How city schools spiraled into debt almost unchecked

To help understand the Baltimore school system's financial crisis, consider the following analogy:

A man has been spending beyond his means for years, borrowing money to keep a roof over his children's heads. But then he gets so overextended, the electric company threatens to shut off his power the next day.


So the man runs to his employer and begs for a $500 advance to get through this cash flow problem. The boss agrees, but demands more frugal living from his employee - and insists that the employee's pay checks be reduced each month to pay off the debt. The man calls in help to sort out the financial mess - but the accountant keeps unearthing more overdue bills in the man's chaotic home.

This is similar to the continually-evolving financial crisis faced by the 90,000-student Baltimore school system.


More and more owed

Former state Sen. Robert R. Neall, a budgetary expert advising the school system, is like the accountant called in to make sense of the sloppy and incomplete financial records.

"We have an organization in such trouble ... we could go back [to schools headquarters] now, and they could tell us, 'Hey, we've found another $5 million" in debt, Neall said, during a wide-ranging interview with The Sun yesterday. "It happens all the time."

The system has a roughly $900 million annual budget, but it has accumulated a $58 million deficit since state legislators separated it from the city government in 1997. This is money that the schools have, in essence, borrowed from their future budgets, by drawing portions of coming payments from the state to meet the demands of their payroll, Neall said.

On top of this, the schools also have another $58 million cash flow problem. This is money that the schools need immediately to pay bills that are due before June 30. The schools hope to borrow this money from the state, city and nonprofit Abell Foundation.

The deficit and the money borrowed to solve the cash flow crisis are different kinds of financial obligations, with different payment schedules.

But taken together, they mean that the schools face a heavy financial burden - and will have to stomach layoffs, possible pay cuts and more state control to stave off insolvency, Neall said.

A lack of discipline


Neall said that the $58 million deficit doesn't represent stolen money - as some parents have suggested, in calling for a criminal investigation. The problem was a lack of budgetary discipline.

As the number of students in the system declined, administrators failed to cut staff to keep pace and meet budget. Instead, the system gave teachers raises, and hired more administrators.

Although state funding rose, school administrators, led by former Chief Executive Carmen V. Russo, outspent their budgets by approving new educational programs meant to reduce class size and boost test scores, without regard to their price.

"Many times the bigger focus of people at the school system was providing the best resources for the students, which is truly commendable," said Donald Fry, president of the Greater Baltimore Committee, which issued a report on the schools finances in July. "However, the point that was missed was that you have to provide the best system you can within the revenue provided," Fry said.

Checks elsewhere

This overspending couldn't happen in Baltimore County and some other suburban districts, that have laws and procedures to prevent a system from carrying a deficit from year to year, according to local school administrators


"The cost controls imposed on the school system are extraordinary," said Brian J. Porter, a spokesman for the Montgomery County schools. "Weekly, monthly ... every 'i' is dotted, every 't' is crossed."

Joan M. Pratt, the Baltimore comptroller, said that she worries the city might never get paid back the $8 million it plans to lend the financially troubled school system, in part because administrators there still might not have a grasp on how much money they owe.

"The numbers keep on changing. ... Every day, they realize that they owe more money," Pratt said.