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Questions and answers about the District’s budget gap

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

How did the School District get into such a financial mess?

The $304 million budget gap announced last winter didn’t happen overnight. In fact, the District has faced budget crises almost annually for decades.

The fundamental issue is that Philadelphia is a vast district, responsible for nearly 200,000 public school students in District and charter schools – many of them with special needs – and the city depends on outside funds from the state to cover most of its budget. School funding in Pennsylvania is heavily reliant on local property taxes, and communities with weak tax bases struggle. Unlike every other school board in the state, the School Reform Commission lacks the authority to levy taxes itself. Other problems: a lack of predictability in the level of state funding for schools, which plummeted in 2011, and the city’s inability to collect all the taxes it is owed.

It all adds up to a big problem raising revenue. Philadelphia’s per-pupil spending consistently lags the average in surrounding districts by $2,000-$3,000.

One trigger of the current crisis was the loss of federal stimulus funds – which for two years were used to substitute for some state aid – causing reductions not just to Philadelphia, but to other districts around the state. But in addition to the drop in basic state aid that resulted in 2011, Gov. Corbett also eliminated or cut back on other education line items vital to Philadelphia, including charter reimbursement (this cost the District more than $100 million) and accountability block grants that had started in the Rendell administration. In total that year, Philadelphia absorbed nearly 30 percent of the $1 billion in reduced funds coming from the state to districts in the commonwealth.

Some argue that then-Superintendent Arlene Ackerman didn’t prepare adequately for this “fiscal tsunami.” Regardless, the upshot was that in 2011, the District found itself $629 million in the hole. It managed to get through the year by slashing 3,400 positions and using some one-time financial maneuvers, but still did not bring expenses into line with income in 2012, and the gap persisted in 2013. One of the challenges is that the District has faced rapidly increasing charter school costs. Another is that the District has expensive debt service, having borrowed funds to support its operations twice within a decade.

Why are things so much worse this year than last year?

The District borrowed $300 million last year to cover its operating costs, rather than implement another round of budget cuts comparable to the 2011 bloodletting. That kicked the budget gap problem into this year. And after the deep cuts of 2011, there was little left to cut this year besides classroom spending.

What has been cut?

The District laid off 3,800 staff this summer, but in August brought back about 1,600 of those. As of the start of school, the District’s staff is smaller by 3,000 than it was in June, many of those jobs lost through attrition. Overall, that’s a 15 percent reduction.

Job losses were heavy among teachers, counselors, assistant principals, supportive services assistants, and secretaries. Only 126 counseling positions were restored by the start of school; last year the District had 362 counselors. Nearly half the schools in the city will be dependent on a team of 16 roving counselors. Schools were understaffed for much of the summer and are dealing with the loss of multiple key personnel. Class sizes are larger, and the year starts with 100 split-grade classrooms. However, most of the 1,200 noontime aides initially laid off have been rehired.

Wasn’t there a plan to avoid this crisis?

The District had hoped to close its $304 million gap and avert cuts through a combination of new revenues and labor concessions, but instead had to put in place a “doomsday budget” with more than $250 million in cuts. Superintendent William Hite had asked the state and city in March to come up with a combined $180 million in new revenues for the District. But Gov. Corbett’s June “rescue plan” contributed little new revenue for this year and put strings on a $45 million grant so it has not yet been received. At best, the District is now hoping to end up with $112 million in new revenues beyond what was in its budget on May 31. Most of that will come from city taxpayers.

Hite’s plan had also called for major concessions from District staff – $133 million in savings, which represents a 10 percent overall cut in pay and benefits. The teachers’ union is being asked to produce most of those savings but has said that its members cannot afford such deep cuts. Any savings achieved could be used to restore the cuts made this summer.

What was in Gov. Corbett’s rescue plan?

For this year, his plan included a meager $2 million increase in basic education funding and a $45 million grant that the governor says is contingent on labor concessions. The big ticket item in the plan is for future years: The state legislature gave the city permission to continue charging its residents an extra 1 percent in sales tax – a surcharge that was scheduled to expire next year. The first $120 million annually in proceeds from this surcharge can be devoted to the schools, starting in 2014. For this year, the legislation included provisions for the city to borrow $50 million against the future proceeds from the tax. Mayor Nutter wants to proceed with borrowing, but City Council opposes that, saying that the city should instead take control of and sell vacant District properties to raise $50 million. Either way, the District is now counting on the $50 million.

So what happened to the budget gap?

Technically it has been eliminated. By putting in place its doomsday budget and planning to spend down its modest reserves, the District balanced its budget for 2013-14. Officials now project that there will be enough money to operate through June 2014 and end the fiscal year with zero fund balance. But they would like to restore staff and programs that have been cut, and they say they cannot afford to do that now because they will not spend funds that aren’t secured yet.

What’s the District’s plan now?

The District has so far restored $83 million in cuts with funds secured since June. Now its strategy is to get deep financial concessions from the teachers’ union and three other unions and use the savings to rehire additional staff that were lost. Officials say the priority would be to restore instructional staff. Restoring the 156 counselors who were cut from the operating budget would cost $17 million. Instrumental music teachers and sports were restored for the fall; bringing them back for the whole year would cost nearly $8 million more.

Whether the District intends to impose changes to the pay scale or other contract terms on its unions if it cannot reach agreement at the bargaining table is unknown. Such a move would surely prompt a court battle.

Can’t anyone else come to the aid of the schools?

Advocacy groups and some local elected officials have been pressuring the governor to release the $45 million grant, but the Corbett administration is adamant that it wants to see a reformed teachers’ union contract first. Other than the proposal to sell District properties, there has been little movement in City Hall to identify new strategies to raise funds for schools this school year.

At the state level, the legislature failed to vote in June on authorizing a proposed new cigarette tax approved by Philadelphia City Council. That proposal could be considered in the fall but faces opposition from anti-tax forces. In the long term, advocates hope that the state will re-establish a funding formula to aid struggling districts across the state. But that won’t happen in time for this school year.