Gov. Robert L. Ehrlich Jr.

Gov. Robert L. Ehrlich Jr. (at microphone) announces the deal. From left, Mayor Martin O'Malley, Lt. Gov. Michael S. Steele, state schools Superintendent Nancy S. Grasmick. (Sun photo by Kim Hairston / February 17, 2004)

Gov. Robert L. Ehrlich Jr. said yesterday that he will advance the struggling Baltimore school system $42 million to help address an overwhelming cash flow problem that threatened to bankrupt the system. But the money will come with strings.

The state cash will help ease a $58 million cash flow crisis - which comes on top of the system's $58 million accumulated deficit.

As a condition of the advance, Ehrlich will require a plan from school system leaders by Friday that will assure him, legislators and taxpayers, he said, that the system will be financially and academically accountable.

"A lot of questions must be answered to everyone's mutual satisfaction," he said.

Details of the accountability plan still are being hashed out, but a specific condition the governor is requesting is an "oversight person" who will report directly to him on the status of the city schools' money.

"I want answers," the governor said at a news conference he called yesterday with Baltimore Mayor Martin O'Malley, city schools Chief Executive Officer Bonnie S. Copeland, state schools Superintendent Nancy S. Grasmick and others.

The state advance will require legislative approval, and yesterday some state lawmakers complained about the prospect of again bailing out the city school system.

The state's advance will be in addition to an $8 million loan from the city and an $8 million loan from the nonprofit Abell Foundation - both at a 1.5 percent interest rate.

The total - $58 million in loans and advances - will address the school system's current fiscal year cash-flow emergency, which has caused school officials to fall behind on bills.

Yesterday, school officials reported the potential cash flow shortfall was higher than the previous $52 million estimate.

State and city officials expressed their gratitude yesterday for all the money being poured into schools, but Copeland and former state Sen. Robert R. Neall, who has been advising the system on financial matters, stressed that the money only addresses cash flow - not the structural deficit.

Biggest bill is salaries

Copeland said the cash infusion will help the system pay its biggest bill: employee salaries through June. It will also provide a way for her to pay outside companies the system owes, such as transportation and maintenance contractors and food service vendors.

In that regard, Neall called the combined financial help "a great big sunbeam of hope," but he added, "We still have lots and lots of work to do."

In order to address an equally staggering $58 million deficit, the school payroll will have to be smaller, Copeland said.

She already has sent layoff notices to 800 employees this school year and had said, before yesterday, that up to an additional 1,200 - many of them teachers - still could face layoffs.

With financial help from the city, state and the private foundation, the staff reduction won't have to be as steep, Copeland said.

But layoffs still are an option.

"Nothing's off the table," Neall said. "It does us no good service to excuse anyone because a week from now we may be facing more issues."