One Crisis Down, Next Up: The School District budget meltdown

No rest for the weary. One crisis may be down, but another looms for the second biggest entity next to city government: the School District of Philadelphia.

One week into school and the School District is facing an almost certain $150 million budget deficit and counting. It’s a number that’s likely to touch every school, and possibly be felt in every classroom in the city.

It’s worth remembering that three years ago, when then-CEO Paul Vallas first announced a stunning deficit, the number came to $73 million – less than half of the anticipated shortfall today.

This is a situation the School District ignored as it padded executive offices and signed off on millions of dollars in contracts for the past five months – despite appeals that contracts should be prioritized or even held off until the state budget came through. It’s a situation the School District steadfastly refused to acknowledge even when the governor’s budget was clearly dead in the water. It’s a situation that the School District’s only apparent preparation for was a “doomsday budget” it passed out to Council last spring in the event of a worst-case scenario.

The doomsday budget is a Plan C for the District, a list of threats that were meant to frighten lawmakers into meeting the Governor’s educational demands. There's only one big caveat. Plan C never happened for the city.

It lists 30+ cuts totaling $300 million and included the following:

  • An increase in class sizes to 33 kids in grades K-3 and 35 kids in grades 4-12;
  • No charter reimbursements for 300 charter school teachers and 7800 charter school students citywide;
    Elimination of more than 130 nurses and counselors district wide;
  • Elimination of summer school and pre-K programs;
  • Elimination of 800 sports teams for kids;
  • One less police officer in the 33 comprehensive high schools;
  • Removal of dozens of kids from getting SEPTA transpasses and partially basing passes on attendance records.

Every single one of the $300 million in cuts comes off the backs of school children in our city.

It's likely it wasn't much more than a fright sheet that no one expected to have happen. But now with the District’s budget assumptions unraveling, the list is a major threat to fundamental educational principles - mostly because the District hasn't made clear what other options it has. The District has already enacted one of its threats from this list – fewer high school dropouts than planned can return to schools for a diploma.

So the question before us is where do we go from here?

One thing we witnessed in the 2006 financial crisis was an effort to move quickly so cuts and savings could be made early enough in the school year to have an impact. But even today, in the 11th hour, District officials refuse to acknowledge serious problems.

Michael Masch, the district's chief business officer, said last night that he would not characterize the moves as cuts. He said the district was merely waiting to see what it would receive in state aid.

Meanwhile, the SRC has chosen to postpone its September meetings by two weeks despite the looming financial crisis.

Another feature three years ago was the willingness of District leadership to bring in broad parties to help figure out solutions, and that included parent and community groups. In fact, Parents United for Public Education, which I helped co-found, had its creation in the roots of the 2006 fiasco – the result of parent frustrations of years of declining funds in schools.

More than ever, the District needs to return to those principles of public engagement, transparency and a focus on schools rather than contracts and consultants. Outgoing Commissioner Heidi Ramirez got the District to commit last May that if there were to be any significant changes in the budget that it would have to bring a revised plan to the SRC for approval.

We need to take that several steps step further and include the following as well:

  1. The District needs to take the “doomsday budget” off the table and make a commitment to a public process for determining budget cuts;
  2. The District must define essential school services and commit to ensuring that these will be off limits for budget cuts;
  3. The District needs to freeze its contracting activity and account fully for its current contracts, however small, as it did in 2006;
  4. The District must hold at least three public budget meetings – including one evening meeting – before approving a revised budget; and
  5. The District must commit to holding community budget forums this fall so that the District can hear financing priorities from schools before budgets are created, not afterward.

The District made a major error in counting on politics to win the day and blithely issuing contracts and hiring consultants. Now that a hammer is coming down on school finances, it’s time to protect our schools and children from the worst of consequences of this latest budget crisis.

Could have fixed it through accounting tricks long ago

Had the school district not decided to build out their posh North Broad headquarters and instead opted for any number of large factory spaces further up on Broad St. which would have cost a lot less money if refits were contacted out carefully (that means no-frills offices). It's too late for that now though, no business would ever come into the city and takeover that building they're in presently, much less sell the parcel for a profit.

All of the proposed cuts are disastrous to an already dilapidated school district.

The only cut I would support would be to kill off the SEPTA Transpass program to chronically truant students, but that's not even going to save more even $50 million.

It would really, really be swell

if we had a Controller who was willing to really open up the School District budget to the light of public scrutiny and do a in depth compare/contrast between the things that work (reduced class size in early education) and things that don't (BRT employees n the School District budget, sketchy contracting, esp. from a handful of politically connected charters).

I agree that the idea of coupling of transpasses to attendance records is the only reasonable item on that list. In terms of educational results, its class size, class size, class size - particularly in early education.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.

Cuts alone?

Helen, what are the revenue options for the district? I believe the city controls the property tax rate so that's not an option until the city's next budget year? What is the district's budget year--when does it starts?

And how does the state budget affect the district's deficit? Are there other sources of money available?

The state budget has everything to with it, as I understand it

Rendell's issue over fairer state wide per pupil funding is still the "big issue". Perhaps Helen or someone else can elucidate better.

Property taxes involve going through fixing the BRT first (which it sound like DiCicco is raring to go on) and Helen might point out just moving BRT employees off of the PSD books and trading it out for a straight fee-for-service accounting contract (if thats even necessary - the city could also "give" assesments it needs for its own revenue collection - they need the numbers anyway, why not) might be a more direct route to more PSD funding quickly. A very high proportion of the folks in a smaller, tighter, more professional BRT who would succesfully make the transition to passing civil service tests are not the ones inflating the PSD budget. The ones who would have a harder time passing civil service tests all tend to be housed under the school district budget for patronage purposes.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.

Background first

The District's revenue options have always been handicapped. Unlike other districts it's specifically prohibited by law from raising revenues (via tax levies, etc.).

The District receives somewhere around 10% of its money in federal grants, most of them with specific targets - Title I, Title III, HeadStart, etc.

In general, revenue is split roughly 58-35 between the state and city. The state since 1991 has had no formula for distributing money to school districts. Hard to believe but true. Last year a revolutionary formula was passed through the state legislature that Sean alludes to, that sought to create a weighted funding formula to address dramatic funding inequities as a result of . . . well, not knowing how or why you fund school districts. State funds this year come in slightly under $1.7 billion.

On the city end ($800 million), revenue is primarily raised four ways - property taxes, use and occupancy tax, liquor by the drink tax and school income tax.

This year, almost 15% of the proposed budget comes in the form of $570 million in federal stimulus money. That's where the district was counting on to get a huge boost in dollars for its Imagine 2014 plan, which among many other things would help reduce class size and improve the number of counselors in schools. Unfortunately, the state has chosen not to follow the funding formula it enacted last year and is currently pursuing use of stimulus money for modest improvement in funding to districts - but essentially no stimulus bump. And that's why you see a deficit because the District was counting on stimulus dollars in addition to a significant boost in general ed funds through the ed funding formula.

In terms of revenue options, I can say what we've chosen to look at. Our campaigns have mostly focused on the city boosting its options to generate revenue for the schools. We felt that there was a solid campaign at the state level to change the funding formula, but a campaign was lacking at the local level - hence our support for Wilson Goode's successful 2007 bill to shift more property taxes to schools and our work around the Parking Authority and the BRT.

Locally for example, we wanted to look at something like the liquor by the drink which has not changed in a decade - sorry boozers! What we do with tax abatements and whether we reform the property tax system has a dramatic impact on school funding.

Does that help?

Oh and District's budget goes from July 1-June 30 . . . although it approves its budget by the end of May (so maybe its June 1-May 31) - I'll check on that.

The part about the state budget eating the stimulus bump

is what Rendell keeps talking about in terms of "recurring revenue". Senate Republicans apply stimulus money (which nationally they criticize funding at all) to cover the basics so their is no longer any "extra" for the new stuff in Imagine 2014 as one example, but also leaves the entire state possibly in the lurch in a very bad way in 2 years when the stimulus money times out. One has to wonder if the stimulus is stimulating anything if its all going to the basics and still coming up short.

Beyond that it puts PA Republicans as criticizing the Federal stimulus funding as wasteful in the first place, then criticizing that it isn't working fast enough in the second place, but then betting the farm in terms of long range planning that the economy will have dramatically improved as a result of it in two years - which are all 3 mutually exclusive positions logically. Somehow however, they seem intent on trying to hold all 3 positions at once despite the obvious contradictions.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.

Oh that one is easy

I think both sides of the aisle in the PA General Assembly must be thinking that they can just tap the muni markets again.

Unpack that

You mean they are both assuming that they will be able to borrow their way out in two years by selling municipal fund bonds. With all the uncertainty in the economy and the very real possibility that as we pull out we go into an inflationary swing with quickly rising interest rates, thats a disturbing thought.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.

Correction

The $570 million I mentioned above includes recurring federal grants and funds as well as stimulus funds, and includes one-time infusion of dollars into Title I and IDEA. Thanks to the Notebook for clarifying.

Actually any City tax can be used for the School District

because the City can just transfer general revenue to the School District as a budget item in its operating budget. It already does this and has been doing it for years. So the City could raise the wage tax, the business tax or the amusement tax and send the revenue over to the School District. Although I'm pretty far removed from this now, I'm pretty sure there was a lawsuit over this about 20 years ago in which nonresidents tried to prevent use of this technique to fund the district on the basis that it was illegal to use nonresident wage taxes for that purpose. It was dismissed.

True though it should be noted

that any transfer of revenue from the City to the Schools would obligate the city for that amount permanently. It was a glitch we ran into when Council wanted to pass a one-year $10 million transfer to the schools during the 2006-7 fiscal disaster. But yes, the City could choose to improve its funding to the schools at any time.

I'm pretty sure that's true of any funding increase for the SD

So if the liquor by the drink tax rate is increased, it can't be cut back again later. Again, I don't have access to lexis anymore, but I'm pretty sure that's the case.

Quick points

EastChestnut: One of the contracts we're concerned with is the no-bid Elliott Lewis contract for some $2+ million to just "manage" the 440 building. It's definitely a contract that should be investigated more closely.

For Sean and others re: background on SEPTA transpasses: The total amount for this service comes to $6.7 million. Our organization fought having transpasses based on attendance because all the studies showed that children who received free transpasses not only had better attendance than average students, but also improved their attendance. It is arguably the most successful attendance program the school district has enacted - and points again to the fact that barriers to access are serious for children and families. Chronically truant kids would not likely get transpasses since they have to show up to school to receive them.

More important is that the "doomsday list" sets up false premises since almost all of the items targets essential programs for kids and families. It doesn't consider the fact for example that central office is heavily padded with new salaries, or that consultants have increased, or analyzes contracts for other savings. But as noted, in any case, $150 million won't be found in contract savings alone either.

So it sounds like

RE transpasses: that having to come in to pick up the transpasses already encourages attendence and that the hassle of tracking attendance records to transpasses won't necessarily be more effective beyond that. It may indeed push a couple of kids over the line into "Just screw it". Interesting. Its a minor point anyway in terms of funding.

It also sounds a little like we traded one schools CEO who was criticized for being too "top-heavy" for another one who is even worse or at least just as bad on the same front.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.

That sounds good

As long as the students are required to make a physical presence, then that's a good idea. Mailing them to the house or allowing students to flash an ID while they're at the SEPTA Service Center at The Gallery [already skipping school] is not really sending the right message.

SRC seems to have no choice then but to lobby Harrisburg hard for the funding, it would seem. Unless they have some plant assets somewhere they could sell... like some surface parking lots or unused buildings; but from what I read in the Inky, they've already done all the asset reorganizing already than they can do within the confines of community opposition.

I am disappointed that we don't do an actuarial analysis of what spending initiatives created a marked improvement in student performance and eschewing payments and programs that aren't working, to redirect them to new ideas (similar in some respects to the California system).

That can be done with a highly centralized school system or in a jurisdictional (ISD) system.

Second on transpasses

During the fight on transfers...which led to the current transpass policy...it was totally evident to everone how important this was. So even when SEPTA was fighting tooth and nail against transfers, they were willing to make a deal on that.

And if something is obvious to SEPTA, or maybe I should say SEPTA under the its last administration, it is just obvious. period.

One other thing from Helen's post

The cries of outrage over Vallas's missed budget targets at $73 million compared to the relative calm over a number almost twice that size really draws attention to those lingering concerns that some of outrage had more to do with Vallas threatening to mess with patronage employees of the Controller's office housed in the School District budget.

If Butkovitz really wanted to disprove those concerns, making himself available for the kinds of open budget process Helen and PURE are asking for would go a long way to proving his credibility. Otherwise it continues to look like it was about a Clash of the Titanic Egos, not really about doing right by our kids.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.

Helen's action points

Armchair quarter-backing is all well and good, but my take away from Helen's post with the background she provides makes me think her action points are super smart. Let me repeat them by quoting Helen's post:

1. The District needs to take the “doomsday budget” off the table and make a commitment to a public process for determining budget cuts;

2. The District must define essential school services and commit to ensuring that these will be off limits for budget cuts;

3. The District needs to freeze its contracting activity and account fully for its current contracts, however small, as it did in 2006;

4. The District must hold at least three public budget meetings – including one evening meeting – before approving a revised budget; and

5. The District must commit to holding community budget forums this fall so that the District can hear financing priorities from schools before budgets are created, not afterward.

Despite the fact that layoffs have been prevented (for now) in the city, the use of a fabricated crisis and ensuing hysteria was tough on Philadelphians. Helen makes an excellent point that the School District should not do the same thing and should have an open process for determining cuts with plenty of community input.

I do think in the long-run, that the real solution to funding woes for the school district is to get our current guv/mayor (or find a new guv/mayor) to get their hands dirty and really mess around with tax policy so that we collect enough money to fully fund urban education. That's far from an easy fix, but if someone had the courage to do it, the problem would be solved (eventually).

Ackerman and the SRC are not elected

Hearings and a more public process are surely called for but they do not have the same motivation for including the public that the mayor or city council do. Which is why I think the current (or next - but realistically they are likely the same) controller really buying into the process of making the school district's budget more open is very important.

But yeah thanks for pulling this back in, Ray.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.

Cost per student is outrageous--Harvard is cheeper

The annual school budget is 3.2 billion which accommodates 167,000 students. $3,200,000,000 Annual Budget divided by 167,000 Students = $18,181/Student. That's $18,181 per student annually. Does Helen Gym know if the Philadelphia School Education System is an adjunct of Harvard University.

Is this a joke?

Because it’s funny how you messed up everything from your math to the fact that Harvard tuition is almost double the mistaken amount you cite to the omission of 30,000-some charter students and charter expenses. The District is also getting $150 million less than its requested amount (which the Notebook informed me was $3.18 billion, not $3.2 billion) and the total includes a one-time infusion of federal dollars particularly into IDEA and Title I. So when it all works out the average Philly kid gets around $14,000-$15,000 a year which puts the District smack in the middle of regional averages despite the fact that it serves the highest concentration of needy students in the state, including children with disabilities, special needs students, and immigrant students.

If your point is that we need to do better with the money we have, that’s something we all know. But if your point is that struggling kids in Philly don’t deserve a serious investment, then your sarcasm - not to mention your inaccuracies - falls flat.

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