MANATEE -- State and federal auditors ordered the Manatee County School District to "restore" about $7 million in funding that it has misspent in past budgets.
Rick Mills, the district's superintendent, revealed the stark news Friday.
"I don't want to frighten anyone," Mills said. "Any reduction will be furthest from the classroom. Obviously this is not a result we wanted. It's a total shame."
The news destroys the district's months-long predictions of an $8.2 million fund balance by June 30, the fiscal year-end.
Instead, the district is forced to restore $7 million in money it spent improperly or did not document, reducing the projected fund balance by year end to about $1 million, Mills said.
Every district is required to sustain reserves of 3 percent of its budget -- which, in Manatee's case, is $10.3 million.
Since Manatee's fund balance has dipped to $1 million, the district must carve $9.3 million out of its 2014-2015 budget to bring its reserves up to the level required by the state, a goal it has not met for the past three consecutive years.
Mills said "all options" will be considered as his administration works to fix the fiscal mess, which the auditors noted dates back to administrations led by his predecessors Tim McGonegal and Roger Dearing.
"We sold our white fleet of cars and we have left several positions vacant," Mills said, noting efforts have already been taken to turn things around.
But he acknowledged they need another plan to make up the $9.3 million needed in the upcoming budget.
He didn't name anything specific, but indicated that everything will be on the table, including selling surplus property. He did say later Friday that selling McKelvey Park was no longer an option.
"There are a lot of creative ways," Mills said. "We will roll out a plan for recovery."
School board chairwoman Julie Aranibar said she is confident the superintendent and his department heads will once again find a way out of a fiscal mess.
"Today is the final chapter of a real sad story for our district," Aranibar said. "But now we know the facts. We will support the superintendent and his leadership team and work together.
Aranibar said the state's ruling didn't surprise her.
"We are the only district in the state of Florida to be in this situation and we have had repeat findings," she said. "This was not a one time situation."
School board member Bob Gause said the ruling shows there was plenty of dysfunction to go around in past administrations and school boards.
"It's the superintendent's job to provide the board with the proper information and if that doesn't occur, it's on the superintendent," Gause said. "When the board spends money against the superintendent's recommendation, that would be on the board."
What makes Mills different from past superintendents, Gause said, is his courage to say "No" if money really isn't available, something that wasn't done before.
"It's a question of priority," Gause said. "That was the failure of the last administration. They didn't have the money to fund things. This superintendent holds the line."
Gause predicted the $9.3 million to reach reserve will be found with Mills' austerity efforts.
"We have already saved that $9.3 million with everything that was done this year," Gause said. "If not for the penalties, that $9 million would have been available for programs next year."
The district could have gotten penalized anywhere from between no restoration to $10 million, said Don Hall, Manatee's deputy superintendent for operations.
"The further we kept working with the state on the process, the less likely zero became a possibility," Hall said.
School board member Karen Carpenter said she was disappointed with the state's ruling.
"A payment plan would have been nice," Carpenter said. "Under this order, we immediately have to move money from where it is used for expenses, like fuel and utilities."
The Florida Department of Education reached its conclusions after reviewing operational and federal audits of the Manatee County School District conducted by the Florida Auditor General's office.
Although the audits were conducted for the 2012-2013 school year, the findings and resulting $7 million in restoration costs are the result of financial failures and fiscal mismanagement dating back to at least 2005, Mills said.
Roughly $4 million of the $7 million stems from the district's use of sales tax revenues on operating expenditures, according to the audit.
Nearly $3 million comes from federal funds utilized, but never logged correctly, said Diana Green, Manatee's deputy superintendent for instructional services.
One example was taking $1.8 million from the Coordinated Early Intervening Services program (CEIS) without documenting how the money was used.
If the district identifies a student with an emotional/behavioral disability, it triggers CEIS, Green said.
"When that trigger is pulled, the district has a requirement to take a certain percentage of Individual Disability Education Act funds to reduce that number of students who have been identified," Green added.
"Every three years the state audits these programs and asks, 'Where is your documentation that says you have done this?'" Green said. "Their documentation was not sufficient to show that $1.8 million was spent on CEIS to prevent over-identification of African American males."
At first, more than $5 million was targeted for restoration to CEIS, but through the work of Wylene Herring-Cayasso, the district's new Director of ESE Student Services, the state reduced the total, Green said.
"Every person who works in CEIS now has a log they have to maintain," Green said. "The state has called Mrs. Cayasso's documentation 'impressive.'"
Mills has said that the district's antiquated accounting hardware and software is partly to blame for some of the serious accounting errors in the past and that the district will upgrade the equipment.
Mills also authorized a letter to be sent out to school families, stating they should "Keep the faith."
Richard Dymond, Herald reporter, can be reached at 941-745-7072 or contact him via Twitter @RichardDymond.