A slowdown in revenue has Baltimore school officials scrambling for budget adjustments that won't require the system to raid its rainy-day fund or cut central office positions and school programs.
Officials face a $31 million deficit in next year's budget, due to factors that include a dried up stream of grant funding, fluctuating financial commitments and a halt to rapid growth in enrollment.
Now, the school board has asked administrators to come up with alternatives to their proposed budget reductions, which included staff layoffs, breaking contracts and cutbacks to summer school. Administrators say that won't be easy.
"I think we can come up with some alternatives, but they're all going to be unattractive," Victor De La Paz, chief financial officer for the school system, said, adding, "But, it's going to come down to the lesser of evils at the end of the day."
While school officials have found about $4 million in cuts and emphasized layoffs will not be part of ongoing proposals, they said the $27 million hole that remains could require the board to dip into its "fund balance," money designated for unplanned expenses.
But many board members are reluctant to dip into the reserve fund — some of which was required in the deal that gave the schools a $50 million bailout from City Hall a decade ago.
As the board moves to adopt a budget in May, some members also wonder how the system got to the point of having to sustain school operations on emergency funds.
Board members note the district faces several major expenditures that could require the use of a deep rainy-day fund: a facilities plan that will require a $20 million annual expense for several decades, pay-for-performance union contracts and rising costs such as transportation.
"We knew things were not going to get easier," Shanaysha Sauls, chairwoman of the city school board, said, adding, "but using the fund balance to pay for recurring expenses is a temporary solution, at best."
The school system operates on an annual budget of about $1.2 billion.
The system is proposing to increase the amount of money given to schools this year, but acknowledged it's primarily to cover increasing personnel costs.
Under the district's funding formula, schools receive a per-pupil expenditure, which is expected to increase in traditional schools by $146, to a total of $5,336. Charter schools will see a decrease of $151 in per-pupil funding because they will have to pay for their own teacher pension expenditures this year.
School officials attributed part of the budget crunch to the smallest increase in state funding in the past five years. State funding is the school system's largest revenue source, but will increase by only about $7 million this year.
That's because the system only grew by 84 students this year, compared with nearly 400 last year.
"If the district does not continue to grow by a few hundred kids every year, we will continue to feel that squeeze," De La Paz said.
The number of students who receive free and reduced-price meals — students for whom the district receives additional money — has also leveled off, school officials said.
Sauls pointed out the reserve fund is even more important because the district's most consistent revenue stream is tied to enrollment. "So what's left, but the responsible management of existing resources?" she said.
She said layoffs were never part of the board's discussion, though the system initially said that was an option if the deficit had to be absorbed by the central office.
School officials said such a move would force the district to scrutinize the largest departments at the central office, including the 140-officer police force. The second largest staff is the 70 people who make up clusters of support staff, called "networks," created by former schools CEO Andrés Alonso.
The head of the city police union said in an email to members that there was no cause for panic.
"Safe schools have always been a priority for leaders that we have encountered since taking over as the bargaining unit in 2010 and we do not have any data to suggest that this priority has changed," Sgt. Clyde E. Boatwright wrote. "We should all agree that with the concerns about school safety locally and throughout the country, it should be our reasonable belief that any reduction of resources at this point could put the safety of staff, students and the rest of the school community at risk."
De La Paz projected the board would have about $60 million in its fund balance that could be tapped to plug holes. He told board members the industry standard is to have a reserve fund between 2 percent and 4 percent of the total budget, which would be between $22 million and $44 million in the city.
De La Paz said he believes that the board could responsibly tap the reserve fund, leaving it at $33 million.
But, board members pointed out that some of the costs would be recurring, and that the school system will have long term obligations to make on behalf of students. For instance, the budget calls for funding salaries for principals' supervisors and curriculum writers, as well as summer programs for high school students to recover credits and middle schoolers to be promoted to the next grade.
Board members also questioned whether they signed on to reforms under Alonso the district could never pay for, such as the pay-for-performance contracts for teachers and principals.
Among the requests for funding from the reserves are administrative positions promised in the contracts, and school officials identified the fluctuating salary scales as a budget pressure.
Board member David Stone said at last week's meeting he wouldn't have voted against the contracts, but would have been judicious about other decisions had the board been given a full picture of the contracts' financial implications. He recalled being told the contracts would save money.
"I'm concerned," Stone said. "There are many other areas where we could have been thinking ahead, rather than reaching this point."
The board is also being asked to fund reforms that it had not anticipated. For example, grant-funded positions and salaries tied to the district's work on teacher and principal evaluations under the federal Race to the Top program have run out.
De La Paz projected that the district still had at least two to three years worth of work to do in that area.
"That's always a risk with grants," he said.
De La Paz noted the school system is in transition. With a large-scale, organizational overhaul unlikely until the new superintendent, Gregory Thornton, takes office in July, it is not irresponsible for the board to look to the reserve fund for stability, he said.
But at least some board members disagree.
"On one level, a transition year is not a year to change our entire approach to budgeting," board member Lisa Akchin said at last week's meeting. "At the same time, a transition is a very important time to set the district up for success in the coming years.
"The only way I can be comfortable with moving large amounts of fund balance this year … is if I see some flags planted for what's going to be different next year."
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