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After $50 million deal, District finances still precarious

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Wednesday was a rare sight in City Hall: Mayor Nutter and City Council President Darrell Clarke standing next to each other and agreeing on something.

The something was a deal for the city and District to work together to get $50 million in promised revenue to the School District through the sale of empty school buildings.

However, when all the self-congratulation was over, the District's financial position was at least as precarious as ever, if not more so.

For one thing, the city isn't actually giving the District the funds. Several steps are still required for any money from property sales to show up in its coffers. Second, the District has already budgeted and committed the $50 million; it won't help restore any personnel or programs. Third, essential disagreements between Nutter and Clarke continue, and the city has yet to enact legislation that would provide the District with more long-term funding stability.

Although outwardly grateful for the gesture, people inside District headquarters at 440 N. Broad St. were apoplectic.

"We are dealing with an emergency in public education," fumed one. "Our schools are doing without right now." 

Doing without, as in 8th graders not having counselors to help them with high school applications, special education students not getting services to which they are legally entitled, and more than a thousand students in "split classes," which require teachers to work with children in two different grades in the same classroom.

Nobody in Philadelphia, including Clarke and Nutter, is happy about the hand dealt to them by Harrisburg on the school funding front. Faced with a request for $120 million to help close a $304 million budget gap, Harrisburg essentially said in June that it would allow the city to extend its soon-to-expire 1 percent surcharge on the sales tax and call that the state's share.

Because money raised through the sales-tax extension wouldn't come to the District until next year, Harrisburg worked out a complicated scheme through which the city would borrow $50 million against the future revenue and give it to the District this year.

Nutter essentially decided to go along with this, while Clarke commenced to dig in his heels. The Council president was miffed that Harrisburg, unwilling to pony up more money of its own when the city schools asked for help, appropriated a funding source that he and others had been eyeing to help reduce the city's ballooning pension liability. Clarke and his Council colleagues have said they will not consider the sales tax extension unless the money is split between the schools and the city pension fund

Clarke also objected to the idea that the city would borrow money to give to the District. He said that was not fair to saddle city taxpayers with borrowing costs. So to raise the $50 million this year, he instead proposed, at first, that the city buy the District's surplus properties and raise the money that way.

Nutter was adamantly opposed to the city buying the buildings.

What happened Wednesday was an agreement for the city to help the District sell the properties with the hopes that it can realize $61 million this year -- $11 million of which the District had already budgeted for, along with the $50 million that originally was going to come through the city loan pegged to the sales tax.  

The mayor realizes that the deal doesn't put the $50 million in the District's coffers, so he also announced that he was advancing $60 million to the District to help with its cash flow -- money that it would not normally have received until the spring.  

The bottom line: None of this brings new money to the District.

Plus, it cuts into future revenues: The District put $28 million in money raised through property sales into its five-year plan.  

"Before the deal," said one miffed District official, "the District had access to $50 million this year through the 1 percent sales tax. This $50 million is not connected to the sales tax, but pegged to the sale of real estate. So, we're paying for our own $50 million."

Clarke and his supporters don't see it that way, arguing that the agreement with the city for the sale of the school buildings will bring in more money and sell the buildings faster than if the District did it by itself. 

Under Wednesday's agreement, the Philadelphia Industrial Development Corporation (PIDC) will work with the District to market and sell the properties. Both Clarke and Nutter said that there were credible offers for all the District's vacant buildings in the neighborhood of $100 million.

"While it is City Council’s preference to give the School District $50 million in exchange for vacant properties up front, Council members are confident the goal of $61 million in property sales this fiscal year will be met given the significant interest in vacant properties from potential buyers,” said Clarke's chief of staff, Jane Roh.

One way of looking at this is that the District now is under pressure to prioritize the building sales. But Nutter already promised, in the middle of the tug-of-war with Clarke, that the city would give the District $50 million this year one way or the other. So the District could theoretically drag its feet, selling only the $11 million it had originally budgeted for and letting the city cover the rest.

And then there is the matter of the sales tax and the $120 million in recurring city revenue, the linchpin of the state's "rescue" plan. Clarke wants to split any sales tax revenue between the District and the city's pension fund. But this would likely require new legislation in Harrisburg, which is already losing patience with the city's refusal to do its bidding.

Nutter said Wednesday that he is OK with splitting the sales tax revenue -- but only if Harrisburg also allows the city to enact a cigarette tax.

"He can only support that if at the same time the parties pass the cigarette tax, a bill that is before them," said Mark McDonald, Nutter's spokesman. "Otherwise, it would be a net loss to the School District." 

McDonald said that the mayor remained optimistic that the cigarette tax would pass the General Assembly, which has so far shown no inclination to do so. "We still have hopes it might happen," he said. If both taxes pass, they would provide enough money to the District to cover the $120 million annually that the District is counting on in future years.

As for Clarke, he remains adamant that his position is the principled one. According to Roh, City Council will continue to press for the cigarette tax and for an amendment to the legislation authorizing the sales tax extension so that some of its revenue can be diverted to pensions. Council will also lobby for restoration of a state budget line item that would reimburse the District for some of its charter costs. 

"The Commonwealth of Pennsylvania has a constitutional obligation to adequately fund public schools," said Roh, "and City Council has a fiduciary obligation to Philadelphia taxpayers as well as to the School District."  

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Dale Mezzacappa

@dalemezz
Dale is a contributing editor at the Notebook. She has reported on education since 1986, most of that time with The Philadelphia Inquirer.