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By KELLEY BOUCHARD Staff Writer September 9, 2007

An investigator's report released Wednesday offered a fresh look at Portland's school budget crisis.

The School Committee commissioned the report from Bryan Dench, a lawyer with Skelton Taintor & Abbott in Auburn, after School Finance Director Richard Paulson resigned on July 30.

Superintendent Mary Jo O'Connor resigned on Aug. 29, effective Dec. 28, amid controversy over a $1.7 million to $2.5 million deficit in the $82 million budget that ended June 30.

Significant details of Dench's report include:

-- After the City Council reduced the 2006-07 school budget by $500,000 in May 2006, Paulson and O'Connor agreed to take $335,000 of that reduction from $1.6 million set aside to settle employee contracts.

-- O'Connor recommended and the committee approved settling employee contracts last fall that were $588,000 over budget.

-- O'Connor then approved filling the equivalent of 25.7 full- time positions, at a cost of $939,000, that were not in the budget. Some of those positions also were approved by the committee.

-- When committee member Lori Gramlich asked how the department would pay for additional staff, O'Connor said "I will not bore you with where we found the savings" and promised she would not permit the budget to be overspent.

-- Human Resources Director Joline Hart informed Paulson and O'Connor in November that payroll expenditures would be about $1 million overspent.

-- Central office administrators started warning O'Connor by fall 2006 that Paulson, hired a year before, wasn't carrying out his responsibilities effectively.

-- O'Connor and Paulson planned to make up some of the overspending with anticipated annual "turnover savings" of $350,000 to $500,000, which occur when employees resign or retire and they are replaced with people who are paid less.

-- Turnover savings never materialized, largely because the money had been allocated in the budget already and the department spent an additional $235,000 on unbudgeted temporary personnel and overtime.

-- Paulson and O'Connor knew there were problems with the schools' accounting system and should have made sure they were getting accurate budget information.

-- While O'Connor blamed a portion of the deficit on 10.4 new special education positions, they were no surprise. Student Support Services Director Barbara Dee anticipated the need for 11.6 new positions in her January 2006 budget request.

-- O'Connor should have told the committee when the budget was in danger of being overspent, as required by policy. If savings couldn't be found elsewhere, the committee should have sought City Council permission to exceed the budget.

-- O'Connor should have provided monthly financial reports to the committee, as required by policy, including an October 2006 audit report that flagged problems with the schools' accounting system.

-- Benjamin Meiklejohn, finance chairman, requested monthly finance reports in January but didn't get one until May.

Staff Writer Kelley Bouchard can be contacted at 791-6328 or at:

kbouchard@pressherald.com