Milwaukee Public Schools continues to navigate aftermath of financial reporting crisis

An empty high school classroom. (Dan Forer | Getty Images)

A Milwaukee County Board committee advanced a resolution Monday that would express its support for the Milwaukee Public School District’s efforts to “reconcile and strengthen its financial reporting and accounting practices,” its support for providing necessary funding to the district and its opposition to efforts to weaken local control of the district.

The resolution comes as the district continues to navigate the aftermath of its significant financial reporting failures that were made public at the end of May. As a result of the reporting problems, the district’s superintendent and chief financial officer have resigned, millions of dollars in state aid has been withheld and millions more will likely be clawed back by the state. The district is also now working towards implementing a corrective action plan, and operational and instructional audits are being initiated by Gov. Tony Evers.

Milwaukee County Board member Justin Bielinski said he authored the resolution in the belief that local control needs to be maintained in the school district.

“Despite the best efforts of the [school] board, of DPI, of Gov. [Tony] Evers, to get the district back on solid footing following some very concerning — and frankly, unacceptable — financial reporting challenges that came to light in late May, there are those in positions of power who would use this crisis to undermine, dissolve and ultimately privatize the system,” Bielinski said during the Monday meeting. “We cannot let that happen.”

When the district’s financial reporting failures became public in May, it led to suggestions from Republican state lawmakers Sen. Dan Knodl and Rep. Bob Donovan that it might be appropriate to consider breaking up or taking over the school district.

Bielinski represents part of the county that includes Milwaukee and West Allis on the county board and he also works as the communications director for state Sen. Chris Larson (D-Milwaukee). He said he expects to see policy proposals along the lines Knodl and Donovan are promoting from the Legislature next year, and that it would be best for the County Board to get its support for local control on the books now.

“What we really need to be doing is seeing what we can do to help, not, saying, ‘Let’s dissolve the district. Let’s try a new government’s model. Let’s take away the school board. Let’s recall the school board,’” Bielinski told the Wisconsin Examiner. Recall campaigns have been launched against some members of the school board by community members who said they have felt “deceived, bamboozled [and] misled.”

Bielinski’s resolution passed the four-member intergovernmental affairs committee unanimously. Bielinski said that he feels optimistic that it will pass the full board at the end of the month.

What the district is doing to address problems, potential obstacles

MPS board member Missy Zombor said she is appreciative of the proposed resolution, especially the support for the democratically elected school board. She said she expected some politicians to treat this crisis as a time to try to advance a privatizing agenda, but she thinks the majority of Milwaukee residents want a successful MPS. She said she has heard from teachers, parents and other electeds who have been supportive and want to know how they can help the situation.

Zombor, who is one of the members being targeted by the recall effort, explained that the MPS Board was informed by members of the finance team in May of 2023 that there were delays in the previous year’s audit due to staff turnover and DPI system changes. In December, the finance team returned to the board to say that significant progress had been made towards addressing the issues.

“We knew there were challenges, but we didn’t know the full impact until we received that letter in May,” Zombor said. The letter from the Department of Public Instruction, which came in the month after the district passed a $252 million operating referendum, warned that the district could lose millions due to the delays.

Last week, the Department of Public Instruction published its state aid estimates for the 2024-25 school year. According to those estimates, MPS could lose $42.6 million million in state aid due to errors from the 2022-23 school year.

“[The district] had overstated their spending in previous years, and that overstatement of spending resulted in their being able to draw down more state aids that they shouldn’t have been able to draw down so that now needs to be corrected in their 2025 state aids,” explained Rob Henken, president of the nonpartisan Wisconsin Policy Forum. Right before DPI’s letter exposed the crisis at MPS, the Policy Forum had analyzed the district’s budget , finding that the district was on an improved financial path due to the referendum.

Henken said a key question will be, “How are they going to now accommodate the loss of these state aids?”

The options for addressing the losses could include adjusting the budget by cutting expenditures, adjusting property taxes and dipping into the district’s reserves.

“MPS leaders would have the ability to make that up in next year’s budget by increasing by another $40 million or so what otherwise would have been the property tax levy that was approved a couple of weeks ago in their tentative 2025 budget,” Henken said.

Zombor said, however, that the Board does not want to put the burden on taxpayers.

Henken also said the district’s reserves are a “critical issue” here. He noted that the Wisconsin Policy Forum “felt handicapped” with its analysis of the budget and of the referendum in April because it didn’t know the state of the district’s reserves due to the incomplete 2023 audited financial statements and the proposed 2025 budget didn’t have updated numbers.

“If there are healthy reserves, and we suspect that there are at least a couple of funds, might those be tapped into?” Henken said. “Now, that would just be a temporary fix… and nobody would certainly advocate for completely depleting them but, again, conversely, if the state of reserves is not as healthy as we might expect, then that could have a negative impact.”

MPS Board member Zombor said that the estimates in state aid are “still an estimate.”

“We know a lot can change between now and October,” Zombor said. She said the district’s financial consultant will use the estimate to come up with budget adjustment strategies that would be finalized in October. She said it’s too early to know what the recommendations will be.

“I really am looking for their recommendations on the best strategies that would minimize impact to students and staff and families,” Zombor said, adding that the decisions won’t be made alone and they’ll be looking to explore options that have the least impact on students.

The district is also in the process of implementing a corrective action plan that is meant to get the delayed financial reports submitted and correct structural issues, including an outdated financial system and staffing problems, that are partially responsible for the financial reporting mess. Zombor noted a board member will attend all meetings with DPI moving forward to ensure any concerns are being communicated as the corrective action plan moves forward. That plan also includes developing an audit committee and creating a chief auditor position to improve accountability and transparency.

Henken said it was encouraging to hear that there is work being done to upgrade and modernize the district’s financial systems, however, he said a key challenge moving forward could be the human resources needs of the district.

“It’s not just having the will to fill these vacant positions and the dollars behind them. It’s also being able to meet the challenges of an historically tight labor market and actually find and bring in the talent that the school district needs to get its financial framework back in good shape,” Henken said.

In the district’s corrective action plan, the district identified vacancies and inexperienced staff as significant challenges. It also says the district will aim to fill at least 12 vacant finance positions by Sept. 26.

“This is a very tight labor market, and traditionally, governments and school districts have had big challenges hiring qualified people for accounting positions and high level financial positions, because the public sector tends to pay less for those types of positions than the private sector,” Henken said, adding that things won’t get easier with the “black eye” that MPS now has.

Zombor acknowledged that getting the staffing back to where it needs to be is one of the biggest pieces of the corrective action plan. She said the board has also made some changes to its rules so that anything that’s related to the corrective action plan can be expedited, including hiring, and they’ll be looking for recommendations from financial consultant Todd Gray, from other school districts and from DPI.

“I feel that we have the right team in place to help us address the root causes and move forward,” Zombor said. “It’s going to take some time, but we are doing everything we can to make sure we get things back on track.”

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