Financial rescue: how an Illinois district overcame state intervention, a skeptical community and $10.5 million in debt.

People never seem to tire of stories about businesses that have turned themselves from bankruptcy to profitability. But few imagine this type of story could ever happen in public education.

However, in Round Lake Area School District 116 in Illinois, three administrators did just that. Chief Executive Officer Dennis Stonewall, Chief Financial Officer Walter Korpan, and Chief Education Officer Janet C. Elenbogen overcame intervention by the state, brought faith back to a skeptical community, and recouped $10.5 million in short-term debt to regain solvency in a few short years.

The pay-off came in stunning fashion last March when voters offered collective thanks to their ongoing efforts by approving a $17 million referendum. The money allows the district to reclaim and rebuild its flagship middle school after the previous school was not large enough to handle all the seventh- and eighth-graders of the Round Lake schools community, which encompasses four towns. And many locals are calling the success story of the district the "Round Lake Miracle."

DYSFUNCTION JUNCTION

Round Lake Area Schools District 116 experienced a series of enrollment spikes over the past four decades like no other neighboring district. Affordable housing attracted a large number of Hispanic families, prompting crowded single-residence homes. This dynamic left school administrators at a loss, watching more and more students show up for school. In fact, about 6,700 K12 students from 40 countries filter in to the district's eight buildings' classrooms every day.

With the second-highest property tax rates in the county over a decade ago, the school board kept stretching the budget to benefit students. The former board members wanted to retain the same level of education for students as they always had, even while financial woes mounted.

But something finally did give: their pride. So in an effort to reduce district spending, maintenance was the first thing to go: Hallways filled with trash while food and candy wrappers strewn on floors invited pests. And a chain of negative events followed: the truancy rate soared; staff members became disengaged and unmotivated; and the district business office--overwhelmed with parents' complaints and daily stress--barely functioned.

Even local business people squirmed when the topic of their schools came up. "It used to be difficult to look people directly in the eye when talking about the school district," remembers Jill Gross, former president of the Round Lake Chamber of Commerce. "When I walked the school grounds 15 years ago, I definitely did not feel good about the experience."

FINANCIAL DIFFICULTY

As part of its responsibilities to state taxpayers, the Illinois State Board of Education, or ISBE, closely monitors school districts that encounter financial trouble. Round Lake first appeared on the ISBE radar screen in the late 1980s. The district had to undergo a series of steps that the state outlined to try to fix the problems, but it didn't work.

It wasn't until 1992 that the district's financial woes earned it a spot on ISBE's dubious "In Financial Difficulty" list. Amid increasing debt, shrinking test scores and high truancy, the state board appointed a Financial Oversight Panel in 2001 to provide a watchful eye on the school board's finances. The appointment guaranteed a $1.4 million state emergency grant to help the school district pay some of its bills.

By then, however, it was too little, too late. Already some $14.5 million in the red, the district was forced to relinquish board control of its finances to the Illinois School Finance Authority, or SFA, an agency mandated to save troubled school boards from bankrupting themselves. Today, Round Lake is one of two Illinois school districts currently operating under an SFA.

THE NEW CHIEFS

Seeking a solution in 2001, the agency replaced Round Lake's traditional superintendent structure with "The Three C's"--a Chief Executive Officer, Chief Financial Officer and Chief Educational Officer. This emergency measure would force the school district to operate more like a for-profit business and hopefully end the district's slide into bankruptcy.

The SFA hired Korpan as CFO in July 2001, Stonewall as CEO in 2003 and Elenbogen as Chief Education Officer in 2004. She replaced another education officer, Stanley Mims, who was only on the job for a year.

"There were people in this district hungry for leadership," recalls Stonewall, who is retiring this summer after four years on the job. "We knew we'd eventually have to ask the community for their (financial) help down the line, so it was important for us to take this first step."

And Korpan saw the district's accounts and payroll riddled with errors due to poor accounting and lack of protocol. "The business office didn't function, which was disturbing because our business is education," Korpan says. "There were no procedures in place, no support, and no training. At my first staff meeting, I said, 'We have to work together to resolve these issues that are failing. We need to make our business office a place where parents and staff members want to come and get answers to their questions.'"

Stonewall came from Danville School District 118, where he was business manager. He had gained notoriety by helping turn $9 million in red ink to double-digit black. Instead of agreeing with board members to issue more bonds, he convinced them to tighten its spending to control spiraling debt. Most school districts make decisions that benefit people without thinking of the financial outcomes, Stonewall says. "To me, that's the biggest mistake that most school districts make."

The final piece of the SFA puzzle fell into place in 2004 when it found Elenbogen, who at the time was director of compliance reporting at Chicago Public Schools. Her credentials were impressive: a state-certified teacher, a former superintendent, and special education program administrator. Elenbogen had been relatively unknown in the school system until she discovered a half-billion dollars in untapped federal funding. It was this kind of entrepreneurial effort, the SFA agreed, that was needed in Round Lake.

BUSINESS MODEL

Deeming themselves more as businessmen instead of administrators, Korpan and Stonewall view a school as a business, and insist it should be managed as so. "Our employees are the stakeholders," says Stonewall. "The parents are our shareholders. The taxpayers are the investors. We have 6,000 individuals here called 'products'."

With the public in mind, they made themselves more accessible. "This building is open 65 hours a week, and usually until 6 or 7 at night," Stonewall says. "People need to know that they can come here seven days a week and find an administrator who can make a decision. We invite parents to have coffee with our CFO every day at 6 am."

Providing leadership that had long evaded the district, the duo began by assuming control of everything associated with it. "I told the staff that as a team, we're going to take responsibilities for delivering outcomes," Stonewall recalls, and they presented to staff their three-pronged, district-saving strategy:

* Establish clear policies, and standardize procedures and protocols for the business office to run effectively and efficiently;

* Bring everything up to code and cleanliness;

* Make the community, students, parents and taxpayers feel good.

CLEAR POLICIES

While Elenbogen focused on upgrading the curriculum and boosting test scores, Stonewall and Korpan concentrated on proper spending. Instead of drastically cutting district programs and services, the two opted to re-evaluate every procedure and administrative form used by the district. "When you're looking at recapturing money, you don't put this on the backs of the kids," Stonewall says.

School administrators have long understood that low attendance and truancy drastically reduce state and federal payments to their districts. And finances suffer when administrative forms aren't processed properly. Re-evaluating its food service function, for example, was just one cost-saving initiative that Korpan instituted. National food service vendor Chartwells Dining Service managed the district's lunch program, allowing it to add a valuable breakfast program for 1,500 students in need.

The multi-year food contract saves funds in its food service program by using a national vendor, instead of handling it in-house; by receiving federal money for its breakfast and subsidized lunch programs; and by eliminating the need to handle cash due to its new debit card feature on student ID badges.

CODE AND CLEANLINESS

And aside from spending concerns, they had to shore up the physical appearance of schools. "If we're going to consider ourselves as a business," Stonewall remarked during a staff meeting, "then we must make every building look like we're open for business."

Photographs taken of the high school cafeteria in 2002 show food and litter strewn about. "We started with the high school because it eventually touches all of the kids," Stonewall says. The mission moved on to repair the football stadium that had become an eyesore.

COMMUNITY INVOLVEMENT

In his third week on the job, Stonewall received this cryptic voicemail message: "If you're truly interested in helping the school district, then call this number." (He later discovered the voice belonged to former Round Lake Mayor Illa Bauer.)

The call evenutally led to Frank Deuel, manager of governmental affairs at cable provider Comcast. He sought a large-based, one-day service project for its 500 employees and found the perfect venue. As part of "Comcast Cares Day" in October 2005, Deuel dispatched his employees en masse to paint most of the classrooms in the school buildings. "We landed like a small army," he recalls.

With Comcast supplying the labor--and local businesses providing everything from paint and supplies, to sandwiches and cold drinks--the school district became alive with excitement and activity. "We asked the community to join us," he says, and students, parents, and those with no affiliation to the district showed up to help. "It was like a fairy tale," Deuel recalls.

Weeks later, a neighboring church participating in ShareFest, a national initiative to help communities in need, dispatched a youth team to help district staff members paint fences and the remaining classrooms.

"Dennis [Stonewall] is a very exciting guy who seems enthusiastic about helping the school district to get back into shape," says the Rev. Stuart Merkel of the local Gurnee Community Church. "He seems to be the type of person who has a vision and knows how to get things done."

"When you've got a team that has a passion to see things happen, and enjoy what they're doing," Merkel adds, "you tend to come out with a very successful endeavor."

EDUCATIONAL ALIGNMENT

Then it was time to address the educational part of the equation--particularly test scores, attendance and a shrinking graduation rate. Elenbogen expanded the summer school program in 2005 to include 1,000 students. She also hired an assistant superintendent for curriculum and instruction who helped align the K12 curriculum horizontally and vertically so the curriculum was linked at each grade level and across all grade levels. The system is now connected to a new database, using Skyward data processing software, which includes new protocols for how data are used to make the best decisions over what students need to know and where they need to be.

By December 2005, the school district's Illinois School Report Card showed a 7 percent boost in graduation rates, and a 1.7 percent decrease in dropouts. What's more, the district saw a 4 percent increase in the number of students either meeting or exceeding Illinois' learning standards.

SHARING EXPERTISE

As the entire school district celebrated its successful $17 million referendum, school district insiders knew it was the result of the new chiefs' influence. Since arriving at Round Lake, the three chiefs had focused their efforts on earning the respect of students, parents, staff and community members. The district also shows its respect to the community by flying 40 flags, representing each of the birth nations of the students attending Round Lake.

Its newfound success has since piqued the interest of other school districts teetering on the edge of bankruptcy. Seeking similar solutions, several Illinois districts have dispatched administrators to Round Lake to meet with Stonewall and Korpan and learn a few tips.

Gross, the chamber president who once felt embarrassed about the district, has admired the contributions long before the referendum vote. Before leaving her post, she awarded Stonewall and Korpan with the chamber's "President's Award" on the district's behalf.

As prestigious as the recognition was, Gross says there's no greater reward than to see Round Lake students shaking hands with Stonewall and Korpan. "I was in the high school recently," Gross says, "and saw a sign posted on a wall that read, 'Failure Is Not an Option.' I wonder if they had anything to do with that."

Round Lake History

The first residents of the Round Lake area hailed from the town of Hainesville, settled in 1840 outside of Waukegan, Ill. (According to town records, Abraham Lincoln visited Hainesville several times.) Its adjoining lakes, ideal for fishing and swimming, would become a vacation destination for Chicago and Wisconsin residents. Tiny summer cottages began to dot the area towns.

When the Depression hit in the early 1930s, many were forced to make these cottages their full-time homes. Decades passed. In the 1960s and 70s, the area's affordability attracted an influx of Hispanic families.

By the late 1980s, the school system began to feel the affects of overcrowding. The combination of an ineffective school board that let maintenance go and some poor administrative decision-making set the district's finances spiraling. With its seven schools in peril, a sense of hopelessness began to disappoint staff, seeping into the attitudes of the students and community alike.

"Attitudes are like water," reflects CEO Dennis Stonewall. "They always seek the lowest level."

Reclaiming Magee School

In 2003, John T. Magee Middle School closed due to electrical, roofing and traffic concerns. Several architectural firms made recommendations, but one specializing in school design--Gilfillan Callahan Architects--stood out.

Meeting with Round Lake district CEO Dennis Stonewall and CFO Walter Korpan the firm assembled three scenarious for Magee:

1. Make minimal repairs to re-open the school ($5 million)

2. Demolish parts of the school and build an addition around its best features--the gymnasium and cafeteria ($14 million)

3. Completely level the school and build a new one ($22 million)

Understanding that the community was vital to the decision-making process, the firm created bilingual brochures and invited the public to a Saturday forum, which attracted more than 100 residents. Firm founder Mike Gilfillan and architect Alejandro Lopez also joined Stonewall in a local radio call-in program.

Due to the community's positive attitude toward the district, a $17 million referendum passed a year ago. This allowed the district to earmark funds to rebuild Magee School, using the second scenario of demolishing parts of the building and erecting an addition around the gym and cafeteria.

Magee is scheduled to re-open in August 2008.

Even Moody's Believer

Weeks after the district's referendum passed, Moody's Investors Service assigned the district an "A3" investment grade rating. The designation places the district's finances at upper medium grade, thus subject to a low credit risk.

The A3 bond rating reduces the district's cost of borrowing money. Edward Kula, chairman of the Round Lake SFA, says it also allows the district to now invest the referendum money until it decides to release the funds.

Joe White is a freelance writer based in Des Plaines, Ill.