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Council approves $27M toward current year gap, rebuffs District pleas for more

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

The City Council Finance Committee on Wednesday agreed to borrow $27 million to give to the financially ailing School District immediately, an amount based on the assumption that both the University City High School and William Penn High School properties would be sold before the end of this month.

Between the loan and the property sales, Council expects to reach the goal of delivering $61 million in additional funds promised to the District last August for this school year.

The promise allowed the District to avoid more layoffs at that time. But with the fiscal year almost over, the money has not yet been delivered.

Two bits of news in what happened: Council completely rebuffed pleas from District officials to approve borrowing $55 million, which it could have done under state legislation passed last year with minimal impact on city coffers. School officials say they desperately need at least that much to balance this year’s budget — for the fiscal year ending June 30 — and to avoid more layoffs and other cutbacks next year.

And until Wednesday, there had been no public indication of an imminent sale of William Penn, the sprawling property on North Broad Street. The District is expecting to close a $22 million sale of University City to a consortium that includes Drexel University.

District and city officials offered little information about the bidding for William Penn, which is near Temple. The university has expressed interest, but local community groups have been opposed to such a deal.

District officials were dazed after the Council committee vote, which they said "left $28 million on the table." They are still facing the possibility of ending this year with a $29 million shortfall and say they need $216 million in additional funds next year just to keep this year’s inadequate level of services.

The District is still at least $96 million short of that total and has been counting on getting the bulk of those additional funds for next year from the city. But the District’s pleas Wednesday were an attempt to head off a bigger hole this year.

"We’re all shaking our heads and don’t understand," said District spokesman Fernando Gallard. "Maybe they don’t get the urgency of the issue. These are serious choices with some very serious ramifications for children. Leaving $28 million on the table for whatever reason is mind-boggling."

Instead of the help they sought, District officials got several lectures from Council members that they had not been aggressive enough in selling their vacant properties to raise the needed funds. And, continuing elements of an ongoing squabble, members also complained that they are being asked for money without having more control over how the District spends it.

A year ago, the General Assembly authorized City Council to approve a 1 percent sales tax extension for Philadelphia and turn over $120 million in proceeds for the schools starting in fiscal 2015. As part of that deal, it also authorized the city to borrow against the future revenue to raise at least $50 million for the District this year, setting aside $15 million in debt service each year between fiscal 2015 and 2018 to pay for the borrowing.

Sophie Bryan, chief of staff to the School Reform Commission, said that the $15 million annual debt service could have supported "a borrowing much larger than $50 million."

But Council members weren’t buying, determined to borrow as little as possible and raise most of the money through property sales.

Mark McDonald, a spokesman for Mayor Nutter — who had guaranteed the $50 million one way or the other — said that he supported the District’s position.

"If Council chose to heed the call and do a bond issue of $55 million, the city would support that," he said. "But they didn’t."

Neither the sales tax extension nor the borrowing scheme was ever embraced by City Council. Council President Darrell Clarke has balked against turning over so much of the future sales tax revenue to the District because he had wanted to use much of it to shore up the city’s pension fund. He also opposed the borrowing, saying he wanted the District to raise the $50 million it needed this year through sales of vacant properties.

In November, Clarke said he wanted the District to cede the properties to the city, which would sell them and then give the District the first $61 million in proceeds — $61 million and not $50 million because the District had already put in its budget $11 million in revenue from property sales.

Although that didn’t happen, the District did turn over the sales process for 20 properties to PIDC. Bryan told Council that PIDC had received offers on 14 that could net the District $14.5 million. She didn’t mention William Penn, but City Finance Director Rob Dubow told Council that William Penn could be sold before the end of the month. Gallard, McDonald, and a spokesperson for Clarke also confirmed that a sale of William Penn would have to be achieved to reach the financial goal.

But Bryan also said that the rush to sell so that money could be raised before the end of the fiscal year was hampering the process. She noted that two buyers for the former Alexander Wilson school in Southwest Philadelphia have backed out due to the short timeline.

In addition, she said, "for several properties, lower offers were received with a shorter time to closing and higher offers with a longer time to closing, demonstrating some of the tension between the goal of maximizing price and the goal of shortening the transaction timeline."

Under the bill original proposed by Clarke, Council would have borrowed just $20 million against future sales tax revenues. By borrowing $27 million, Council’s Finance Committee assumes that the District will raise a total of $34 million through the property sales — $61 million minus $27 million. But no one gave details on how they arrived at that figure as a realistic amount from property sales.

Gallard said that the vote was "a significant setback for the children in Philadelphia," many of whose schools this year have been without full-time nurses or counselors, stocked libraries, or money for basic supplies.

"The conversation needs to be reset away from politics to what is being provided for children," said Gallard. "We want a loan agreed to by the legislature, and we want to sell our vacant properties and put all that money back into the schools."

Clarke spokesperson Jane Roh responded to the criticisms by charging the District with inaction on property sales.

"Temple formally expressed interest in purchasing that building in March of 2013, but the SRC did not declare it closed despite the building having been vacant for years," Roh said in an email. "Because William Penn was not declared closed, interested buyers were not allowed into the building to assess its condition and value. Today, the SRC testified that Temple recently lowered its offer price because it will not be able to perform reasonable due diligence on this asset by the close of the fiscal year."

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