School district officials have created a very hot fiscal potato

The proverbial stuff hit the fan last week when school district officials finally acknowledged that the budget gap for next year could be close to $500 million, a fact they refused to admit when it was first reported six weeks ago.

Back then, the district insisted that the current budget was balanced and no fiscal "crisis" existed.

But officials now admit that the current fiscal-year budget is out of whack and will add to the huge shortfall for the next year that will necessitate layoffs, increased class size, furloughs and other harsh cutbacks.

The district, like many others, was inevitably going to be in for tough times given the expiration of federal stimulus dollars. But city officials have made matters worse.

First, they included in this year's budget some tenuous revenues that they now acknowledge will not appear.

Second, many ongoing educational programs have been built on the shifting sands of that one-time federal stimulus money.

And third, they ignored the inevitable fiscal trouble and are only now scaling back expenses.

In fact, district officials have done precisely what federal officials warned against when stimulus dollars were first awarded.

Their hardheaded advice: "Invest the one-time . . . funds thoughtfully to minimize the 'funding cliff.' " The "cliff" is the steep drop-off of stimulus dollars.

Instead, our school officials sped merrily down the road, oblivious to the approaching cliff. Now they're at the precipice.

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Superintendent Arlene Ackerman and the School Reform Commission, which is supposed to provide oversight of the district's finances, aren't the only ones who turned a blind eye to the inevitable. So did Mayor Nutter.

In 2007, when he was running for office and the district was facing a $140 million budget gap, Nutter asked, "Where's the money?" He complained that "fiscal oversight . . . was inadequate."

But as mayor, despite knowing the district faced a huge fiscal problem, Nutter was as quiet as a mouse.

In fact, when news of the impending budget gap was disclosed in the news media just before Christmas, Nutter nestled up to Ackerman to help her play down the scope of the problem.

I understand the mayor's political rationale for not turning the public heat up on the school district and Ackerman. He's working hard to solidify his support in the African-American community as he prepares to seek re-election, and Ackerman has the backing of many of its leaders.

So Nutter stood by her side, boasting of rising test scores. He came to her defense when allegations arose about her steering a $7.5 million contract to a specific vendor. He bit his tongue on her refusal to take even a symbolic pay cut like virtually every other high-level public official during the height of the recession.

But while the mayor's stance may serve him politically, he can't escape the fact that the district's problems have now become his governing problem.

Ackerman didn't waste any time saying as much. In an e-mail to school district employees warning of possible draconian cuts, she said the district was now at the "mercy" of the city and state - meaning that one or both would have to ante up more money.

Looking to the city and state is a familiar school district budget ritual that has played out before, most recently in 2000, the last time the district stood at the financial brink.

That time, it took a combination of district cuts and additional dollars from the city and state to bail out the district.

But there was a huge price: the disbanding of the locally controlled school board and the creation of the SRC, with the state having majority membership. And the privatization of the public schools established a beachhead in Philadelphia.

A decade later, circumstances are different.

The state is broke and looking to bail itself out. And to the extent that additional state money is available for education, Gov. Corbett and legislative leaders are more likely to use it to fund vouchers and expand charter schools.

As for the city, itself hurting financially, both the mayor and City Council are up for re-election, not an opportune time to raise taxes for schools or shift money from the city to the district at the expense of basic city services.

This budget ritual reminds me of the game of hot potato we played as kids when you tossed a beanbag back and forth, and whoever was holding it when the music stopped lost. School district officials, with their fiscal mismanagement, have created a very hot potato.

Most likely, it will end up in the lap of those who can least afford it - our schoolchildren.

Phil Goldsmith writes "The Gold Standard" column for It's Our Money (www.ourmoneyphilly.com). He served as School District CEO from 2000-2001. Follow us on Twitter and review city services on our sister site, City Howl.

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