that he wasn't clear how it derived the averages. "We probably need to understand the methodology utilized by HR," Dines told Rhee in a March 29 e-mail.

Gandhi's April 15 response to Rhee's revelation raised more questions than it cleared up. He said the $34 million was offset by $30 million in projected overspending by the school system's central office. If Dines was aware of the overage, he made no mention of it when he originally flagged the purported surplus for Rhee. But Gandhi's office has also said that Dines was unable to schedule follow-up meetings with Rhee or her staff to go over the numbers.

Dines did not return calls or an e-mail requesting comment.

Fenty largely silent

Fenty, the man who appointed Rhee and reappointed Gandhi -- a holdover from the administration of Mayor Anthony A. Williams -- has stayed in the background. He says that too much has been made of the disagreement over the $34 million and that he is confident his two agency heads will work out a solution to fund the teachers' contract.

"We're all professionals," Fenty told Fox 5 on Thursday. "We've gotten a lot of things done in the past 3 1/2 years. It would be naive to think we'd agree at every stage."

But discord and disarray have been closer to the norm than the exception for Gandhi and Rhee. While the school system financial officer reports to Gandhi, Rhee's unique status in the government means that the person in that post effectively serves two masters.

The arrangement hasn't gone smoothly, with the turnover of the school finance deputies. Sources told The Washington Post in 2008 that finance chief Pamela Graham was forced out by Rhee after she raised questions about excessive hiring and spending. Rhee said she did not force Graham to quit.

When Graham left, Rhee persuaded Gandhi to replace her with Noah Wepman, then 34 and an assistant to then-City Administrator Dan Tangherlini. Wepman's relative lack of experience gave Gandhi pause, sources familiar with the transition said, but he ultimately agreed to assign him.

"The chancellor and I have a very good relationship," Wepman said at the time of his appointment. "We're all on the same team."

But by November 2009, Wepman was gone after telling the D.C. Council that he did not alert Gandhi to a $13 million budget gap that helped trigger October's teacher layoffs. Gandhi certified the school system's 2010 budget as in balance without knowledge of the gap. Wepman, who has declined interview requests, has never really explained why he didn't keep Gandhi informed.

Despite council members' calls for Wepman's resignation, Gandhi spokesman David Umansky said Rhee pressed Gandhi to keep Wepman on. Rhee said she "continued to express my confidence in Noah."

Two interim replacements have followed Wepman, including Dines, a veteran Gandhi staffer. The search is underway for a fifth and "permanent" financial officer.

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