clock menu more-arrow no yes

Filed under:

The ‘What were they thinking?’ deficit

This article was originally published in The Notebook. In August 2020, The Notebook became Chalkbeat Philadelphia.

It’s been almost three years since the story broke in 2006 that the District had overspent and was facing an unexpected $73 million deficit.

It’s still referred to as the "surprise deficit." It set off major turmoil during the months of budget cuts and layoffs that followed. There were lots of recriminations all around, with CEO Vallas, the chief financial officer (CFO), and the School Reform Commission all accused of dereliction of duty.

This time round, the District’s budget crisis is far from a surprise.

With official confirmation from the District this week of a funding shortfall exceeding $160 million, more than twice the size of the 2006 gap, the most polite name for it would be the "What were they thinking?" deficit.

Hopefully Wednesday’s School Reform Commission meeting will shed light on what Superintendent Arlene Ackerman, the CFO Mike Masch, and the SRC were thinking. What were they thinking over the last few months as the District proceeded full-tilt on Imagine 2014 initiatives to be paid for with funds that had not yet been approved?

In fairness, it is not a deficit yet. We do know that there is now a revenue shortfall of $160 million or more in a budget that previously was balanced. We can still hope that someone had a list in their drawer – a Plan B – that tells what to do if half of the hoped-for $300 million from the state does not materialize.

Maybe there’s a batch of not-yet-spent expense items in the 2009-10 budget that can be quickly taken off the table to bring things closer to balance. But so far there’s no evidence of a Plan B, and every indication that brutal cuts will be needed to forestall a deficit.

This time it’s not a surprise because the news about the state budget deadlock dominated the headlines all summer. Anyone who pays attention to the District budget knew very well that the District had based its revenue assumptions for 2009-10 on the Rendell budget. Passage of the Rendell budget was already looking uncertain enough in late May that Commissioner Heidi Ramirez grilled the staff at a May 27 meeting about what they would do if the expected state money didn’t come through (CFO Masch responded with a promise to come back to the SRC with budget revisions).

In July, the District entered a new fiscal year without knowing how much money they’d be getting from the state. Perhaps a good time to start hedging your bets rather than spend funds that aren’t secured?

For weeks thereafter, it became increasingly clear that Governor Rendell was not going to get everything he asked for. He gave up on his call for an income tax increase. By August he had given up on on his demand for a $418 million increase in the basic education subsidy. He softened his insistence that stimulus dollars for fiscal stabilization go directly out to school districts.

The Notebook and the rest of the press corps were asking regularly how the District was dealing with the likelihood of less money. The Superintendent’s reply was that she was holding back in a few areas, but committed to implementing the the $126 million Imagine 2014 Year 1 plan. And the members of the SRC, apparently unaware of the shame that befell their predecessors, did not step on the brakes. In fact they did not even manage to get a budget briefing all summer.

It now looks as if the District will end up seeing its revenues increase by perhaps $120-$140 million this year … that would be about a 4 percent increase. It hardly sounds like a formula for a fiscal disaster.

The problem is that most of that increase gets eaten up by budgetary obligations like negotiated wage and benefit increases. It doesn’t leave money to pay for Ackerman’s compelling but expensive goals of lowering class size, adding more counselors, and giving high school students more electives. And so now it looks like we have a crisis on our hands.

The main task now is to figure out how to move forward. But some lessons must be drawn.

Three years ago, lots of people called for checks and balances so that an unexpected deficit wouldn’t happen again. But here we are again, and it’s important to hold the District’s leaders accountable for how we got here. We need answers to the question: "What were you thinking?"

The COVID-19 outbreak is changing our daily reality

Chalkbeat is a nonprofit newsroom dedicated to providing the information families and educators need, but this kind of work isn't possible without your help.

Connect with your community

Find upcoming Philadelphia events

Sign up for the newsletter Chalkbeat Philadelphia

Sign up for our newsletter.