September 28 — 2:20 pm, 2010

Facing sharp funding drop, District examines its options

A jobs bill supported by Obama helped balance the budget this year, but most stimulus funds will run out soon.

obama3 Photo: Sam Reitzes, Masterman Voices

Thanks to a federal education jobs bill approved in August, Philadelphia won’t have to make immediate budget cuts this year, even though it is receiving less state aid than originally expected.

But the outlook for next year is ominous.

In 2011-12, the District is faced with the loss of a quarter-billion dollars or more of federal funding. That money was allotted through the economic stimulus legislation last year and again this year, but won’t recur.

About half that federal windfall came directly to Philadelphia. The other half came via Harrisburg, which used federal aid to shore up the state’s basic education subsidy during the current economic downturn.

While Chief Financial Officer Michael Masch hopes that either the state or federal government will act to fill the looming hole in the District’s $3.2 billion budget, he said his office is already planning for possible cuts.

“If we indeed lose 8 or 9 percent of our funding, we’re not going to be able to do every single thing that we do now,” Masch said. He explained that his own job has been narrowed to allow him to work full-time this fall on preparing options for coping with the pending crisis.

“We’re not waiting until the winter or the spring to do a budget,” Masch said. “What we’ve committed to the School Reform Commission is we will give them a menu of choices, a very robust menu. This will be one of those no-stone-left-unturned exercises. We’ll look at and map out every part of what we do that costs any significant money.”

As the first round of stimulus dollars comes to an end, the District’s primary revenue sources – state and local taxes – have been slow to rebound from the recession. At the same time, it is confronted with rising costs, including an increase next year in pension expenses and utility rates, and continuing growth of core expenditures such as salaries and charter school reimbursements.

Some encouraging news for the District came from the new $10 billion federal education jobs bill, a follow-up to the stimulus, which helps to fill an immediate breach caused by a $55 million decline in Philadelphia’s expected revenues from the state. The goal of the legislation was to protect jobs threatened by recession-ravaged state and local education budgets.

President Obama, in signing the bill, recognized that it is not enough to entirely avert a national wave of education budget cuts. But for now it is saving Philadelphia, where Superintendent Ackerman said it would stave off the threat of midyear cutbacks.

The District will benefit to the tune of $49 million this year and plug some of the revenue holes in the current budget, with another $49 million coming next year.

But with the jobs money expiring in 2012, this lifeline is yet another short-term infusion of non-recurring federal money that has to be replaced.

Masch isn’t making predictions as to whether the federal or state governments will take further action to fill in the void. He noted that it depends a lot on who ends up in charge in Congress and in Harrisburg after November 2.

“I’m not sure that everybody who cares about schools understands how the outcome of the midterm elections could really have a significant impact on what happens to our schools next year,” he said.

Some advocates say Washington and Harrisburg should be doing more right now to stave off the crisis, including raising new revenue.

“We should all be telling our state legislators that we need the Marcellus Shale tax (on natural gas companies), and that we can’t keep cutting any of the services that matter to children and families, including education,” said Shelly Yanoff, executive director of Public Citizens for Children and Youth. “There’s not enough money. We need to increase the pool of money.”

Yanoff also called on the School District to do a better job of keeping the public abreast of the impact of all the budget changes on services to children. “We should institute red alerts if we’re cutting into some of the wonderful goals of increased counselors or the increased attention to kids who’ve started to fall back.”

Even if the SRC chose to eliminate all $180 million in costs associated with the more than 60 initiatives in Ackerman’s Imagine 2014 reform blueprint, it would not fully offset the potential shortfall caused by the loss of federal funds.

District staff has grown by about 1,000 employees since June 2009, most of them teachers. The costliest of the new initiatives included the hiring of teachers for class size reduction in the early grades, the addition of counselors in middle and upper grades, and expanded summer school.

These Imagine 2014 programs would not necessarily be the SRC’s first targets for cuts. School closings are one other area to be considered. But Masch has pointed out that about 60 percent of the operating budget consists of mandated expenses that are off-limits for reductions, such as debt service and the costs associated with maintaining the minimum required staffing levels in schools.

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