DeKalb County school officials overpaid so much money to lawyers during the early years of the new millennium that there was nothing left in the rainy day fund when a monumental recession arrived, according to a new review of legal spending by the current finance chief.
Over the decade that ended in 2012, the DeKalb County School District spent nearly $32 million more than it budgeted for legal fees, routinely overshooting — or underestimating — the planned expenditures for lawyers and forcing some of the harshest cutbacks in metro Atlanta when reckoning day arrived.
The spending led to an unprecedented, and illegal, deficit of about $15 million in 2012. That led to layoffs as a historic recession undermined tax revenue. High legal costs drew the attention of the Southern Association of Colleges and Schools, which placed the district on probation in 2012, alleging myriad governance problems, including legal fees that were diverting resources from the classroom.
This is the first comprehensive assessment of the legal costs and their effect on the district’s bottom line.
DeKalb finance chief Mike Bell, on the job about a year, said he discovered the payouts hidden in “other” expenses disbursed from the district’s reserve fund. This happened year after year, including the four-year stretch from 2008 through 2011 when the amount budgeted for legal costs remained at $912,316 annually while real expenditures soared to $10.5 million in one year and didn’t drop below $6 million.
Bell said that if DeKalb had kept its legal costs within budget, the district would have had millions in reserves instead of a deficit when those layoffs became necessary.
Superintendent Michael Thurmond, who tasked Bell with uncovering what happened, called the spending a “breathtaking” failure in oversight.
Thurmond, appointed a little over a year ago, took on the reduction of legal fees as a core mission after noting their corrosive effect on public sentiment.
“This is the ghost that has haunted DeKalb for 10 years,” he said in an interview Monday, after Bell told school board members about his discovery.
The revelations came as the school board moved to end its controversial retainer agreement with two law firms, an unusual arrangement engineered five years ago by a previous school board that was riven by racial politics and could not agree on hiring just one firm for legal services. The board members involved back then openly admitted that their vote to spend more on attorneys was taken to ensure they had a black female attorney working with them. The district hired Sutherland Asbill & Brennan as general counsel and a firm led by Josie Alexander, who is black, to handle personnel matters.
At the time of that 2009 vote, then board member Eugene Walker, said he was “a very, very race-conscious person. … I will never ever try to lead you to believe that I am race-neutral. I see color. I appreciate color. I celebrate color and I love color.”
Walker was removed from the board by Gov. Nathan Deal after SACS threatened to strip the district’s accreditation over governance issues. He lost a lawsuit that went all the way to the Georgia Supreme Court and has since left DeKalb for rural Georgia. Contacted Monday, he defended the decision to hire two law firms and said he knew legal expenses were coming out of reserve funds even if other board members might have had “amnesia” about it. “We had to pay the lawyers and we didn’t have the money, so we had to go to reserve moneys,” he said. He blamed the budget overruns on unexpected legal costs from lawsuits and “personnel” cases and praised Thurmond’s handling of the district. Walker was on the board that hired Thurmond, and voted for him to get the job.
The budget revelation left parent Damon Stewart with more questions. He was among the big crowds that descended on school board meetings in 2012 to protest the deep budget cuts of that time.
Stewart, whose son will be attending fourth grade at a DeKalb school, wanted to know why it took so long to unearth the expenditures. He also wanted to know what, if anything, would happen to the people who spent the money.
“I’d like to know what the game plan is in holding these individuals accountable for withholding this information from the taxpayers,” he said. “Someone has to be held accountable.”
One concrete action Monday: the school board unanimously agreed to hire a new general counsel: Nelson Mullins Riley & Scarborough will begin representing the district immediately in most matters as the Sutherland and Alexander firms withdraw, though that could take months in some cases. The board will continue to retain the firm Drew, Eckl & Farnham to handle workers compensation cases. DeKalb legal chief Ron Ramsey said that firm has been handling that portion of the personnel caseload since before Alexander was hired and that she ceded the work to them. He said the monthly retainer fees will be capped at $125,000 a month for the two firms instead of the previous $275,000 for three firms.
After Thurmond arrived in early 2013, he increased the budget for legal costs to an amount more consistent with history, then reduced actual costs to come in below budget. Expenditures last year were $4.5 million and are budgeted at $3 million this year.