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."
Copeland said a staff downsizing is inevitable in 2005 and is still possible this year if Ehrlich indicates that he wants the system's accountability plan to call for deeper cuts before the end of the fiscal year, June 30.
"And since the teachers voted down any salary reductions, the only option we would have available to us would be layoffs, unfortunately," Copeland said.
The governor's plan will require cooperation from the legislature.
Ehrlich's Budget and Management Secretary James C. "Chip" DiPaula Jr. said the governor would ask the General Assembly to approve a revised spending request - known as a supplemental budget - that would contain the school district's advance.
In state budget parlance, the advance would be a "deficiency" payment, which is often used when Maryland underestimates the amount of money it needs for programs, such as Medicaid, and has to cover the higher costs.
If approved by the legislature, the money would be available to the schools in mid-April, DiPaula said, meaning the state would need to find the $42 million from the state's overall $22 billion spending plan for the current fiscal year.
Tapping reserve fund
The most likely source, DiPaula said, is the state's half-billion-dollar reserve account known as the "rainy day" fund. Unlike many other states, Maryland has kept the reserve fund intact despite tight fiscal times.
But there are other possible sources, DiPaula said: The state could cut from other areas to find the money or it might learn next month that tax revenues are coming in at greater than expected rates, meaning the state would have more money to spend.
The advance to the school system would be repaid - likely at the same 1.5 percent interest rate being paid on the city and Abell loans - by withholding some money that the school system would have received from the state during the 2005 budget year.
Senate President Thomas V. Mike Miller said any agreement to help the school system will require the state to find additional revenue.
"The legislature cannot afford to reach an agreement without coming up with additional resources. The devil is going to be in the details," he said. "The General Assembly is going to have to approve a supplemental appropriation. Is it a bailout? Yes, it is."
Miller said he hopes the mayor and governor have reached a workable solution.
"It is very easy to make these pronouncements," he said.
But, Miller said, making it work is another matter.
"This is a situation that never should have come to pass. People fell asleep at the switch," he said.
A coalition of parent and community groups demanded this week that the six longest-serving city school board members resign for that very reason. The board stood by, those critics said, as the system's finances spiraled out of control.
But yesterday, Ehrlich said he would wait to review the structural accountability plan being submitted by the school system and a report from an investigative panel set up by Grasmick before deciding whether anything ought to be done about the school board.
For that, school board Chairwoman Patricia L. Welch was grateful.
"I don't think we were negligent," she said. "In hindsight, should more accountability have taken place? Absolutely. Knowingly sleeping at the wheel? That did not occur."
Sun staff writers David Nitkin and Ivan Penn contributed to this article.