Questions around financial oversight shadow Byron Schools ahead of multi-million dollar referendum

As students began the new school year in the small southeastern Minnesota city of Byron, it was clear things had changed over the summer. At least, to those who knew where to look.

Ahead of the new year, the school board approved $1.5 million in last-minute cuts, after a growing shortfall and budget error went unnoticed for months. The move ultimately axed 22 staff positions, an advanced learning program and a bus route, among other changes.

Byron Schools will soon ask taxpayers to approve a referendum for $1.9 million annually for the next decade to avoid heftier cuts.

The city, near Rochester, has a population of about 6,300 people and a couple thousand enrolled in the schools. But some community members — including a former school board member — say they've lost trust in school leaders to get through the crisis.

The district's superintendent Mike Neubeck said he's ready to move past the unexpected "bump in the road" with new safeguards in place and hard lessons learned. However, some parents, including some now running for school board seats, say that's an impossible ask.

"I personally don't think he has proved that he can get us out of this," said Alisha Eiken, a parent of two in the district who filed her school board candidacy mid-August. She has been pushing Neubeck for transparency since spring. "It seems like he has no idea what's going on financially."

It is possible voters may not have a clear idea any time soon either.

The district is behind on last school year's bank reconciliations, delaying an audit of the schools' finances. Neubeck said the district hopes to know where the deficit stands by the time voters are presented with the operating referendum, but it's currently unclear.

"Early models said there was $2 million [shortfall], but right now I'm not sure," Neubeck said. "I will be honest, we're not sure."

'The checks and balances were probably minimal'

The bank reconciliations had not been completed for over seven months — since June 2023 — before a new finance director, Ashley Bocchi, started the job in February. Soon after, she started pointing out problems.

Neubeck said she alerted him, in March, of a budget error allegedly made by the previous finance director Todd Lechtenberg in fall. Following collective bargaining leading into the 23-24 school year, the board greenlit a 5 percent pay raise for teachers, paraprofessionals and principals — followed by a 1.5 percent increase the next year. Neubeck said at the time he was advised the district could afford that.

However, when Lechtenberg built the revised FY24 budget, Neubeck said he used the lower number, even as the district paid wages that included the 5 percent raise. Each month after that, the district paid out approximately $200,000 more than expected — ultimately stretching into $1.5 million.

Neubeck said if given the chance to do it over again, he would ask, after negotiations: "Are we getting all the revenue that we're supposed to be getting?" and "What does this really mean now, as we go through it?"

He said he "saw reports, but didn't see detailed reports" as the district's spending racked up during the school year. A search of board minutes during this time shows very little detail about the financial situation.

Neubeck said he was assured by Lechtenberg's final presentation in February. The finance director said FY24 was set to end with the board's standard of 8 percent unassigned funds, totaling about $2.2 million — far from a shortfall. Projections were about $200,000 better than expected. Lechtenberg then handed off to Bocchi and left for another job.

Bocchi soon discovered problems.

"I walked into a situation where the district was over-drafting to pay payroll and the bank's [reconciliations] had not been completed since June 2023," she wrote in the email obtained by MPR News through a Data Practices request.

In that same email she expressed frustration she wasn't made aware of the existence of an $800,000 line of credit — nor that it had been maxed out — until well into her tenure.

Bocchi requested in May that it be paid down in full.

When MPR News approached her for an interview about the situation she declined.

Neubeck blamed the unexpected maxed out credit line on nobody at the time having access to the mobile banking app, which he said would have sent alerts.

Moving forward, he said more people, including himself, will be able to check the credit line, and more eyes will scrutinize finances in general. He also said the board will now have written procedures for spending, which previously had not been in place, and that purchases will need more than verbal approvals to go through — another change.

"I would say that the check and balances were there, but they were probably minimal," he said.

When pushed to explain what the previous checks and balances were, Neubeck said it was reports to both him and the board — the reports he'd previously cast as undetailed: "But like I said, it was minimal."

Bocchi resigned in mid-August. The district has since hired an interim finance consultant who is contracted to be paid $1,350 a day for up to 44 days.

School board members did not respond to requests for comment or redirected MPR News to Neubeck. The former finance director, Todd Lechtenberg, who allegedly made the budget error also redirected MPR News to Neubeck.

At a September school board meeting, Neubeck reminded board members that all media requests need go through him, per school policy, "so that we can make sure that the message is the correct message that is being brought forward."

At the same meeting, he encouraged the community to unify moving forward.

"If we're spending a lot of time going back, we know where the problems were for the most part," he said. "But now we're here saying that we are doing everything we can at this point, as fast as we can, to get us to understand exactly where we're at so we can make plans moving forward. And that's what we have to focus on."

Neubeck said in an interview the shortfall was also caused by the end of COVID funding and a 28 percent insurance cost increase, although some community members argue that should have been anticipated as there was a 29 percent increase the year before.

Neubeck said the operating levy will be necessary for the district's long-term success. Insurance costs are projected to keep rising and state mandates that have yet to kick in come with additional price tags.

Byron is the third lowest funded district per pupil in Minnesota, in part because it qualifies for limited amounts of categorical funding — additional aid for categories such as special education and English language learning.

If the operating levy doesn't pass, the district says class sizes will increase, certain course offerings will be eliminated and some programs, activities and clubs will have to end.

'I'm afraid for our little town'

As in many small communities, the schools are the heartbeat of Byron. Lawn signs celebrate student athletes and The Bear's Den sports bar, with a well-loved $10 lunch special, is a nod to the school district's mascot.

Nadia Poluhina bought a house in the school district four years ago, after landing a job at the Mayo Clinic and moving from California. The school's stats made it a "clear winner" for where she wanted her three girls to receive their education. She liked the class sizes, she liked the programs offered, she liked the test scores — positives that could fade without adequate funding.

"That was the end of our search for a place," she said. "Whenever you ask people who moved here it's because of the school district. For a lot of people, this is the reason why they moved."

But if the district can't get a handle on its finances, Poluhina says she would "absolutely" move her kids to a different school. She's said with her background in finance, she's running for a seat to help steer the board in the right direction.

Former school board member Chris Schmit, who served from 2017-2020, has repeatedly called on the superintendent to resign. She has said she supports the referendum for the students, but doesn't trust Neubeck having financial oversight. She has repeatedly pressured the board to push him out.

"The only person you supervise is the superintendent. I am encouraging you to look more closely at his role in the deficit and to hold him accountable," she wrote in an Aug. 26 email to the board. She also encouraged board members to review their school finance training.

Neubeck has said he won't resign. He said although he takes responsibility as the district's leader, he believes he is the right person to lead the district through the current situation — knowing how the district got here and what it needs to do to move forward. Early September, the board held a closed session discussing Neubeck's performance as superintendent, but took no action.

This all worries Chris Schmit.

"I'm afraid for our little town. We have such good humans working here, so many great teachers who are right now smiling and hugging our children and encouraging them as they embark on a new school year," Schmit said in an interview. "And we have a superintendent who is not competent at recognizing errors or making decisions that are responsible with our taxpayer money."

Schmit said her children have all graduated out of the district, but she remains protective of the kids who walk the same halls. It was there the fires were lit for her son to pursue a neuroscience degree, and now a master's degree to pay it forward and teach science.

"They aren't just kids," Schmit said. "They're our kids."