Chronology of the District's deficit

While the School District now faces a deficit, it began the 2005-06 year with $50 million in reserve. That fund balance was what was left of a special $300 million city bond issued in 2002, at the time of the state takeover of Philadelphia schools. Those funds were borrowed to bail the District out of a deep financial crisis and assure a period of fiscal stability.

Here is how a District budget deficit re-emerged in 2006.

• Midyear estimates that the 2005-06 budget had fallen out of balance necessitated a central office hiring freeze and a number of additional cutbacks in January 2006, including a 30 percent reduction in unspent discretionary school-based funds.
• In May 2006, amidst protests, the School Reform Commission adopted a balanced budget for 2006-07 that included teacher cuts at a number of schools, undoing much of the District's class size reduction initiatives in the lower grades from prior years.
• The new budget statement indicated that the District's recent budget imbalance had been rectified and projected there would still be a $50 million reserve fund at the start of the new fiscal year on July 1, 2006.
• In August, District officials determined that they had actually run a deficit of more than $20 million in the fiscal year just ended June 30.
• In September, CEO Vallas announced that for the first time in his tenure, the District would conduct fall “leveling” of teacher allotments. To staff overcrowded classrooms, the District took 65 teachers out of schools where class sizes were below mandated limits.
• In October, District officials announced that the deficit in 2005-06 had been much larger than the $20 million earlier believed due to underestimates in areas such as charter school costs and termination pay.
• In November, as they closed the books on 2005-06, District finance officials said spending had actually outstripped revenue that year by over $73 million, more than wiping out the District's $50 million reserves and leaving the District with a negative fund balance of $23 million.
• Officials explained that some of the mistaken projections in 2005-06 would recur as a problem in 2006-07, meaning that the budget for the current year, thought to be balanced, was now about $50 million in the red.
• In November, CEO Paul Vallas proposed roughly $70 million in budget cuts, which he said would be enough to balance the 2006-07 budget and bring the District's negative fund balance back to zero. Vallas also proposed rebuilding the District's reserves through some one-time measures such as sales of property.
• The SRC adopted a new set of financial controls, created an audit committee, and endorsed a 20 percent cut in central office staff as well as authorizing cuts to contracts, but rejected several other cuts proposed by Vallas.

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