Where does the School District get the money to operate Philadelphia’s schools, and how does it spend it?

As the city’s parents, students, and residents face another looming budget deficit that threatens cutbacks in school programs, these are important questions to consider.

They also take on added importance in an election year. All the candidates promise to fix the schools, but where will they get the money and what choices will they make about how to spend it?

What is the purpose of a school district budget?

The budget represents a plan for receiving and expending money. It tells the governing school body, its employees, and the public how much the district can spend during the year and for what purposes. It projects how much revenue will come from what sources.

The budget also satisfies a minimum level of financial and program information for local, state, and federal governments – requirements imposed by law. State law requires each school district to budget its income and expenses every year and to make the budget available for public inspection before final adoption.

There are actually two different school district budgets: the capital budget, which deals with long-term items like school construction, and the operating budget, which covers the day-to-day costs of running the school system. The capital budget is funded primarily by the sale of bonds. School districts essentially borrow the money and pay it off with interest over a long period, much like a homeowner pays off a mortgage.

In Philadelphia, it is the operating budget, which depends on revenue raised by taxation, that is facing a deficit. The budget is drawn up and then approved by the School Reform Commission every year, no later than May 31.

Philadelphia’s School District budget is more than numbers. It is a record of the District’s past decisions and goals. It is by looking at the budget, rather than simply listening to the pronouncements of School District officials and politicians, that we get a handle on education policy priorities.

To take just one example, charter schools are now a significant chunk of the School District budget, totaling over $266 million dollars (10 percent) in the 2007-08 budget. Nearly all that money goes out in payments to charter schools. In contrast, the School District’s two-person charter school office, which is responsible for overseeing the city’s 60 charter schools and ensuring that they comply with the law, does not appear to be a budgetary priority. Its budget of $300,000 pays for a director, a secretary, and expenses.

Where the money comes from

In Pennsylvania, schools obtain funds primarily from local property taxes supplemented by state aid (and to a much lesser extent federal aid). This means that wealthier communities can afford to spend more than poor towns and cities. The wealthiest suburbs spend up to twice as much on each student as the city spends.

The state: State assistance is based on a complicated set of historical and other factors that result in more money going to poorer communities. In the early 1990s, the state stopped using a funding formula and started making its allocations to districts based on adjustments to the prior year’s funding level. For years, this change resulted in less funding for Philadelphia.

According to the state’s budget director, Michael Masch, in Pennsylvania one-third of cost of education is now borne by the state, well below the national average of half. But for Philadelphia, as a poorer-than-average district, more than half of school funding comes from the state (see chart). Most of this money is determined by formulas that apply to all the school districts. A much smaller amount comes from legislation that targets Philadelphia specifically, like the extra funding that was provided as part of the state takeover of Philadelphia’s schools. State funding for Philadelphia has increased by 51 percent between 2000 and 2007. These increases have helped Philadelphia almost catch up to the state average per-pupil funding level.

The city: Just under a third of the District’s revenue comes from the city. While the School District budget is created by the School Reform Commission (and formerly by the School Board), this body has no ability to raise revenue. City Council determines how much revenue will be raised and where it will come from. Most of the revenue comes from a fixed percentage of monies collected from property taxes on residences and businesses. But over the years, City Council has added other taxes to meet the needs of the schools (see chart). The city has increased its funding for the schools by 36 percent since 2000.

The feds: Finally, the federal government provides 14 percent of the budget revenue. Title I money, the biggest single item in this category, targets schools with students from low-income families and is to be used to boost student achievement in these schools.

Where the money goes

Almost two-thirds of the District’s operating budget is spent on compensation and benefits paid to District employees. Teachers are the single biggest category. In 2004-05, the last year for which we have figures, salaries for classroom teachers accounted for 57 percent of the expenditures on full-time positions.

Other big-ticket items are contracted services, which range from educational consultants to bus service and property maintenance.

Textbooks, which have sometimes been the focus of public debate over how school budgets are spent, represent less than 1 percent of the District’s expenditures.

Another way of looking at District expenditures is to compare instructional and non-instructional uses. About 55 percent of expenditures go to instruction (see chart), with the rest going for various support services and administration. Spending per capita has increased 52 percent since 2000, with most of this targeted for instruction.

While politicians often cite “fat” in the budget as potential sources of savings, expenditures on administration relative to the rest of the budget have been reduced and are comparable to what other urban school districts spend and less than the national average. Moreover, the bulk of personnel costs are fixed by contracts with school employee unions.

If we look at school spending over the four-year period from 2001-02 to 2005-06, the two fastest-growing areas in dollar terms are charter schools and debt service, according to Masch, the state budget director. School District expenditures on charters increased by over $120 million during this period. The growth in debt service, about $70 million, reflects expanded school construction in recent years.

On the Web

For a presentation on the School District budget by former school board member and state Secretary of the Budget Michael Masch, go to: www.greatexpectations07.com/philadelphia_schools.

For School District budget documents, go to: www.phila.k12.pa.us/offices/cfo.

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