What Happened to the Philadelphia School District’s 2008 Five-Year Financial Plan?

by Christopher Paslay

Tom Knudsen, the District’s new Chief Recovery Officer, is searching for consultants to help the District develop a five-year financial plan to balance the budget.  Tragically, this would not be necessary if the District simply followed its 2008 five-year plan.

I’m going to let Tom Knudsen and the Philadelphia School Reform Commission in on a little secret: five-year financial plans only work if you follow them.  This nugget of wisdom is similar to the “Seinfeld” episode where Jerry goes to pick up his rental car and finds there are none available.  The rental agent acknowledges that Jerry indeed has a reservation, but that he can’t get a car because the agency didn’t hold one for him. 

“Anyone can take a reservation,” Jerry says, “but it’s the holding of the reservation that counts.”

The same philosophy applies to the District: anyone can write a five-year financial plan; it’s following the plan that counts.   

A case in point is the District’s other five-year financial plan, the one Dr. Ackerman and the SRC released on June 30, 2008.  Titled, “Five-Year Financial Plan: Fiscal Year 2008-2009 through Fiscal Year 2012-13,” it was put in place to help close the $73 million “surprise” budget deficit left by Paul Vallas, former C.E.O. of Philadelphia public schools (click here to read the document).  The plan went on to make several ambitious promises in its executive summary:

“In future years, District finances are projected to continue steady improvement based on strong continued state funding levels, combined with tight fiscal restraint for District spending. Accordingly, the first year of this Plan is critical for establishing sustainable fiscal health.

A Gap Closing Plan is in development to achieve full and sustainable balance for the fiscal year ahead. The SRC Chair has requested that the Commonwealth of Pennsylvania Secretary of the Budget and City of Philadelphia Director of Finance work with the District to construct this approach, and the process has begun. Assuming that at least half of the initiatives in this Gap Closing Plan recur, the District is projected to produce operating surpluses in FY2010-11 and FY2011-12 and to begin to rebuild a positive Fund Balance reserve.”    

Here are the yearly budget projections quoted in the Five Year Financial Plan (p. 14 of the document):

FY2008-09:  $2,280,602,991

FY2009-10:  $2,483,103,289

FY2010-11:  $2,646,495,847 

FY2011-12:  $2,806,419,243

FY2012-13:  $3,025,631,379

To the credit of the newly appointed Dr. Ackerman and the SRC, the District did manage to successfully balance the books in 2008-09.  Shortly thereafter, however, the District’s philosophy of efficient spending went out the window.  This was undoubtedly due to the fact that a gigantic pot of Federal Stimulus money landed at their doorstep.  Here are the District’s actual budgets from 2009 to 2012:

FY2008-09:  $2,794,000,000

FY2009-10:  $3,057,000,000

FY2010-11:  $3,216,000,000

FY2011-12:  $2,770,000,000

The District’s spending not only went up nearly a half a billion dollars in three years ($422 million), but their 2010-11 costs were 570 million dollars over their original budget projections in their financial plan issued in June of 2008.    

As I’ve written in previous blog posts, the irony of the situation is two-fold.  One—the District somehow forgot to exercise “tight fiscal restraint.”  And two—there is no operating surplus for the year 2011-12.  In fact, there is now a deficit of over $700 million dollars. 

Most ironic, however, is the fact that if the SRC would have simply followed their own Five Year Financial Plan, which estimated a budget of only $2,806,419,243 for the 2011-12 school year, there would be a more manageable deficit of $36 million dollars, based on the District’s 2011-12 school year budget of $2,770,000,000.

So a word to the wise: if the District is going to spend a bunch of money hiring a consultant to write a five-year financial plan, it must make sure it follows it.  Writing a financial plan and not following it is like giving out a reservation for an automobile but not holding the car.

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Filed under Dr. Ackerman's Strategic Plan, School Resources

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