School District officials outlined a five-year plan Thursday that shows a system in continued financial peril, even as it tries to make new investments in schools and classrooms – about $440 million over that period.
The School Reform Commission adopted a $2.8 billion “lump sum” budget for the 2017-18 school year at a meeting the same evening.
Expenditures are growing by 4.5 percent a year, while revenue is only anticipated to grow by 2.2 percent a year, said Uri Monson, the School District’s chief financial officer. The District will not ask City Council for additional funds this year, officials said.
Though the District is projecting higher revenues from the state, there is nothing but uncertainty there.
Gov. Wolf, who has unsuccessfully sought historic new investments in education, this week allowed a Republican budget to become law. The spending plan would give Philadelphia $52 million in additional funds for the rest of this year and $80 million more next year – maybe.
That’s because Wolf and the Republican legislature are still at odds over how new education aid will be distributed. While Wolf wants to tilt the distribution of additional funds toward high-poverty districts like Philadelphia, Harrisburg Republicans have other ideas. The Democratic governor plans to veto the fiscal code bill, which sets the formula for divvying up basic education aid. Republicans say Wolf lacks the authority to unilaterally impose a new distribution formula.
Superintendent William Hite and Monson said they are using Wolf’s proposed 2016-17 budget to guide their projections, even though it contains many of the same elements, like tax increases and a levy on natural gas extraction, that were rejected this year by Republicans.
“We don’t have another proposal,” Hite said. “There’s one proposal. That’s the proposal we’re using.”
Despite the dire picture, the District will end the 2016-17 fiscal year with a $135 million surplus. But that will quickly turn into a deficit by 2019, Monson said, due to the structural imbalance.
The fund balance is due to what Hite called “good savings and bad savings.” The bad savings come from its struggle in filling teaching positions since September. With the school year nearing its end, schools are still operating with more than 150 teacher vacancies, a virtually unprecedented situation.
The cushion, Hite said, is small – less than 5 percent of the $2.8 billion budget and smaller than recommended for school districts. It could not be immediately plowed into new hiring, he said, because much of the funds opened up late in the year due to unforeseen circumstances.
In addition to unwanted extra funds from high teacher vacancies, factors that contributed to the surplus were energy savings and higher-than-anticipated revenue from the cigarette tax and delinquent tax collections.
"These are non-recurring funds. It's hard to [hire] people with them and plan a stable budget," he said.
The big picture is that “we’ve been in a deficit mode since 2012,” when state and federal aid coming out of Harrisburg was slashed under former Gov. Tom Corbett, said Hite. Reaching this juncture of relative fiscal stability has come at great cost, he said, citing mass school closings; layoffs of thousands of teachers, counselors, nurses, administrators, and other staff; larger class sizes; program eliminations; and a bare-bones central office staff.
“These actions saved the District, but have had incredibly painful impacts on children and their communities,” he said. “The last four years we’ve been living hand to mouth.”
Much of the budget is driven by fixed costs, including payments to charter schools, pension growth, and debt service.
Hite and Monson are projecting that charter enrollment will grow by 10,000 students over the next five years. To help offset that cost, Hite said, the District is planning to close three more District schools per year, starting in 2018. As students move to charters, the District must gradually downsize, he said, to mitigate so-called stranded costs.
But the closing plan could change if enrollment in District schools shows an upswing, he said. On the other hand, more closings could be in the offing if the outcome of a recent state Supreme Court ruling results in unchecked charter growth.
The state’s charter school formula includes a Catch-22: Additional investments in District-run schools result in higher payments per student to charters the following year.
The budget for next year includes a $121 million increase to charters and a $35 million increase in pension costs. Payments to charters, which enroll about one in three students in Philadelphia, are expected to top $1 billion starting in 2019. Hite called for changes in both the regular education funding formula and the charter funding formula in which money would follow each student.
“We have no control over our revenue and, to a large extent, no control over our expenditures,” Monson said.
The proposed $440 million in new money focuses on literacy, college and career readiness, and upgrading the workforce – including an unspecified amount for teacher raises, termed as “fair workforce agreements that allow for 21st century learning environments.” Hite said he remains confident that this year an agreement will be reached with the Philadelphia Federation of Teachers, which has been working without a contract or a raise for nearly four years.
The District also wants to place counselors and nurses in every school, upgrade high school labs and information technology, hire more literacy coaches, spend more on District-led turnarounds in very low-achieving schools, and provide summer enrichment opportunities.
These investments are targeted toward reaching the goals of Hite’s Action Plan 3.0, which include five-year milestones of an 80 percent graduation rate (up from 65 percent now) and 66 percent of 8-year-olds reading at grade level (up from 33 percent).
“We believe these goals are aspirational and not pie-in-the-sky nonsense,” Hite said. “We are at a point where we must be building the high-quality district our children deserve. We're trying to project into the future what we will spend, how we will spend it, and create for everyone what it will take in additional investments ... to create good schools in every neighborhood.”