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2 school plans, 2 gambles

TWO WEEKS ago, Mayor Nutter and City Council President Darrell Clarke promised to get the school district $50 million in new money - the bare minimum to ensure schools will open on Sept. 9.

File: High school students chant at the Philadelphia School District headquarters on North Broad Street to protest budget cuts on Tuesday, May 7, 2013. (Yong Kim/Staff)
File: High school students chant at the Philadelphia School District headquarters on North Broad Street to protest budget cuts on Tuesday, May 7, 2013. (Yong Kim/Staff)Read more

TWO WEEKS ago, Mayor Nutter and City Council President Darrell Clarke promised to get the school district $50 million in new money - the bare minimum to ensure schools will open on Sept. 9.

But they disagree on just how the city will get that money and continue to push competing plans extending the school-funding debate into the fall.

Nutter wants the city to use the tools Gov. Corbett has provided, which allow the city to borrow $50 million from an extension of the city's 1 percent sales tax to give to schools.

Clarke opposes borrowing and instead wants to give the schools $50 million up-front in exchange for vacant school buildings and tax liens that the city would then sell to get its money back.

Both plans have plenty of critics, neither comes close to fulfilling the $304 million budget deficit the school district is attempting to tackle and several experts and officials told the Daily News yesterday that neither solution is ideal.

"There are a lot of unknowns," said economist Kevin Gillen, at the University of Pennsylvania's Fels Institute of Government. "It's hard to count if Nutter's or Clarke's is the better option."

Nutter isn't happy with Corbett's school rescue plan, which will make the once-temporary 1 percent city sales-tax increase permanent (8 percent) next year and borrow $50 million against future revenue this year.

But he's urging Council to go along with it, saying it's the best available option. Borrowing will cost $15 million a year for four years, meaning the city will end up paying $10 million in interest to get the schools quick cash.

Under the state plan, the first $120 million of the revenue goes to schools, which the state would have to certify before it's released. After paying that and the debt service, the rest of the money - $8 million in its first year - goes to the city's woefully underfunded pension system. That grows to $400 million over 10 years.

But none of this will happen unless Council approves it and Clarke wants to see a 50/50 split in the new revenue between the school district and pension fund. He also opposes borrowing when the city doesn't have to.

Another concern is that borrowing could marry the city's otherwise-improving finances to the district's near-catastrophic situation in the eyes of investors and ratings agencies. Standard & Poor's Ratings Services recently upgraded the city's credit to A-, Philly's highest grade since 1979 and a major accomplishment for the Nutter administration.

The district's dependence on city and state aid, however, is nothing new, and borrowing $50 million in a $3.8 billion budget is unlikely to harm the city's reputation unless the practice continues in future funding crises.

The potential impact of Clarke's plan - buying 24 school district properties and reselling them - is more difficult to assess.

"The only way [to find out if there is a market] is to put it out to auction and see the bids," Gillen said, noting, "you can't keep selling all of your assets. It's not really a viable long-term strategy."

The administration is skeptical the city will be able to recoup the $50 million by selling old school buildings, many of which are in depressed areas with slow real-estate markets.

"The difference between what someone says they might pay for something or what we might think that it's valued at versus what someone is willing to write a check for, is an entirely different subject," Nutter said recently, adding the city would be a "desperate seller."

Alan Greenberger, deputy mayor for economic development, said his office has been working with the district to help expedite the sale of school property, but said only three to five of the 31 vacant buildings have interested buyers and could be sold in a matter of months. The other buildings could take years to sell and in the meantime the city would be on the hook for $1.8 million in maintenence costs. He also said the district already budgeted $28 million from the sale of these properties in their five-year plan.

Clarke says the city's assessments show the properties are worth more than $200 million, but he agrees they may be overassessed. West Philadelphia High School was assessed at $16.3 million but was recently approved for sale at $6 million.

"We know there is a market and we know there is a willingness for people to purchase these properties," Clarke said. His office shared with the Daily News several letters of interest for at least a handful of school buildings, including William Penn High and University City High.

One developer who asked to remain anonymous and is waiting to close on a sale of a school building complained the process is long and onerous and can discourage potential buyers.

District spokesman Fernando Gallard said the district has a number of policies it must follow in the sale process.

Clarke's plan requires the Philadelphia Industrial Development Corp., which is appointed by the mayor and the Greater Philadelphia Chamber of Commerce, to manage the resales. PIDC president John Grady said he would likely have to hire an outside firm to secure and maintain the vacant schools.

"To insure them, maintain them and secure them and then to staff a team to focus on selling them would be at least several million dollars a year," he said, adding he would be "surprised" if the total resale value reaches $50 million.

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