Interim city manager: $5.9M gap in Franklin schools’ FY2025 spending largely explained by late grant carryforwards; council moves to formalize appropriations

Interim City Manager Lincoln Saunders told the Franklin City Council on March 23 that Franklin City Public Schools (FCPS) recorded $27.7 million in FY2025 expenditures against $21.8 million in council appropriations, a headline $5.9 million variance that became public this summer. Saunders said much of that difference is explained by restricted grant carryforwards, prior-year encumbrances and an approved increase in the required local match.

Saunders said FCPS had $6.83 million in documented restricted grants and prior encumbrances that were not included in the city’s originally adopted FY2025 appropriation. He told council that if those carryforwards and the approved local-match amendment are formalized, the unaudited accounts would show roughly a $925,000 positive balance for FCPS rather than the $5.9 million shortfall the public discussion suggested. “These are legitimate expenditures documented and backed by restricted grants,” Saunders said, urging retroactive appropriation to bring the city and schools into compliance.

Why it matters: council members were alerted that the city and school division face a compliance issue if previously awarded restricted funds are not formally appropriated into the fiscal-year accounting. The council and school board share statutory and fiduciary duties to ensure appropriations match spending authority and to prevent midyear funding surprises.

Saunders reviewed a timeline of events dating back to 2022, noting carryforward grant awards, a March 2025 Virginia Department of Education revision to average daily membership that increased the local match requirement, and a vendor payment stoppage in May when staff and vendors recognized cash-flow interruptions. He said a $5.48 million package of late grant carryforwards—some federal and state funds awarded in prior years and not yet appropriated into FY2025—along with about $874,000 in prior encumbrances, explain ‘a bulk of the discrepancy’ but were submitted to the city late in the fiscal cycle.

After discussion, council acted on multiple measures Saunders recommended. Council moved to: retroactively appropriate the $5.48 million in restricted grant carryforwards into FY2025; formally establish a school capital maintenance reserve under Va. Code §22.1-100B to hold certain school savings for capital needs; and reappropriate approximately $509,627 (the balance from prior roof project refunds) into that maintenance reserve for capital maintenance use. Council members characterized the expenditures as legitimate but flagged lapses in process and oversight—including prolonged vacancy in the city finance director role and a lack of routine monthly reconciliations—as contributing causes.

Council members and members of the public pressed for a clean audit, clearer grant tracking, written budget submission deadlines for schools, and stronger monthly reconciliation procedures in the city finance office. One council member apologized publicly for earlier accusations that had grown from incomplete data, and others urged the city and school division to rebuild working relationships and improve transparency.

What’s next: staff said the FY2025 books will be closed and audited; the appropriations and reserve will be reflected in the final audit and subsequent reporting. Saunders recommended a grant-tracking policy, written budget procedures and a local funding reserve to reduce the risk of future midyear shortfalls.

Authorities and legal context cited at the meeting included Va. Code §22.1-100B (school capital maintenance reserve authority).