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Are closed Philadelphia schools really worth $200 million?

By thenotebook on Aug 21, 2013 04:08 PM

by Elizabeth Fiedler for NewsWorks

Sell off closed schools to help keep other Philadelphia schools open.

In essence, that's the idea being pushed by City Council President Darrell Clarke. 

Philadelphia public schools are expected to open on time, despite continuing squabbles over funding. But City Hall politicians are still battling over how to pull together the $50 million in city aid they promised Superintendent William Hite would be there in time for schools to open on Sept. 9.

In one corner is Clarke, who points out that the Philadelphia School District has a lot of empty real estate on its hands, thanks to the closing of 29 schools.

Council President Clarke said he wants the city government to pay the schools $50 million upfront for the real estate, then broker the individual building sales itself. The councilman cited an estimate that the school properties could be worth $200 million, combined. In the other corner is Mayor Michael Nutter, who now supports extending the sales tax and borrowing $50 million against the future proceeds as the most timely, doable idea for providing funds immediately. Clarke argued that his plan is a lot better than Mayor Nutter's preferred option: borrowing against future revenue from a city sales tax increase.

"Bottom line? You have $200 million in assets that you're interested in getting rid of," Clarke said. "Why would you go out and borrow $50 million if you have the ability to sell a significant portion if not all of that $200 million in assets? It's just simple math and simple real estate sense."

Mayor Nutter countered that Clarke's plan is far riskier than the Council president thinks.

"It is not appropriate for us—the city government—and its taxpayers to take on these properties," he said, arguing that the $200 million valuation that Clarke cited is inflated. "We know virtually nothing about these buildings. We don't know their value, don't know what condition they're in, don't know who's interested in them, don't have them on our books and our inventory."

Clarke countered that he already knows of interested buyers for at least eight schools, including one he's been working on in his district and four in Councilwoman Jannie Blackwell's district.

Clarke said three of the interested buyers are ready to work out a deal and fork over a check. 

Read the rest of this story at NewsWorks

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Comments (13)

Submitted by Ms.Cheng (not verified) on Wed, 08/21/2013 - 16:37

First Mr. Clarke hides the fact that the City will be dipping into the General Fund (which they were unwilling to spend outright to help the District) to front the $50 million to the District, and then he implies that the District must go through Council, giving up the titles to its properties to get the "imminent" deals that he knows of.

Those "interested buyers" need to put their deals up to public disclosure/scrutiny, because the District's properties are public properties. Why do they need to go through Council at all?

If the General Fund is available to make loans, well then, it needs to be used to make the one that is secured by the sales tax.

Submitted by Joan Taylor on Wed, 08/21/2013 - 17:46

As we are talking loans, can anyone out there verify the 24% interest I have heard we are paying Wells Fargo? If that rate is the correct one, maybe the SDP needs to be maxing out some credit cards. It would be cheaper.

Submitted by anon (not verified) on Wed, 08/21/2013 - 19:37

i saw that 24% figure in a comment here yesterday and wondered the same thing. i figured the author must've meant wells fargo was giving the district a 24% discount on the interest they would pay. we couldn't be paying 24% flat out, could we?

Submitted by Joan Taylor on Wed, 08/21/2013 - 19:53

I was told we are paying an interest rate of 24%. It would be great if someone who knew how could track this down. Maybe someone from the Notebook?

Submitted by Dale Mezzacappa on Wed, 08/21/2013 - 20:33

As far as I can tell, the law says nothing about interest rates. Here is the wording.

FOR FISCAL YEARS 2014-2015, 2015-2016, 2016-2017 AND 2017-2018, THE FIRST $15,000,000 IN EACH OF THOSE FISCAL YEARS MAY BE RETAINED FOR THE PAYMENT OF DEBT SERVICE INCURRED BY THE CITY FOR THE BENEFIT OF A SCHOOL DISTRICT OF THE FIRST CLASS;

So for four years, "up to" $15 million can be used each year -- a total of $60 million -- to pay off the $50 million given to the district this year.

Here is the link to the full legislation.

http://www.legis.state.pa.us/CFDOCS/Legis/PN/Public/btCheck.cfm?txtType=...

 

 

Submitted by Anonymous (not verified) on Wed, 08/21/2013 - 21:06

Thanks for the details on this years's probable loan. I think people are wondering about the rate on the $300 million borrowed last school year, but I could be wrong

Submitted by Martha McNugget (not verified) on Wed, 08/21/2013 - 20:37

If it is true, or even remotely close to it, it is interesting that the media won't hound the bank for being greedy, but hounds teachers for being greedy.

Submitted by Joan Taylor on Wed, 08/21/2013 - 21:16

I think most Notebook readers would love a clear explanation of the SDP's debt. Someone with a good eye for reading a detailed budget would do us all a favor by combing through the numbers and explaining them to those of us who have a hazy understanding of how the SRC is managing its debt.

Submitted by Anonymous (not verified) on Wed, 08/21/2013 - 22:05

Why isn't William Penn being discussed. It's got to be worth close to 50 to Temple.

Submitted by tom-104 on Wed, 08/21/2013 - 22:41

Nutter's plan is more money for the banks. The amount I've seen is $15 million in interest payments over four years.

Debt service is already 12% of the School District budget.

In the SRC's "FY 2014 Proposed Budget in Brief" it says:
" In FY09, these categories (debt service, charter school payments, and out-of-district expenses) constituted approximately 29% of the overall District operating budget, in Fy14 they are projected to be approximately 48% of the District's operating budget. As a result, a smaller share of the District's operating budget can be spent on District operating schools."

For documentation see page 3 here: http://tinyurl.com/lpgtfak

Check out the budget bar graphs.

Submitted by Paul Socolar on Thu, 08/22/2013 - 00:47

Dale cites the legislation in a comment above ... it provides for the $50 million loan to be repaid by tapping the sales tax revenue stream for 4 payments of up to $15 million ... so the law anticipates spending a $60 million cost to repay a $50M loan.

The state and the mayor both object to the statement that this is increasing the District's debt. The borrowing would be done by the city and because it'll be repaid out of a "new" revenue stream, there's an appearance that the state has provided for repayment of the loan. The fact is that this plan does involve paying up to $10 million to a private lender ... money that could otherwise be made available to city coffers. But as of now the state legislation specifies that those $60 million be devoted to debt repayment.

Submitted by Ms.Cheng (not verified) on Thu, 08/22/2013 - 08:52

If the City has to pay interest on a loan, because it does not want to use its general fund, well then that is too bad/that much less it would have spent on its preferred pension programs. The responsibility for the District does not belong entirely to the State.

Frankly, the way Mr. Clarke is mixing up "you" right now is highly dishonorable. Quote: "Bottom line? YOU have $200 million in assets that YOU're interested in getting rid of," Clarke said. "Why would YOU go out and borrow $50 million if YOU have the ability to sell a significant portion if not all of that $200 million in assets? It's just simple math and simple real estate sense."

Well Mr. Clarke it seems YOU have distanced yourself from the District, so who's this YOU you're talking about? The District belongs first to the State, according to YOU, and the City shares little if any ownership. So how now (brown cow) do YOU make references that assume City ownership of the District?

Yes, why would you go out and borrow if you already have the money in a "rainy day" fund?

I contest that the community will have more say in dealing with the City rather than the District. It is really "hoky" to say that it is too difficult for developers or other interested buyers to work directly with the District. The City should be part of the negotiations as is its responsibility, but the disposal of the properties should remain in the hands of the District/ the public trust. The City has put far too much distance between it and the District/public trust.

Submitted by Ms.Cheng (not verified) on Thu, 08/22/2013 - 09:09

Well I guess I better apologize, I just realized that the referenced childhood rhyme could be interpreted as a racial reference - sorry, that was not the intent. Neither did I mean to be disrespectful to Mr. Clarke despite my offense at his inferences at proposing his deal with the District. Unfortunately some rhymes just stick with you no matter how old you get.

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