State seeks control of faltering system

Gov. Robert L. Ehrlich Jr. will seek legislation that could place the troubled Baltimore school system in fiscal receivership, saying yesterday that he wanted broader authority to bypass a city school board that has been reluctant to impose pay cuts to close a widening deficit.

"Let the word go out: All obstacles to fiscal accountability must go," Ehrlich said as he formally rejected a schools restructuring proposal as grossly inadequate. "If that includes the school board, that includes the school board."

Ehrlich said a $42 million state loan to city schools that he offered last week remained an option, and could be increased because the scope of the school system's problems appears to have grown. City schools face a $58 million accumulated deficit, and documents released yesterday show a serious cash-flow problem that threatens the school system with insolvency.

But the loan money from the state would not be released, the governor said, until he received a solid plan for closing the system's budget deficit and a fiscal blueprint that ensured the problems would not resurface. Documents presented by school officials Friday fall far short of providing those answers, he said.

"The situation in the Baltimore City school system is unacceptable and will not be tolerated," the governor said.

Ehrlich, state schools Superintendent Nancy S. Grasmick and lawmakers held a hastily convened series of closed-door meetings throughout the day yesterday as they tried to craft a legal solution to the fiscal mess. The talks included former state Sen. Robert R. Neall, the fiscal expert who abruptly resigned Monday as a volunteer consultant to the school system after the school board backtracked from his suggestions.

At the same time, city school board members were meeting in Baltimore, rebuffing calls for them to step down and absorbing criticism from angry students and activists.

Despite the flurry of activity, yesterday's developments provided few concrete answers for parents, students and teachers worrying whether classrooms would remain open or that paychecks would bounce.

Jessica Paylor, an eighth-grader at Diggs-Johnson Middle School in West Baltimore, said children are being forgotten in the talk about layoffs and budget cuts. "When you take away a teacher, you take away a child's pride," Paylor said.

Ehrlich raised Neall's name several times yesterday and said he hoped the former state senator would again assume a role in helping the city schools. During an evening meeting with city lawmakers in Annapolis, Neall described why emergency powers creating a financial receiver were needed, and why the current school board should be circumvented.

"You can't have any more group decision-making because there is no more time," Neall said in an evening interview. He said lawmakers should consider a bill similar to a 1985 emergency plan that gave then-Gov. Harry R. Hughes vast new authority to deal with the emerging savings and loan crisis. Some lawmakers said they hoped to have an emergency bill ready by week's end.

But not all agreed. "We're going to be able to work this out," said Del. Salima Siler Marriott, chairwoman of the Baltimore House delegation and a participant in most of the talks. "There's no need for a receiver."

Hanging over yesterday's discussions was a Rubik's cube of political calculations. Some of the city's lawmakers seemed reluctant to cede decision-making authority to the governor.

Even as Ehrlich was saying he had no choice but to help because "I have 90,000 children in Baltimore City schools," the governor was careful to say he was not calling for a state takeover. "I am not using that term," he said.

Adding fresh urgency to the crisis, Ehrlich said that the cash crunch was worse than previously disclosed - a deficit of $75 million and cash flow shortfall of $71 million. But documents detailing the schools' finances - while showing the system's situation was bleak - indicated the figures he used might be inflated.

Seemingly relegated to the background as state officials developed a bailout plan, Baltimore Mayor Martin O'Malley, a Democrat who might challenge the Republican governor in 2006, differed with state officials on how the problem could be addressed.

Neall's solutions could be revived, O'Malley said, and were not significantly different from the ideas presented to the state last week. "I think we were very close to being able to resolve this," the mayor said.

While O'Malley had initially promised yesterday that he would stay in Annapolis all day yesterday to meet with the governor as needed, the governor's office scheduled no appointments. The mayor returned to the city by midafternoon.

In rejecting the school system's fiscal blueprint, Ehrlich and his aides said they would pursue a different solution, and would begin crafting legislation that could create a financial receiver position and make it easier to replace school board members.

In a letter to the city school board released yesterday, DiPaula said the General Assembly should consider emergency legislation that "may include but not be limited to the establishment of a receiver authority, the implementation of an effective and accountable management structure for the system, removal of legal obstacles to the system's fiscal recovery, and changes to the system's permanent organizational structure."

Such legal change is needed, DiPaula said in an interview, because "there is nothing by statute that allows the superintendent or the governor to step in on their own and solve the problem."

The major impediment to a financial solution, the governor and his aides said, appears to be the city school board, which refused to embrace recommendations from Neall, the consultant, that include 5 percent pay reductions for teachers.

Broad agreement surfaced in Annapolis yesterday that the school board - composed of city and state appointees - should be replaced.

"Everybody agrees the board has to go," said Del. Tony Fulton, a Baltimore Democrat. "They're saying, 'Let's start all over again and rebuild this institution.'"

The school board gave no indication at a meeting last night that it was ready to either step down and or hand over authority to the state. Board members said they were trying to find a solution to the financial crisis and that they were grateful for the help of the governor.

Board member Ralph S. Tyler contended that he and his colleagues did not gut Neall's plan last week - and released before-and-after versions of the recommendations to prove the point.

Only one recommendation - the pay cut for employees - had been substantially changed, he said.

An earlier board agreement with the Abell Foundation and the city for $16 million in loans was supposed to avert the need to reduce pay or lay off employees, and Tyler said the board did not want to back away from that deal.

Abell Foundation Director Robert C. Embry Jr. said last night that if the 5 percent pay cut had been included in the plan, "our offer would have been withdrawn." Embry said he would not rule out considering another proposal, however.

Speaking before last night's meeting, board vice chairman Sam Stringfield said his colleagues might have been prepared to take that step if needed. "If the last available option for keeping schools open were a 5 percent pay cut, then I believe the board would have supported it," Stringfield said.

Parents and parent organization leaders expressed their displeasure with both the school board and the state at the board meeting last night.

Kevin A. Slayton, president of the Parent Community Advisory Board, reiterated that his group wants to see the six longest-serving board members resign. Earlier in the day, Slayton said the state should be providing more money for city schools in direct aid instead of a loan, because the state bears constitutional responsibility for educating children.

The president of the Baltimore Council of PTAs, Mike Hamilton, said his organization would never stand for a state takeover or receivership - and will fight those alternatives with all its resources.

"We will do whatever it takes to protect the needs of our children," Hamilton said.

Sun staff writers Liz Bowie, Michael Dresser, Laura Loh, Ivan Penn, Tanika White and Kimberly A.C. Wilson contributed to this article.