The Philadelphia School Reform Commission today authorized the sale of $300 million in bonds - money it needs just to pay teachers, heat buildings and buy books for the remainder of the school year.
Selling the 20-year notes will cost the district about $22 million in borrowing costs annually, beginning in fiscal 2014.
In financial terms, the sale was successful - well received in the market, with over 50 investors placing initial orders, district staff said. Though the district is in financial shambles, its recently-adopted five year plan and greater public confidence in a new school governing body administration bolstered the bond sale.
And a state "intercept" program also gave investors confidence - guaranteeing creditors will be paid, as state aid is automatically sent to creditors to cover the district's debt.
But borrowing money to cover operating expenses is a dangerous, one-time thing, SRC members warned. It can't be done again, and that means that for next school year's budget, the district is already $300 million in the hole.
Chairman Pedro Ramos said at a special SRC meeting held today that he "couldn't be more unhappy" that the district had to sell bonds to cover day-to-day operations. He said it was a sign of the school system's "dire financial circumstances."
"This is an opportunity to buy time to make really tough decisions," Ramos said.
The SRC will soon be confronted with a whopper of a tough decision - deciding which of the district's 200-plus schools should be closed. Officials have said they must shutter roughly 40 schools at the end of this year to save money and "rightsize" operations in a district that has lost tens of thousands of students to charter schools in the past decade, but neglected to shrink operations to compensate.
Certainly less state and federal revenues and a brutal economy have contributed to the fiscal woes. But Ramos has acknowledged in the past that "poor fiscal policy" - too much borrowing, too much spending on the part of prior administrations - got the district into its current financial bind.