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SRC approves $300 million bond sale to plug deficit

By the Notebook on Nov 7, 2012 05:53 PM

SRC Chairman Pedro Ramos

by Benjamin Herold for NewsWorks, a Notebook news partner

The School Reform Commission approved a massive bond sale Wednesday that will generate a $300 million cash infusion to city schools this year, but officials cautioned that the new revenue is not cause for celebration.

“I’m glad that we were able to get this financing done,” said SRC Chairman Pedro Ramos. “I couldn’t be more unhappy that we’re in a situation where it’s necessary to do a borrowing for the purpose of merely paying our bills.”

The money generated from the bond sale will be used to fill a massive budget deficit that still looms over the current school year, even after hundreds of millions of dollars in budget cuts. 

And although Ramos praised District staff and their external aides for securing favorable conditions, the borrowing will still come at a heavy cost: Paying off the debt will cost the District $22.2 million a year from 2014 to 2034, and officials stressed that the District will likely not be able to borrow to cover basic operating expenses again for the foreseeable future.

“This is not a moment of celebration. This is a moment to recognize the dire financial circumstances in which the District finds itself,” Ramos said.

Borrowing to meet operating expenses is done only in extreme circumstances. The District last did it as part of the state takeover deal a decade ago.

More than 50 investors placed initial orders for the District bonds, said Christina Ward, the district’s deputy chief financial officer for financial services. The 20-year bonds were issued through the Pennsylvania State Public School Building Authority.

Officials said the strong interest in the bonds reflected positively on the District’s recent efforts to get its financial house in order.

“We’re very pleased that the markets recognized that the District governance has come to terms with what we need to do,” said Commissioner Feather Houstoun, referring to the recent adoption of an austere five-year financial plan that calls for reining in labor costs, closing dozens of schools, and keeping spending at bare-bones levels.

A “state intercept” program was also a big factor in the successful bond sale, said both Houstoun and Ramos. Should the District prove unable to make necessary debt service payments, the state will withhold money from the District and divert it directly to the bondholders under this program. 

“Even in the worst of economic times, bondholders are secure,” Ramos said.

SRC approval of the bond sale came a week after the originally scheduled vote. The delay was the result of superstorm Sandy, which closed the financial markets for two days last week.

The infusion of new operating funds for the current school year should mean that schools will be shielded from the kinds of midyear budget cuts that wreaked havoc last year, Houstoun said. Some of the money could be saved until next year.

But a cumulative budget deficit of more than $1 billion over the next five years still looms over the District.

“We are going to have some extremely difficult decisions we’re going to have to make this year about reining in expenses,” said Commissioner Wendell Pritchett.

“We don’t have any choice.”

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Comments (17)

Submitted by Anonymous (not verified) on November 7, 2012 10:34 pm
Yes, Pritchett, you do have a choice. Grow a pair and demand that Corbett stop killing our kids. Pedro needs the same remedy. Instead of walking in lock step with Corbett's cold blooded attacks against our children, the SRC needs to man up and demand equity for our schools, the real schools, not the farces like Imhotep and anything run by Kenny Gamble and Dwight Evans.
Submitted by Ron Whitehorne on November 8, 2012 12:49 am

Bondholders are secure, children and school district employees are not.    


No choice?   Here's a list of things that the District could do if they had the will to go up against the corporate hand that feeds them:  


Close the tax loopholes that enrich corporations.   Pennsylvania next year will spend $2.4 billion on business tax breaks, a figure that has tripled in the last ten years.   Because of the so called Delaware loophole, 70% of corporations that do business in Pennsylvania pay no corporate income taxes at all, costing the state an estimated 500 million dollars a year.   Halting the phasing out of the capital stock and franchise tax could bring in an estimated $275 million a year. 


A Fair Tax on Natural Gas Production.    The impact fee on natural gas producers is the lowest in the nation.   A tax modeled on neighboring West Virginia could double the current $205 million in revenue. 


Put a Hold on Prison Construction   Expanding prisons, a priority of the Corbett administration, is a costly and foolish policy.   In this year’s budget the administration sought twice as much money for prisons as for higher education.  Developing community based alternatives to expensive, dehumanizing incarceration for non-violent offenders could free up millions for investment in education and human services. 


Renegotiate Bad Bank Deals   Interest rate swap deals with banks that have cost the city and school district an estimated $331 million and have helped the bottom line of Goldman Sachs, Wells Fargo and other bailed out banks. The city and school district could potentially lose more than $240 million in additional net interest payments from still active swaps between the city agencies and the same financial institutions if interest rates continue to remain low.


Restore the Rendell school funding formula   Adopted in July 2008, as the result of a long, state wide organizing campaign, this formula, by taking into account each district’s needs, wealth, and tax effort, made for fairer school funding.   The Corbett administration immediately scrapped it, costing Districts with large special needs populations millions of dollars. 


Tax Big Non-Profits   In Philadelphia much of the property in the city goes untaxed because it is held by non-profits.   The University of Pennsylvania, for example, with an endowment of billions of dollars pays no taxes but consumes city services.   These non profits can be taxed for economic activity that is not charitable. 


Submitted by Anonymous (not verified) on November 8, 2012 1:12 am
PA has the highest corporate tax rate in the country, business taxes that are not sustainable long-term (as opposed to our personal income tax rate which is quite reasonable). The state is not "spending" $2.4 billion on business tax breaks. Renegotiating swaps sounds good but these swaps are not inherently fraud (though in Philly, might as well take a look). The school district wanted to fix its interest rate (ie. not pay higher amounts when rates increased). If rates went up, the district would have made the same amount. The districts best recourse is to declare bankruptcy and default on their contract. Anything else is just a nuisance suit with little likelihood. The rest of the items make some sense... Though non-profits are taxed for commercial activity like leasing space already.
Submitted by Ron Whitehorne on November 8, 2012 9:00 am

A high rate is not very meaningful if large corporations don't pay it    The state income tax is a flat tax and the state supreme court ruled a progressive income tax was unconstitutional.

Submitted by Anonymous (not verified) on November 8, 2012 1:59 pm
So what can we do??? Just organize and fight this or do what the PFT is doing--Laying down and letting the corporations and the lap dogs like Pedro play the helpless card.
Submitted by Anonymous (not verified) on November 8, 2012 1:32 am
None of these ideas are within the control of Philadelphia politicians or school district staff. So what can the district actually accomplish? If nothing other than infeasible ideas and complaints, that in itself is a good case for cutting personnel costs.
Submitted by Ron Whitehorne on November 8, 2012 9:28 am

Going after big non profits is very much a local matter and both the Mayor and Council could take action on this.   As for the other changes these have to be won state wide.   Our local leaders need to promote these demands and reach out to other cities, inner ring suburbs and rural areas that have been negatively impacted by the Corbett budget.   Instead they focus solely on cutting back school funding and attacking the living standards of school workers.  Oh, and borrowing money.  

Submitted by Anonymous (not verified) on November 8, 2012 11:58 am
Yes, perfectly stated. The working group and the poor need to get into Obama's face. We elected him to represent us not ignore us as he did the first 4 years then pander to us before the election.
Submitted by Anonymous (not verified) on November 8, 2012 5:50 am
I agree that the ideas listed above are out of the control of the SDP and city politicians. However, there is something that can be done. I don't quite know if Superintendent Hite and his new leadership team are aware that "huge" raises are still being approved each day for Central Office Staff. Dr. Ackerman and her administration were guilty of this shameful behavior and the abuse of power continues. Mayor Nutter should get involved and require the SDP to explain this practice.
Submitted by Anonymous (not verified) on November 8, 2012 2:51 pm
Central Office raises look bad politically, but even if all the top executives worked for free, it would barely make a dent in the budget problems. (I'm not defending high administrative salaries--just pointing out that it doesn't really make a different for the budget).
Submitted by Annonym. (not verified) on November 8, 2012 2:30 pm
What about the consultants? Why was Ed Williams in the Inquirer photo regarding the loan? Why is Ed Williams, Ceil Cannon, etc. still at 440? I understand it won't make a huge dent in the deficit but it at least shows prudent budgeting to get rid of the consultants.
Submitted by Anonymous (not verified) on November 9, 2012 5:26 am
I agree that suspending raises would not make a dent in the budget. However, how can we justify giving multiple raises in a year during the worst financial crises in years. This occurs while non-represented employees took pay cuts and furlough days and schools have no supplies.
Submitted by Anonymous (not verified) on November 8, 2012 9:33 pm
Surely you jest!! Nutter's too busy sucking up to Corbett and playing both sides of the same coin. He's disgraceful !!
Submitted by Anonymous (not verified) on November 8, 2012 8:26 am
That's what I said----Grow a pair -----but they don't even consider that as an option which tells us all we need to know about them. Our kids are being used as cannon fodder for Corbett and the shot callers above him like ALEC.
Submitted by Anonymous (not verified) on November 8, 2012 1:02 pm
Pedro should be embarrassed and would be if he had any pride left--which he doesn't. Almost makes me wish Robert Archie would return--gallows humor.
Submitted by Anonymous (not verified) on November 12, 2012 9:00 am
Sure. Kick the can down the road for one more year and then subtract 22 million a year from the budget to pay it back, on top of the necessary cost cuts. It's time to face reality and get concessions from the teachers' union. The entitlement mentality among them is grotesque.
Submitted by nimki (not verified) on February 11, 2014 6:47 am
What I cannot understand is why the federal government is not providing funds for the educational needs for the School Reform Commission? Why should there be a bond sale to accumulate funds for the development of schools by the School Reform Commission?

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