Receiver explains how Isaac School District found itself with $28M budget crisis

PHOENIX — The receiver appointed to oversee the financially troubled Isaac School District’s recovery reported his latest findings to the Arizona State Board of Education on Monday.

Keith Kenny explained how the Phoenix elementary school district found itself with an estimated $28 million budget deficit in the first place.

He said a lot of the fiscal issues began with how Isaac used federal Elementary and Secondary School Emergency Relief (ESSER) funds meant to help schools deal with the long-term impacts of COVID-19.

“ESSER II was overspent by $5.8 million, ESSR III by $1.4 million is what we found, and there was an about $8.9 million that the district lost the opportunity to be reimbursed for the with expenses they had already incurred,” he said during his presentation.

Isaac also tried to fund the installation of security systems through the federal E-Rate program, which provides schools with discounts for things like telecommunications services and internet access.

However, the security systems were not eligible for the program, resulting in an unbudgeted $6 million expenditure for the district, according to Kenny.

Why is Isaac School District under a receivership?

The State Board of Education learned of Isaac’s massive budget shortfall in January and appointed Kenny as third-party receiver to oversee the district’s operations. By then, the district’s cash balance was already negative $20 million.

“Certain steps have to be taken before the state board is notified. I mean, I’ve been an advocate of looking at cash balances and expenses for a long time, but that doesn’t happen before the board. It’s not a requirement there,” Kenny said.

The report comes after the decision was made during an Isaac School District Governing Board meeting last week to shut down two schools to save money.

Kenny said the district is currently able to pay its bills, with more income coming in soon from leases, the money saved from the closed schools and some backed-up funding from the state that has been cleared.

“We still had quite a bit of tax revenue to be collected in April, and we have a big state aid hold-back … (of) over $6 million in July that we’ll get. So, with that $6 million and a couple million dollars that we’ve had in sales, we should have sufficient funds,” he said.

That $6 million reimbursement is for a part of the $8.9 million in overspent ESSER funds.

New law changes school oversight

While the Isaac financial crisis was developing, only the county superintendent of education had the authority under state law to trigger hearings to consider receiverships.

State Board of Education Executive Director Sean Ross said a recent change in the law should help catch similar problems sooner.

“The recent passing of a bill now allows that triggering to occur from the Arizona Department of Education, as well. So, there are more eyes now,” he explained.

Funding for this journalism is made possible by the Arizona Local News Foundation.

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