District shortfall grows, could hit $282 million
By Dale Mezzacappa on Jul 6, 2012 02:54 PM
The School District's projected shortfall for 2012-13 could go as high as $282 million, officials said Friday, adding that they are reluctant to borrow more than the $218 million they've already planned on -- but may have to.
"There's a deepening in the deficit we're projecting for this fiscal year," said School Reform Commissioner Feather Houstoun.
The potential shortfall grew because City Council did not approve a thorough citywide tax reassessment, called the Actual Value Initiative (AVI), that the District had already counted on to bring in an additional $94 million for 2012-13. Council instead approved $40 million in tax increases, half of which comes through an increase in property tax rates for the schools.
But the District also says that it is anticipating the potential loss of as much as $27 million through appeals of these higher taxes, since residents became more aware of the appeals process through the lengthy debate over AVI. This means that the net gain to the District from City Council's actions could be as low as $13 million.
"As a result of all the attention given to the assessment issue, the City Council did not make provision of an increased amount of appeal activity," said Chief Recovery Office Thomas Knudsen.
The first strategy for making up this worsening shortfall is to step up collection of delinquent taxes, Knudsen said, but the second is "restructuring" or reducing wages and benefit costs. The District is looking to save more than $150 million this year through such restructuring.
The District's blue collar union is being asked to make $50 million in concessions and layoffs could begin as soon as July 15. All 2,700 workers represented by Local 1201 SEIU 32BJ, who are custodians, bus drivers, and maintenance workers, have received layoff notices.
As for the Philadelphia Federation of Teachers, by far the District's largest union, its contract does not expire until next summer.
Knudsen said that he is still talking to 32BJ and that "no decisions" have been made on whether to try to reopen talks with the PFT this summer.
But SRC Chairman Pedro Ramos did make a trip to Harrisburg last month seeking legislation from the Republican leadership that would give the SRC the right to cancel contracts and unilaterally set wage and benefit levels. The effort failed when Philadelphia's mostly Democratic delegation, which had been left out of the lobbying, got wind of it.
The District's main strategy right now to keep the gap as small as possible by stepping up collection of delinquent taxes. The District is joining the city in hiring outside firms that specialize in this, which Tom Knudsen said could bring in as much as $150 million for the District. The city is owed more than $500 million due to delinquencies.
Knudsen said that he believes the $150 million "is collectible."
"These are no bankruptcies, not vacant lots," he said. "They are relatively new, and we think we have a shot at getting it. ...We are working with the city finance department and revenue bureau, joining forces in terms of the design of this program according to best practices as opposed to relying on liens."
The state budget ultimately approved by the legislature netted the District just $8 million in funds over what had been anticipated, and it got $9 million additional funds through better-than-expected local tax collections, Knudsen said.
The District has already decided to deficit finance for this year, borrowing at least $218 million to balance its budget. It hasn't done that since the 2002 state takeover, which included a special $300 million bond issue.
Houstoun said that while the District has the authority to borrow up to $300 million from the state, it doesn't want to go that high because the resulting funds are a "one-time infusion of money" - and because "that would have to be replaced in subsequent years." Plus, it adds debt service costs to the budget.
"It is better to reduce the deficit as much as we possibly can. We are essentially reaching the end of our capacity to deficit-finance," Houstoun said.
Houstoun said that it had not yet been settled when incoming superintendent William Hite would be officially joining the District and that he'd be "engaged on some level" but not involved in decision-making until that time.