The Philadelphia School District is projecting a $140 million shortfall next year, one school board member says, and he wants chief executive Paul Vallas to pay for it with his job.

"This is an untenable situation and we must address it as soon as possible," School Reform Commissioner James Gallagher, a frequent critic of Vallas, said in a statement yesterday. "It is clear that in order to move the school district forward and preserve the accomplishments that have been achieved to date, we should work to develop an amicable separation with Mr. Vallas."

Other commissioners and Vallas - who every year grapple with rising salaries and health-care costs - say it is too early to forecast the deficit. But Vallas did acknowledge that there was an increase of more than $100 million in operating costs that had yet to be covered.

The indications that the district's financial problems are growing follows a surprise $73 million deficit in the fall.

A shortfall of $140 million in the 2007-08 school year would represent 6.8 percent of the district's current $2.04 billion budget. The commission must approve a one-page statement in March and a spending plan by May 31.

Gallagher's comments follow the fall controversy in which Vallas' administration first forecast a $21 million deficit and later said it exceeded $70 million.

Gallagher, who previously called for his ouster and who in May pushed for a national search to replace him, appeared to be alone yesterday in calling for Vallas to leave.

Neither the chairman of the commission nor Commissioner Martin Bednarek indicated that they would support a call for Vallas' departure.

A fourth member did not return calls for comment. Commission officials would not release a projected deficit.

"We don't have a number," said Frank Siefert, the commission chief of staff, who spoke on behalf of Chairman James Nevels. "We're right in the middle of the budget process. To go in there and take a snapshot analogy is not going to be productive."

A proposed budget will not be available for about three weeks, Siefert said.

He said no vote was planned on replacing Vallas, who is paid $275,000 a year to run the 173,000-student district.

Siefert said Gallagher would have to propose it at a public meeting. Gallagher said yesterday he did not plan to do so, saying, "I'm trying to let the commission know . . . that I have serious concerns."

Vallas, a former budget director for the City of Chicago, faced criticism over the fall deficit. Since then, the commission has hired an internal auditor to monitor spending.

Gallagher said commissioners at a private meeting last week received a preview of the 2007-08 projected budget that forecast a deficit of $140 million.

Bednarek said that he was not aware of that figure, but that commissioners were told next year's budget "doesn't look good."

He also said commissioners learned this year's deficit was expected to exceed $30 million.

But, he said, he backs retaining Vallas, who in August received a three-year contract extension from the commission on a split vote.

The extension runs through 2008-09.

"Paul's under contract," he said. "I appreciate the time and effort that he's putting in. I'm dependent on him and his team to work out this deficit. They tell us they're going to do it. So I'm waiting to see."

Vallas said he would present a balanced budget to City Council in April but declined to specify how he would do that.

Vallas also said the district every year faces increased costs in salaries, retirement payments, health care, charter school payments, and debt service, and has to try to balance the budget.

"We're in the process of determining what the actual working deficit will be," he said. "The bottom line is the budget is going to be tight. Any budget we prepare is going to be designed to not impact teachers or . . . school . . . budgets."

He declined to comment on Gallagher's call for his ouster.

Mayor Street's administration also was not surprised that the district again faced budget woes.

Jacqueline Barnett, Street's education secretary, said the administration and Michael Masch, the state budget director and a former commission member, were looking at the district's financial needs over the next five years to determine how to proceed.

Gov. Rendell's office called Gallagher's comments premature.

"We have full faith and confidence in . . . Vallas and the SRC, considering their success in overcoming previous budget challenges," Rendell's spokeswoman Kate Philips said.

To help close the deficit this school year, the district trimmed most contracts by 10 percent and eliminated 175 administrative positions. The commission also refinanced district debt, redesigned the summer school program, eliminated raises for nonunion employees, scratched catered food, and reduced the number of cell phones for administrators.

This month, 26 teacher-coaches who assisted new teachers were sent to classrooms.

Ted Kirsch, president of the Philadelphia Federation of Teachers, complained that no one has been getting straight answers about why the district suddenly was faced with a growing deficit.

"We have people suffering layoffs," said Kirsch, whose union represents 18,000 teachers and other district employees. "People have been cut back from five days to four. We have oversize classes. It has never been so bad as long as I can remember."

He declined to say whether he thought Vallas, who joined the district in July 2002, should stay.

Although Vallas' original contract was not due to expire until July, he asked the commission last spring to decide early so he could make plans for his family. Throughout the summer, politicians and business leaders and many parents urged the commission to keep Vallas.

Greg Wade, president of the Home and School Council, said he was stunned to hear that the projected deficit might be so large. Wade said he spoke to Vallas Saturday because parents will be involved for the first time in budget preparations. Sessions are scheduled to begin next week.

"We want to find out exactly where this money is going," he said. "We have raised questions since last summer."

Contact staff writer Susan Snyder at 215-854-4693 or ssnyder@phillynews.com

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