District officials find ‘egregious error’ in prior Scottsdale tax rate

The Scottsdale Unified School District Governing Board is comprised of, from left, Sandy Kravetz, Allyson Beckham, Kim Hartmann, Pam Kirby, and Barbara Perleberg. Superintendent Dr. Denise Birdwell and Executive
Administrative Coordinator Sondra Como. (photo by Melissa Fittro)

In a late-afternoon meeting on a day that was breaking heat records outside, the Scottsdale Unified School District was detailing one significant error made in calculations a year prior.

During a truth in taxation hearing held at Coronado High School, 7501 E. Virginia Ave., Chief Financial Officer Laura Smith disclosed that tax rates weren’t set correctly last year, which will effect this year’s cash balance.

Ms. Smith says records show the district’s primary property tax rate last year was 2.85, while it should have been a rate of 2.96. The error resulted in inaccurate reporting to Maricopa County, district officials say.

The item was noted as the board finished its last presentation on the fiscal year 2017-18 expenditure budget, which was adopted with a 5-0 vote later in the meeting.

Ms. Smith joined Scottsdale Unified School District in February, after former Chief Financial Officer Daniel O’Brien transferred to a new position, chief business and operations officer, before resigning effective June 2, governing board documents show.

Ms. Smith says she found the error in the tax rate just one month ago, while preparing the budget.

District explanation

On June 8, Scottsdale Unified School District officials announced their intention to raise its primary property taxes, beginning July 1.

The school district is proposing an increase of $4 million, according to a press release.

The amount proposed would cause SUSD’s primary property taxes on a $100,000 home to increase from $16.0373 to $24.4744.

Ms. Smith says she wanted to talk about the tax rates during the June 20 public meeting because of some concerns brought to her attention.

“I wanted to discuss the tax rates for a minute because we had some inquiries about that,” she explained, of the estimated rates. “It is my job to plan for the worst and hope for the best.”

Ms. Smith says she found the tax rates for last fiscal year were not set correctly.

“Basically what that means is last year you actually taxed at 2.85, you should have taxed at 2.96, and I’m projecting we’ll be at 2.91,” Ms. Smith said of this year’s tax rate.

The error resulted in a negative beginning cash balance, the chief financial officer said. It appears the district was negative $3 million, but reported to the county they had about $1.5 million, Ms. Smith says.

“I’m sure that everyone shakes their head and says, ‘this is not possible,’” Ms. Smith said.

Additionally, Ms. Smith says it appears Scottsdale is raising their tax rate, but compared to what the tax rate should have been, the rate would be going down this year.

School districts in the state of Arizona base their budget on a formula-driven process. Districts can’t spend their cash without having a budget, she explained.

“In reverse, we had budget and we didn’t have the cash to necessarily support it, so we will probably end this year more negative in cash,” Ms. Smith said.

“So it’s a problem we’re going to have to address with the Board of Supervisors or go back in past years, and see if the revenue was posted to the right fund … but it’s not going to make up $3 million.”

Ms. Smith says she will need to do a tax analysis to see what the district taxed for, was it done correctly, was the rate set correctly, and were there delinquent or late taxes. She also clarified that this method is not a normal measure of reporting.

“The bottom line is this is where we’re at, and when I meet with the county this will be discussed,” she said.

The question of a legally required public-notice being issued last year was raised also, with district officials saying they were having trouble finding the document.

On Wednesday, June 21, SUSD’s Public Information Officer Erin Helm said the district did publish last year’s truth in taxation statement, “according to an invoice in our financial archives.”

The district is expected to post a statement about the invoice to their website late afternoon June 21, Ms. Helm said.

This tax rate issue was first discovered when meeting with the district’s financial firm, identified during the meeting as RBC, to review tax rate projections.

When she brought up the negative funds, Ms. Smith says the financial firm looked stunned.

“They said ‘here’s our projects,’ and I said, ‘by the way, did you know we were negative $3.6 million,’ and, kind of that same look,” Ms. Smith said, referring to the look on the governing board’s faces.

“That’s why I called RBC because I saw their bond analysis and I said ‘you have an M&O piece, where did you come up with this?’”

Superintendent Dr. Denise Birdwell says by acting swiftly and responsibly, she believes Maricopa County officials will be forgiving.

“Typically, when you find an egregious error, if you are transparent and forthcoming and show a corrective action, they’re pretty supportive knowing you are making a difference going forward,” Dr. Birdwell said, adding that there will be safeguards to ensure this doesn’t happen again.

Governing board Member Pam Kirby noted her thanks to Ms. Smith for finding the error.

“We owe it to our community to do this right,” she said.

Governing Board President Barbara Perleberg echoed similar sentiments.

“This is a big budget to wrap your arms around, and whatever happened prior — I think we all understand it’s very hard to know at this point what was done and why,” she said. “It’s going to be tough for the community to understand, but I think you’ve done an excellent job showing what should have been.”

Northeast Valley News Services Editor Melissa Fittro can be e-mailed at mfittro@newszap.com or can be followed on Twitter at twitter.com/melissafittro.

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