State monitor proposed to aid Rochester, N.Y. school deficit

New York Gov. Andrew Cuomo is seeking state dollars to assist the cash-strapped Rochester City School District.

Cuomo’s $178 billion budget proposal would include funding to appoint a state monitor to oversee the finances of the fiscally struggling public school system, which is grappling with an estimated $40 million deficit. The district’s budget woes triggered a one-notch downgrade to the City of Rochester by Moody’s Investors Service in December to A2 from Aa3.

Moody’s analyst Robert Weber noted in a report released Wednesday that if the state monitor proposal achieves the necessary legislative approval it would mark a credit positive development for the city and school district since the plan would foster financial improvement plans for the 2021 fiscal year and beyond. The plan would enable the Rochester mayor and state commissioner of education to jointly overrule the school board if there is disagreement with the monitor.

“The legislation would thus incentive the school board to work more closely with the city on budgetary matters than in the past,” Weber wrote. “Failure of the school board and its financial management team to work closely with the city would result in the city taking a more active role in the RCSD budget.”

Weber noted that another positive aspect of the legislation is a requirement that the RCSD provide quarterly financial reporting, which he said likely would have prevented such a drastic decline in reserves had the policy been in place during the 2019 fiscal year. The monitor role would expire June 30, 2021, but the state could review the position in next year’s budget negotiations.

A Jan. 23 audit released by New York State Comptroller Tom DiNapoli projects a cumulative $40.5 million deficit at the end of the 2019-20 school year following $21.6 million in reductions and efficiencies along with $8.6 million in staff reductions. DiNapoli said that absent additional severe budget cuts, short-term borrowing or outside invention, RCSD will not have sufficient resources to meet financial obligations by the end of the fiscal year on June 30.

The RCD’s reserves dipped by more than $42 million in 2019, which was more than $30 million above what district official had projected in late July marking the second consecutive year that year-end projections were missed. The large-scale decline prompted a Securities and Exchange Commission investigation into potentially false statements during a recent short-term note sale.

SEC spokeswoman Judith Burns declined to comment on the status of the Rochester schools investigation. The RCSD press office did not immediately respond to a request for comment.