State lawmakers began work on an arrangement that could place financial decisions in the hands of a trustee appointed by the governor, but Mayor Martin O'Malley called that proposal too extreme and pushed for a more moderate alternative. A group working on the problem is scheduled to meet today.
O'Malley delivered four pages of recommendations to Gov. Robert L. Ehrlich Jr. yesterday, and said the fiscal crunch could be solved through a city-state "memorandum of understanding" that would establish new budget processes and a timeline for erasing a $58 million deficit. The city schools also require tens of millions of dollars to deal with a cash flow shortfall through June 30.
The mayor proposed giving the school system a $33.6 million cash infusion by converting a multiyear agreement on employee benefits into a one-time payment. With the system poised to run out of money to pay its bills next month, the state has offered a major cash infusion in the form of a loan - but with major strings attached.
"We fixed other departments in city government," the mayor said. "We can fix this."
But legislative leaders were on a different tack, asking staffers to draft a bill modeled after school reforms in Oakland, Calif. - a system that faced deficit problems in recent years.
"Trusteeship has worked in other places," said Senate President Thomas V. Mike Miller.
Aides to the governor presented a third option at the meeting: a three-member fiscal control board. But there were no specifics behind the plan, and the governor's office could provide no details later.
Political leaders debated several alternatives last night during a much-anticipated Statehouse "work group" led by state budget secretary James C. "Chip" DiPaula Jr. The session included O'Malley, Comptroller William Donald Schaefer and city lawmakers. Ehrlich left shortly after the meeting began, raising some eyebrows.
"The governor and lieutenant governor left after three minutes, while we stayed around and did the real work," said Del. Maggie L. McIntosh, a Baltimore Democrat.
Former state Sen. Robert R. Neall, a volunteer financial adviser to the system before resigning in frustration, has recommended the pay reduction.
"We want to find out if it's really about accountability or if it's about getting the teachers to take a pay cut," said Stephen J. Kearney, an O'Malley spokesman.
A bailout under consideration in similar to one used in Oakland could lead to such pay reductions.
Last June, the Oakland district - faced with growing deficits and shrinking enrollment - borrowed $65 million in state funds after it went into receivership under a 1991 law. As a condition of the loan, state officials appointed schools bailout specialist Randolph Ward as the administrator of the 45,000 student district, which has about half the enrollment of Baltimore.
The Oakland school board stood powerless and parents were angered as Ward negotiated a 4 percent pay cut for 7,000 school employees, laid off about 100 custodians and announced the closing of five schools, said Oakland school board member Gary Yee.
"The bottom line is that it's unrealistic to think that either Oakland or Baltimore can ever be other than educationally mediocre unless they get a lot more money," Yee said. "The most they can get with a state administrator is fiscal accountability. But what school district would want packed classrooms, dirty hallways, and no elective classes in exchange for fiscal accountability?"
"There is a myth that's been surfacing in our state for quite a few years that if you're poor you're also incapable," O'Malley said.
O'Malley agreed with the state that a school reform plan the governor rejected early this week did not include "the requisite level of accountability to justify and safeguard the considerable financial investments" offered by the state, the city and the nonprofit Abell Foundation.
In addition to offering $33.6 million through borrowing against a 15-year stream of payments that is owed to the school system, O'Malley has suggested an early retirement plan for the school system's nearly 1,000 teachers with 30 years of service.
The mayor's letter suggests that any layoffs take place at the end of the school year to avoid disruptions to students. O'Malley said he did not support a pay cut because it would lead to a costly lawsuit with unions. In addition, the Abell Foundation would pull its pledged $8 million if teachers are forced to reduce their pay.
The money was not a windfall: city and state officials had expected the system to comply with the federal No Child Left Behind Act. But Copeland was relieved.
"This will help us address our enormous cash-flow problem," Copeland said. About $38 million of the freed funds are earmarked for low-performing schools, she said, and the city has spent about $19 million on salaries and other expenses.
Sun Staff writers Mike Bowler, Doug Donovan, Howard Libit, Tom Pelton and Ivan Penn contributed to this article.