School woes can hurt business

THE BALTIMORE SUN

Baltimore's efforts to attract and retain companies could be seriously impaired if the public school system's multimillion-dollar deficit isn't quickly fixed, business leaders fear.

Education has a powerful effect on economic development, for good or ill, because it influences where people and businesses choose to settle. For Baltimore, which hasn't been able to claim schools as a selling point for decades, the specter of mass layoffs of teachers is not helpful as it tries to attract new jobs.

The negative impressions left by financial mismanagement and strife between administrators and teachers could have a lasting impact, erasing recent gains for the system in public image and giving other jurisdictions or states something to use against Baltimore in vying to recruit businesses, experts said.

"We're in a very competitive region if anybody wants to use a drama like this as cannon fodder to pit their advantage over you. ... We've got a lot of damage control to do," said Earnest E. Hines, president and chief executive officer of American Skyline Insurance Co., which has its headquarters downtown.

The city, the state and the Abell Foundation have promised to lend the school system money to get it through the academic year. But that doesn't fix the underlying Business 101 problem: Spending exceeds revenue. There's a $58 million deficit, compounded by a $58 million cash-flow shortage.

"I happen to know there's lots of wonderful things happening in the school system," said Ben Mason, executive director of the Baltimore City Chamber of Commerce, "but the perception out there is that there's some real serious issues, and the financial situation does not help."

Public schools serve as an indicator of the health of a community, said Daraius Irani, director of applied economics at RESI, a consulting arm of Towson University.

The schools are the foundation for educating the work force, so a deficit of Baltimore's magnitude will feed companies' fears that they might not be able to get skilled employees in the area, he said, adding, "If there's two vacant parcels available, the city or the county ... the tipping favor may go toward Baltimore County."

Anirban Basu, chief executive officer of Optimal Solutions Group, a Baltimore economic consulting firm, said big corporations considering the city might not be frightened off by the financial woes because executives are likely to send their children to private schools and employees who relocate are probably bound for the suburbs if they have families.

He thinks the school system deficit will affect the city and its businesses in a more subtle, but also harmful, fashion by encouraging more families to move out, taking their pocketbooks with them.

Baltimore has begun to hang on to its population better. The most recent census data, from two years ago, show a loss of 550 people a month, compared with more than 700 a month in the 1990s.

"Baltimore in recent years has dramatically slowed the rate of residential decline," Basu said. "There had been, prior to this emerging crisis, a belief that Baltimore City public schools were making great progress in the form of rising test scores. ... People's locational decisions are as much a function of perception as they are of reality, and perception is that the city schools have [just] taken gigantic steps backward."

In contrast, Howard County's school system has had an excellent reputation for years, typically ranking at or near the top in state test scores. Members of the local economic development staff are quick to point that out in their sales pitch.

Companies opening offices or relocating look at land costs, taxes and other considerations first, but Howard officials find that public education often separates the final contenders.

"It winds up being a tie-breaker," said Richard W. Story, chief executive officer of the Howard County Economic Development Authority. "Our school system usually breaks the tie in our favor. ... Smart businesses are looking for smart people."

Nineteen of every 20 Howard residents have a high school diploma or its equivalent, making the county the best-educated place in the nation, according to the 2002 American Community Survey of 231 jurisdictions.

"That's incredible, and that's something you can sell," Story said.

Baltimore is sixth from the bottom on that list.

Urban school districts across the country are experiencing the same sorts of financial and educational challenges Baltimore is, said Richard P. Clinch, director of economic research for the University of Baltimore's Jacob France Institute. He sees the deficit as a wake-up call rather than a death knell.

"Baltimore's image is on the mend," he said. "This isn't helping it, but if this had happened five years ago, it would have been yet another nail in the coffin. Now it's kind of a bump in the road."

The schools have made "remarkable academic progress" in the past few years, said Rick Abbruzzese, a spokesman for Mayor Martin O'Malley.

"Hopefully, that will continue even as we try to get this fiscal management and accountability side up and running again," he said.

The Greater Baltimore Committee issued a report last summer that pointed to systemic fiscal troubles in the school system, including weak spending controls and staffing that didn't decline while enrollment did.

Donald C. Fry, the GBC president, said the current situation is heartening because school leaders are at least trying to solve the problem after years of what the report called a "culture of complacency."

"This is a problem that can be dealt with and will be dealt with," Fry said. "I don't think this is going to negatively affect us."

Hines of American Skyline Insurance said his business isn't going anywhere. It was formed in 2000 by executives of the former USF&G; Corp. who chose Baltimore because they knew the market well and were impressed by revitalization efforts. It has 70 employees in the city and expects to hire more in the next two years.

But Hines is deeply concerned about the schools because he knows other companies are paying attention. As a vice chairman of the Economic Alliance of Greater Baltimore, he's trying to recruit them to the area.

"I'm not going to a meeting where they didn't ask me about the quality of the education, and I'm talking public school education," he said.

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