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Notebook editor Paul Socolar can be reached at 215-951-0330 x2107 or pauls@thenotebook.org.
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The ‘structural deficit’ that never went away
by Paul Socolar
“For the third consecutive year,” school officials declared when they went before City Council last spring, “the District is introducing a structurally balanced budget that maintains a balanced five-year budget plan at least through the 2010-2011 school year.”
The District’s press release proclaimed: “This is an exceptional accomplishment for a school district that in 2001 was operating with a $115 million two-year deficit and facing a projected cumulative deficit of nearly $1.0 billion by 2006.”
Just one year after that boast, however, it has become clear that this statement was misleading. The budget introduced last spring was not “structurally balanced” – nor was the budget before that one.
What does it mean to be “structurally balanced?” It means that the recurring revenue the District takes in each year covers what it spends in the same year. It means that officials don’t have to use other funds – a one-time fix, a cash advance, a special appropriation, a reserve fund – to balance the ledger.
In the years leading up to the state takeover in 2002, the District struggled with a persistent “structural deficit,” unable to keep expenditures in line with its income sources – primarily city and state tax monies. In the other 500 school districts in the Commonwealth, the elected boards of education can raise tax rates when expenses outrun income and then take their chances with the voters. In Philadelphia, the appointed Board of Education could never do that.
So the claim by Paul Vallas and the School Reform Commission that the “structural deficit” was a thing of the past seemed a truly remarkable feat.
Except it wasn’t true. The deficit was just masked by one of the components of the state takeover deal, a $300 million bond issue to help tide the District over – the biggest one-time fix the District had ever had.
A large chunk of that sum was swallowed up immediately by repayment of the District’s huge deficit, but the District was left with almost $200 million to help with future budget imbalances.
The cushion it provided assisted the District, under CEO Vallas and the SRC, in launching a number of costly initiatives, including smaller high schools, class size reduction, and new curriculum materials, as well as the borrowing costs for a massive capital improvement plan.
But there was another intended purpose for that $300 million. In the words of City Controller Alan Butkovitz, “This was intended to be a bridge towards future fiscal stability.”
That “bridge” was expected last at least until 2007 or 2008, according to two early five-year financial plans issued by Vallas in August 2002 and March 2003. But because of the high cost of the reforms and initiatives, the reserves didn’t last through 2006.
Entering the 2005-06 school year, the balance on the borrowed funds was down to just $50 million. When District finance officials reviewed numbers after the close of that school year, they discovered the fund balance had been entirely wiped out by an unexpected $73 million shortfall in that year’s budget.
With the reserves gone, the District had reached the end of a window of opportunity for achieving the sought-after financial security – the “structurally balanced” budget, the matchup of revenue and expenses. It appears no closer to that status than it was in 2002.
Since Gov. Rendell took office, state appropriations to the District have gone up substantially through block grants for specific purposes likes early childhood education and teacher training. But that money is not stable and guaranteed, and can’t always be diverted where the most pressing needs are.
Charter school costs, the District’s debt burden, and special education costs are all rising rapidly, and the District’s contracting activities have expanded in recent years. Enrollment is declining, but that doesn’t mean that the District’s costs go down commensurately. It takes a long time for a district to efficiently downsize.
At the same time, the underlying issue in Pennsylvania is a familiar one – inadequate resources for schools in districts that are primarily low-income and filled with children of color.
“The districts that seem to fare the worst financially are the ones with concentrations of poverty,” said Len Rieser, co-director of the Education Law Center. “If you look at the numbers for those districts, there are large numbers of kids of color. The numbers are very striking.”
In 1998, a federal civil rights suit was filed by the Public Interest Law Center of Philadelphia on behalf of the city and school system, charging that Pennsylvania’s school funding is discriminatory against systems like Philadelphia with large numbers of students of color. The case was headed for trial when Governor Tom Ridge took the unusual step of demanding that it be dropped as a precondition for providing additional funding support for Philadelphia.
Today in Pennsylvania, there are no legal remedies on the horizon for improving the school funding system, unlike many states where the courts have taken an active role in tackling inequities.
In an effort to craft a political solution, many local organizations continue to work toward statewide funding reform by building coalitions across the state to influence Harrisburg (see this list on Who’s working on school funding).
At the same time as they press the cause for greater statewide funding equity, activists in Philadelphia also want the District to be more accountable and transparent in how it spends its money. Last year’s massive, surprise deficit is still a big concern.
“The administration, both Mr. Vallas and the School Reform Commission, appear not to have been forthcoming with us about the District’s financial information,” said Rieser. “How could that [deficit] happen to such an extent without any public warnings?”
“There just needs to be more attention to monitoring the budget,” agreed Aissia Richardson, a parent activist with Parents United for Public Education, suggesting the idea of a budget oversight board including parents.
“Not to discount the work of the SRC, but five people who are not full-time are not enough to review a $2 billion budget,” she added.
Some advocates worry that city and school officials have not gotten far in building statewide alliances for a fairer, more reliable system, and have instead focused on one stopgap after another for Philadelphia.
A letter from Vallas to City Council in April speaks of “starting a dialogue with policymakers regarding the need to address the long-term and historical funding gap.”
The challenge of tackling the structural deficit will now fall to the School Reform Commission and the new leadership arriving in City Hall and the School District, and there will be little time to waste.