September 10 — 1:28 pm, 2012

SRC adopts 5-year financial plan

(Updated 3:30 pm) The School Reform Commission approved a five-year financial plan today by a vote of 4-0 after hearing Chief Recovery Officer Thomas Knudsen’s report on the plan and on the District’s grim financial situation.

Knudsen said that without further action, the District is facing recurring annual shortfalls of $200 million or more, amounting to $1.35 billion over five years. The austerity measures called for in the 14-page plan, which Knudsen discussed only briefly, include closing "approximately 40" underutilized District schools and concessions from employee unions.

The plan calls for a 16 percent reduction in the District’s overall spending on salaries next year  – from $858 million to $720 million – but does not dictate a specific path for achieving that drastic reduction.

Knudsen told the commission that the District intends to borrow $300 million to deal with the District’s massive budget deficit and enable it to move to a structurally balanced budget. Adoption of the five-year plan would facilitate deficit borrowing on this scale, he said.

Knudsen called the deficit borrowing "an extraordinary action."

"For now we have a hole in our finances that we must fill before we can build anew," Knudsen said. He called the financial plan "the only realistic course available given the constraints upon us."

Knudsen said that the plan strives to maintain the current level of services to classrooms.

"In management’s judgment, we simply cannot cut existing services further than they have already been cut," he said. "After a certain point, schools cease being schools.”

Commissioner Joseph Dworetzky, in a prepared statement, described provisions of the plan as "bitter medicine" and suggested that the SRC must redouble its efforts to find other savings through better oversight of contracts and spending on the education providers it is relying on to create more "high-performing seats" for students.

Commissioners and Knudsen said the District would work hard to secure additional city and state revenues beyond what is anticipated in the plan.

The borrowing will add $22 million annually to the District’s already high debt service burden, Knudsen said.

The meeting was announced Friday, and there were no speakers from the public. Four of five commissioners participated in the meeting; Lorene Cary was absent.

The 1:30 p.m. meeting was streamed live on the District’s website. SRC meetings can also be viewed live on Comcast Channel 52 or Verizon Fios Channel 20.

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