Bit by bit, with the help of expensive consultants, the School District is closing its 2011-12 budget gap. But even under the best-case scenario, it still faces another daunting shortfall of at least $144 million for next year.
That gap represents about 5 percent of the District's total operating budget – and that's the optimistic projection. The budget has already fallen by 15 percent this year.
And the fiscal 2013 gap could quickly rise to $238 million if City Council doesn't approve a property tax change being pushed by Mayor Nutter that would bring in $94 million for the District. That proposal is already drawing opposition.
School Reform Commission Chairman Pedro Ramos said the District has made budgetary "progress." He hopes that next year there will be "more predictability and less chaos" for schools.
But the financial situation is so precarious that failure to get the additional city money in time for next year would be "unthinkable," Ramos said.
As of late March, officials still had to trim about $23 million more in this year's budget, but Chief Recovery Officer Thomas Knudsen said this did not "overly concern" him. The District this year has had to slash its way toward closing an overall gap between budgeted expenditures and available revenues that topped $700 million, mostly due to a sharp drop in state aid and the end of federal stimulus money.
"It is still a very difficult circumstance," Knudsen said. "But now we have much more precision about what's in the budget and the numbers, and we are identifying options … as we go forward."
Despite earlier concerns that the District might run out of cash this summer, Knudsen is confident that he can reach the end of the year without asking for labor concessions.
But next year is a different story. Knudsen said it would be "difficult" to close the fiscal 2013 shortfall "without help from the unions."
Last summer, when the magnitude of the District's budget woes came to light, the Philadelphia Federation of Teachers – by far the District's largest union – agreed to help by postponing $58 million in payments to its Health and Welfare Fund. It also extended its contract by one year, to August 2013, in effect putting off any raises.
As for more possible concessions to help with the District's long-term fiscal stability, "There's nothing to give," said PFT President Jerry Jordan. He said his members have "endured massive layoffs, services are being taken out of schools from children. … My members don't have the stomach for it."
The District's central administration has been cut nearly in half, but schools have borne the brunt of the cuts. During the course of the academic year, schools lost more than $300 million from their budgets and additional operating supports from central office. Some personnel resources were yanked midyear.
Schools have eliminated some teaching positions; they've lost nurses, police officers, and other support staff; they've ended after-school tutoring, dialed back on programs for the gifted, and eviscerated arts, some sports, and other extracurricular activities. Next year looks like more of the same.
"Teachers are spending … out of their pockets every week in order to provide students with fundamental resources such as paper," Jordan said.
Still, the District and the unions have been communicating. The School Reform Commission in March approved a memorandum of understanding with its blue-collar union, District 1201 of SEIU Local 32BJ, that will save $3.4 million.
Knudsen said that he and the army of advisors from the Boston Consulting Group, working feverishly from mid-February until the end of March, have been systematically imposing organizational, administrative, and financial best practices on the system that he said were absent before.
The organization was "in terrible condition," Knudsen said.
The William Penn Foundation is paying the $1.5 million for the initial BCG consultant services. Any additional consultant costs to oversee the transition will also be paid by private funds, not taxpayers, Knudsen said.
"I think they are doing everything possible to make the short-term cuts that they unfortunately have to make, while building a smart long-term strategy," said William Penn President Jeremy Nowak.
Knudsen said he is working with BCG on an interim organizational structure that will be proposed this spring. The District "will need to get through the next 15 to 18 months; then there'll be a second reorganization when we implement a whole new architecture."
One example of "best practices" already imposed, he said, is the establishment of a committee that analyzes all capital spending for either financial or educational return. The team has also saved $8 million to $12 million by improving procurement practices.
The District found itself in such extreme straits this year largely due to a state budget that cut $900 million from K-12 education, about a quarter of that loss falling on Philadelphia.
But the budget "is devastating learning opportunities in districts all over the Commonwealth," said Ron Cowell, executive director of the Education Policy and Law Center in Harrisburg.
In Corbett's proposed budget for next year, Cowell said, there is less money for academic programs and increased pension obligations on districts.
Legislators are starting to realize the impact on even better-off districts, Cowell said, but there are many political cross-currents in play, including movement to change the funding formula for charter schools.
As a result, there could be changes from the budget Corbett proposed. For now, however, Knudsen's best estimate is that the District starts off next year with a minimum $144 million gap, largely because of built-in growth in costs and because many of this year's gap-closing measures were one-shot deals that cannot be repeated.
"That's if we get the $94 million [from the city] and nothing else goes against us," he said.
Knudsen's doomsday scenario for next year is a $400 million shortfall, with much of the potential additional costs incurred due to charter-related expenses. Despite worries about charter costs, the District and the mayor have embraced a multiyear commitment with charter leaders called the Great Schools Compact, which aims to create 50,000 new seats in high-performing schools. Many of these are likely to be in charter schools.
"I'm being conservative in my estimates," Knudsen said. "The problem of the School District is that it's at the mercies of a lot of groups and instrumentalities over which we have no control."