District Refuses to Own Up to $630 Million Deficit

In a recent Inquirer commentary, CFO Michael Masch cherry-picks financial data to blame the District’s $630 million deficit on a lack of funding.   

by Christopher Paslay

On June 6th, concerned about the Philadelphia School District’s $630 million budget deficit, I published a commentary in the Inquirer headlined, “District spent its way into massive shortfall.”  In it I commented that the District had only itself to blame for its current financial mess—that officials spent freely on questionable initiatives, banking on temporary federal stimulus money as if it were permanent and ignoring their own five-year financial plan.

Coincidently, on the same morning that my commentary ran in the Inquirer, Phil Goldsmith, who served as interim CEO of the Philadelphia School District in 2000-01, wrote a piece in the Daily News headlined, “If it’s really about the kids, then we need some controls.”  Here, Goldsmith brought-up some of the same points I’d made about the District’s financial woes—that they stemmed more from mismanagement than from cuts in funding; Goldsmith took the argument a step further and called on city leaders (which he insisted had “misdiagnosed” the problem) to make the school budget more transparent and to hold District leaders accountable.

The articles by Goldsmith and myself did not fall on deaf ears.  On June 6th, the very morning our pieces ran, Bill Green, Philadelphia City Councilman-At-Large, wrote a letter to Mayor Michael Nutter asking him for more financial oversight and accountability from the Philadelphia School District.  In it Green wrote:

“The crisis at the School District is not over, but it is a crisis stemming more from a lack of meaningful oversight and good stewardship than from a lack of funding. I refer you to the excellent pieces in the Daily News and Inquirer today by Phil Goldsmith and Christopher Paslay, respectively, which define the issues and problem well. . . .”     

On June 28, Michael Masch, CFO of the Philadelphia School District, publically responded to the growing criticism over the handling of District finances in a commentary in the Philadelphia Inquirer headlined, “Philly School District’s spending under control.”  In it he insisted the District’s budget shortfall is not the result of mismanagement, or bad bookkeeping, or reckless spending.  It is simply the result of a lack of funding.   

“The district’s problem is not spending,” Masch writes in the article.  “It is funding.”

With all due respect to Masch and his recent efforts to raise money and balance the budget, his claim that the District doesn’t have a spending problem is a clear case of denial; it is a total lack of accountability.  He blames the District shortfall on funding cuts, and writes that they are “unprecedented and disproportionate.” 

The concerning part, however, isn’t that he and the District are trying to shuck all responsibility for the $630 million budget deficit, a shortfall that has adversely affected nearly everyone in the city—taxpayers, teachers, parents, children, and unions, to name a few.  The alarming part is that the numbers Masch uses in his Inquirer commentary to explain away all responsibility for the budget shortfall are cherry-picked and taken out of context.

According to the District’s Third Quarter Financial Report, dated April 13, 2011, eight percent of the District’s funding for the 2010-11 school year was federal stimulus, which totaled $258 million.  In the 2009-10 school year, the District received $227 million in stimulus money.  Yet Masch writes in his article:

“State and federal funding for the district is going down next year—for the first time ever, and by an enormous amount—more than $400 million, a 15 percent drop. And this is not due solely or primarily to the district’s loss of federal stimulus funds. The district received an average of $113 million in annual stimulus funds in 2010 and in 2011, but it is losing more than $400 million in total funding next year.”

It appears Masch is getting the number $113 million from “Directly Allocated Federal Stimulus Funds.”  What he fails to mention, however, is that in the school years 2009-10 and 2010-11, the District also received “State Allocated Federal Stimulus Funds,” which brought in an additional $130 million per year.   

Masch also writes in his piece, “The district’s annual operating budget spending grew by just 4 percent in the past three years.”    

He is again playing with words.  Although the District’s “Operating Funds,” which only include “Local Taxes,” “City Grant,” ‘Local Non-Taxes” and “State Funds,” may have only increased 4 percent in three years, the District’s total budget grew from $2.79 billion in 2008-09 to $3.12 billion in 2010-11.  I’m no accountant or mathematician, but 4 percent of $2.79 billion is $111 million.  And from 2008 to 2011, District spending increased over $300 million; interestingly, the student population in the District went down 7,000 students during this time.         

I’m not the only one who finds Masch’s representation of data a bit troublesome.  The City Controller’s Office has also expressed serious concerns about how the School District handles tax dollars, and has recommended that they be required to present a five-year financial plan to an independent accounting authority because of “material weaknesses” found in its financial statements.

If the entire city of Philadelphia is being asked to make sacrifices to help balance the School District budget, if kindergarten and transportation are going to be cut, if unions are going to make $75 million in concessions, if property taxes are going to go up nearly $100 a year and 1,200 schoolteachers are going to lose their jobs, than there must be some real accountability. 

How can Mayor Nutter and the SRC ask so many people to give so much money to District officials who take no responsibility and who spin their financial information?        

This is a question that state and local leaders must start asking themselves.

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Philadelphia’s Full-Day Kindergarten Hostage Crisis

by Christopher Paslay

Anyone familiar with early childhood education will tell you that years three through six in a child’s life are extremely important.  It’s during this time that a child’s brain is the most impressionable, especially when it comes to language formation and critical thinking skills.  In their groundbreaking book, Meaningful Differences in the Everyday Experience of Young American Children, Betty Hart and Todd R. Risley showed that a child’s cognitive development is greatly influenced by the type of interaction he or she has with parents and teachers.  The amount and kind of language children hear as youngsters are strongly correlated with their IQs later in life.

Outside of the instructional value of early childhood education, of course, there is the very practical issue of child care; many mothers and fathers work fulltime jobs and desperately need caregivers for their children.         

In light of the importance of early childhood school programs, why would the Philadelphia School District consider cutting full-day kindergarten in order to balance the budget?  If one were to speculate on the matter they might come up with the following conclusion: the District held full-day kindergarten hostage as a means to get more money from the city and state.    

As we know now, the state didn’t bite; PA Governor Tom Corbett stuck to his guns and held tight to his budget.  The city, as evidenced by Mayor Nutter’s recent tax increase proposals, is going through the motions of trying to raise $110 million—not even one-quarter of the $629 million needed to balance the District’s books for the coming school year.

But as it turns out, the District doesn’t need money from the city or the state to save full-day kindergarten after all.  On Friday, June 3, Superintendent Ackerman announced at an afternoon news conference, “I’ve heard the voices of the community, the voices of our dedicated parents.”

Miraculously, like the multiplication of the loaves and the fishes, the District stumbled upon federal Title I money (how did this get here?) and saved full-day kindergarten like Jesus Himself. 

“We are trying our best to use the funds in a strategic way,” Dr. Ackerman told the public.  The District’s “strategy,” curiously, was news to Mayor Nutter.  Apparently, his office was kept in the dark about the kindergarten deal, and they were not happy.

“It’s a big problem,” Nutter spokesman Mark McDonald said Friday night after the news was announced.          

Nutter needn’t feel slighted.  No one, not Philadelphia City Controller Alan Butkovitz or even the IRS have a concrete understanding of the workings of the District’s finances; currently, both offices are conducting audits on the district’s books because of questionable accounting practices and “material weaknesses” found in their financial statements.          

For the record, here are some known facts about the District’s finances:

  • In the 2008-09 school year, the District had an operating budget of $2.75 billion and a student enrollment of 169,000.  They had full-day kindergarten; art, music, and athletic programs; and all employees had jobs.
  • In the 2009-10 school year, the budget grew to approximately $3 billion.  Enrollment went down to 165,000.
  • In the 2010-11 school year, the budget grew to $3.2 billion.  Enrollment dropped to 162,000.
  • In the coming 2011-12 school year, the projected budget is approximately $2.8 billion.  There is now a $629 million deficit.  Drastic cuts will be made.  Thousands of employees will lose their jobs.  Art, music, and athletic programs are all in jeopardy.      

Incredibly, the words “gross mismanagement” have yet to roll from the tongue of any government official outside of State Rep. Michael McGeehan, who has bravely called for Ackerman’s resignation in order to bring some financial credibility back to the Philadelphia School District.   

Of course, a lack of credibility hasn’t stopped the District from reopening contracts with school unions to ask for more concessions.  Nor has it dissuaded school leaders from holding kindergarteners and their parents hostage for financial reasons.

The full-day kindergarten hostage crisis might be over in Philadelphia, but the fact that the District would use early childhood education as leverage to squeeze more money from tax payers speaks volumes about the District’s principles and its leadership.