While the city Board of Estimates approved an $8 million loan that still needs the City Council's approval, school system officials conceded that they will have to give up some control of financial matters in exchange for a $42 million advance announced by Gov. Robert L. Ehrlich Jr. on Tuesday.
The governor has asked that school officials deliver a financial and academic accountability plan by tomorrow.
"It is a different ballgame now. We have to sacrifice control, autonomy and discretion in return for that money," said former state Sen. Robert R. Neall, who is advising the school system on financial matters.
In the past few weeks, school employees rejected proposed pay cuts, and school officials threatened to lay off up to 1,200 workers, most of them teachers.
Neall said that because the school system was unable to immediately take either of those actions, it will no longer be able to reach its goal of paying off a $58 million deficit by July 2005.
"The time value of that money was worth $5 [million] or $6 million," Neall said. "It is out the door. It is in paychecks and no way to get it back."
The schools are facing a $58 million cash flow shortfall this year - which comes on top of the $58 million deficit - and is avoiding bankruptcy with the state money and $8 million loans from both the city and the nonprofit Abell Foundation.
The city's portion of the schools' loan package easily passed its first test yesterday in the Board of Estimates as Baltimore's finance director gave assurances that the city could afford the aid despite its own budget crunch. The council is expected to vote on the loan March 8.
Still, concerns about tapping the city's rainy day fund for the loan money have been raised since council members learned Tuesday night at a budget hearing that the city faces a projected $21 million deficit for the current fiscal year.
Councilman Nicholas C. D'Adamo Jr., chairman of the Budget and Appropriations Committee, said he worries that the school system will not repay the loan.
"It's a big concern when we have a $21 million deficit," D'Adamo said. "I don't see how we can end the year with a balanced budget."
Finance Director Peggy J. Watson said the city faces tight finances every year, and she expected to balance the budget.
"It is business as usual," Watson said.
Former state Sen. Barbara A. Hoffman, who in 1997 helped engineer the city-state partnership that oversees the schools, said she told Mayor Martin O'Malley yesterday that there should be a fiscal control board put in place for the school system.
She said her recommendation was not intended as a punitive measure but rather as a way to manage the school system's operation for a limited period of time, perhaps five years.
"I just mean it as a way to free up the system ... not as a punitive measure," Hoffman said. The city is "looking for something to offer. I think a fiscal control board would help."
As the city funding appeared to be falling into place to ease the immediate money crisis, Baltimore school parents and others worried about what they say could be an academic crisis next week - when city students begin taking the Maryland State Assessment exams.
The system's budget crisis and the accompanying distraction it has caused, they say, could have a negative impact on students' performance on the high-stakes state tests. Results count toward promotions in the city in three grades - three, five and eight.
"Let's not fool ourselves," said Michael Hamilton, president of the Baltimore City Council of PTAs. "This whole crisis has had a negative impact in the classroom."
Despite parents' calls to postpone the tests, scheduled to be given Feb. 25 through March 5, state education officials said the tests will be given on time, and city educators insist the system's students will be ready.
"When you factor everything in that has gone on the last two months, yes the teachers have been frustrated," said the city schools' chief academic officer, Cassandra W. Jones. "But you have to keep in mind - they are not frustrated with their children, so they have been preparing their children for the MSAs. They have been teaching."
Ron Peiffer, a spokesman for the State Department of Education, said the tests could not be postponed because students in other school systems would then be taking the tests before the city, jeopardizing the security of the confidential exams. Also federal guidelines dictate when the tests have to be turned in, he said.
The MSAs are particularly important for Baltimore schools because lagging test scores could have serious results.
Should a Maryland school system fail to meet all the standards on the tests two years in a row, a mandatory school improvement program would kick in, and, in future years, more drastic measures could be taken - from the replacement of school staff to a takeover by the state.
The Baltimore school system is already in a "corrective action" category, meaning that the state is paying particular attention to how well city students do this year.
Kenneth Vines, a tutor and mentor at Diggs-Johnson Elementary School, said that in all the wrangling over finances, students already have been forgotten.
"No one's taken time out to ask the children about how they feel about what's taken place," he said. "And a lot of them have concerns. This messes with their ability to do the things they need to do."
Sun staff writers Liz Bowie and Ivan Penn contributed to this article.