Iowa City school board questions superintendent on why $10 million loan was taken out without their knowledge

IOWA CITY — The Iowa City school board Tuesday questioned Superintendent Matt Degner on why they were not notified of a $10 million loan in August 2025, saying knowledge of the loan would have “triggered red flags” regarding the district’s financial health.

Now, the district has less than a month to identify and recommend around $6 million in budget reductions for the 2026-27 school year. More budget reductions are anticipated in subsequent years, and the district plans to take out loans to make ends meet.

“What I want to know is why six months ago when a loan was taken out why that wasn’t communicated to the board? For me, that’s something that would have triggered red flags that there is something off with the financial health of our district. It seems like common sense you would tell the board or at least tell the board president — whose name is on that document — that there was a $10 million loan. That’s not small change,” school board member Jayne Finch said in a board work session Tuesday.

  Buy Photo

The board last month retroactively approved the loan from the district’s health insurance fund to cover expenses, including payroll.

School board President Ruthina Malone said although her name is on the loan document, she was not informed of the loan before January, and she did not sign anything. The loan was authorized by former chief financial officer Adam Kurth, who left the district in November.

“If my husband took out a $10,000 loan with my name on it and didn’t tell me for six months, we would be divorced. I cannot believe someone would take out a $10 million loan with the board president’s name on it and not bother to tell the board,” Finch said.

Iowa’s Statutory Authority for Funds requires all loans between funds within a fiscal year be accomplished through official board action. The loans cannot be made until the board authorizes them through a resolution.

Superintendent Degner said the loan was presented to him as a “normal course of action,” and he doesn’t recall “a conversation about the size of the loan at the time.”

A December financial report that indicated the loan was repaid was wrong, Degner said. The report was created by Kurth. It wasn’t until it was brought back to his attention in January when he was asked about the interest rate on the loan by the district’s business office that he “better understood the size, scale and scope,” Degner said.

  Buy Photo

“It’s my responsibility to make sure board processes are followed, and that did not happen,” Degner said. “If we had asked the right questions or had more information, we would have made different structural decisions throughout the year. Now, it’s put us against a really short timeline lacking good options moving forward ... It’s a sign of an overall structural problem we have, and that’s what we’re working to address now.”

Degner said the district’s “systems” don’t work. There is a reliance on incomplete and inaccurate data, insufficient financial reports and lack of collaboration between the human resources department and business office, he said.

“As a result, our expenses outpaced our projections,” Degner said.

Finch asked what the school board needs to put in place so something like this doesn’t happen again.

“If the board had been clued into this six months ago, we could have started the process (of budget reductions) instead of this chaotic mess we’re dealing with right now,” Finch said. “We could have made budget reductions for this academic year.”

School board member Lisa Williams suggested the board receive an expense report monthly that shows the district’s budget and actual expenses.

The school board also is scheduled next month to review policies and procedures related to financial oversight.

The district is hiring a public financial management consultant to review current business office practices and assist in budget planning strategies moving forward.

Proposed budget reductions to be presented next week

Preliminary ideas to reduce the fiscal 2027 budget — which begins July 1 — will be brought to the school board at its next meeting, which will begin at 6 p.m. Feb. 24 at 2255 N. Dubuque Rd., Iowa City. These conversations will continue, and decisions will be made during board meetings March 3 and 10.

The district plans to take out a $3 million short-term loan next month to repay in April when it receives its property tax payments. Although district officials anticipate current funding will cover March expenses, a loan allows them to maintain a cash reserve.

This spring, the district will work to “make spending adjustments,” including in areas of travel, transportation, overtime, professional development days and time out of the classroom, substitutes, supply purchases and discretionary spending.

The district had a 9 percent average payroll cash increase this academic year, a projected $15.7 million more in salary and benefits costs than the year prior, according to board documents.

Some positions added include 63 paraeducators — 57 of whom were in special education or preschool classrooms — 31 support staff and 30 teachers. Twelve of the added teachers were to operate the district’s growing preschool program, 11 were to reduce class sizes and meet program needs and six were special education teachers.

The district spends about 86 percent of its general fund budget on salaries and benefits, higher than the 80 percent of the general fund that neighboring districts spend on payroll.

School board member Mitch Lingo said families are preparing to register for school for the fall and making a choice where to send their child.

“If we cannot provide the trust and transparency for them to feel confident in using our schools, we’re not in good shape,” Lingo said.

Lingo added that teachers and paraeducators are “asking me if they will have food on their table next year.”

The district is working to hire a new chief financial officer with a certified public accountant license and experience with school finance. The district also is seeking to hire an assistant controller responsible for overseeing financial operations and ensuring accuracy in financial reporting, budgeting and compliance with regulations.

Comments: (319) 398-8411; grace.king@thegazette.com