Neall resigns; school rescue in jeopardy

This is the text of adviser Robert R. Neall's resignation letter.
A deal to bail out the struggling Baltimore school system appeared to be falling apart yesterday - at the same time that the system's chief financial adviser resigned in frustration indicating that the schools were hurtling toward insolvency.

Robert R. Neall, a former state senator who has been guiding Baltimore school officials through the system's worsening financial crisis, delivered a copy of a short letter of resignation to schools chief Bonnie S. Copeland yesterday. In the letter, Neall said he believed a plan of accountability, which the governor demanded from the school system as a condition for a $42 million loan, was inadequate.

Gov. Robert L. Ehrlich Jr. has scheduled a news conference at noon today to discuss the city schools, which face a $58 million cumulative deficit and an additional immediate $58 million cash flow shortfall.

Neall's resignation letter, dated Friday of last week, said the system had failed to do enough cost-cutting fast enough to finish in the black this fiscal year, which ends June 30.

"Despite everyone's efforts, we have not made enough progress on our deficit/cash flow issues to remain solvent," Neall wrote to school board Chairwoman Patricia L. Welch. And, he added, "I do not believe we have done enough in cost containment measures in [fiscal year] 2004 to convince the State that we are stable enough to qualify for the assistance they have offered."

His letter appeared to be prophetic. By day's end yesterday, Ehrlich indicated that a $42 million loan that the state had pledged to city school officials was in jeopardy.

The loan - which was offered to help the cash-strapped system pay its bills and expenses through June - was contingent on the governor's approval of the plan of fiscal accountability that Neall delivered Friday.

"The report fell short of the administration's expectations," said Henry Fawell, a spokesman for Ehrlich. Neither Ehrlich nor his staff was specific.

Ehrlich had asked Neall, who had been working as a volunteer, to craft the plan. But at the last minute Friday, members of the nine-member Board of School Commissioners asked to make changes. Neall declined to detail the changes, but he was clearly disappointed.

"I had in my own mind what I thought it might take to show evidence that we had stabilized ourselves and were prepared to move forward with state assistance," Neall said yesterday. "I think we fell short of that."

At least one board member disagreed. "We did everything in that plan that he recommended that we do," said board member Kenneth Jones, referring to unspecified cost-saving measures. "It didn't happen in exactly the way that he prescribed it for us. But it gets us exactly the right results, and I'm sorry that he feels the way he does."

State schools Superintendent Nancy S. Grasmick called Neall's resignation a setback.

"This makes the situation acute," Grasmick said. "Senator Neall has done a fabulous job. He's gotten to the bottom of things that no one else can discern or diagnose. We need his expertise if there's any hope for the solvency of the school system and for its accountability."

Copeland said the resignation letter "speaks volumes" and left her feeling "pretty bleak."

"I'm very upset," she said. "If he feels that this is not workable, then that gives me huge pause as to whether we can pull this system out of the crisis."

Facing the $58 million deficit, the system has laid off close to 800 employees. But the more immediate problem - an additional $58 million cash flow problem - has the potential, if not addressed, to prevent officials from making payroll to the end of the school year.

To address the cash flow crunch, Neall and Copeland had to go to the state, the city and a private foundation. Mayor Martin O'Malley offered $8 million in loans, as did the nonprofit Abell Foundation. Ehrlich's office offered a $42 million advance in state funding.

But Ehrlich was clear that the advance would be given only if school officials could show they were on a road toward financial accountability.

State officials indicated that they trusted Neall to deliver such a blueprint. But revisions to his plan caused Neall to distance himself from the final version. "I think I've done all I can as a volunteer," Neall said. "I am no longer in a problem-solving role in this because it just didn't work out that way."

A source familiar with the negotiations behind the drafting of the plan said some board members had balked at a major cost-cutting measure Neall planned to include in the document - a forced 5 percent pay cut imposed on the school system's more than 11,000 employees.

School employee unions twice rejected proposals that they accept pay cuts to help address the system's fiscal emergency - even when faced with the threat of mass layoffs.

Neall declined to comment on the specifics of the plan, but school board member Brian D. Morris said that Neall's proposed 5 percent pay cut was "certainly part of the issue."

Morris would not elaborate as to why some board members did not want to include that remedy in the accountability document, and would not say whether he wanted it removed.

After a closed meeting of the city Senate delegation last night, Sen. Nathaniel J. McFadden criticized the school board.

"I have grave concerns about that board and its decision-making process," said McFadden, who indicated he was speaking as a system employee. McFadden works at Lake Clifton/Eastern High School.

Lawmakers and educators said Neall's subsequent resignation - written the day he delivered the plan - does not bode well for the city school system.

"I'm sure the governor and the General Assembly are going to step back and reconsider their offer," House Speaker Michael E. Busch said. "For the board to turn around and say [Neall's original plan] is not satisfactory, after they got themselves into this situation, defies logic as far as I'm concerned."

Senate Minority Whip Andrew P. Harris called the resignation "a worrisome sign."

Sun staff writers Mike Bowler, Michael Dresser, David Nitkin, Ivan Penn and Laura Vozzella contributed to this article.