Why debt at schools ballooned unnoticed

The cries from many Baltimore parents were loud and angry seven years ago: Don't let the state take control of our schools.

State schools Superintendent Nancy S. Grasmick recalls people confronting her, fearful they would lose influence over their children's education.


But former Mayor Kurt L. Schmoke remembers feeling that he had no choice but to relinquish substantial control given the "legal trench warfare" that was a result of lawsuits, including one filed by the American Civil Liberties Union and another by the city of Baltimore against the state, both demanding an increase in state funding for schools.

So out of legal and political necessity, a rare partnership was born that tried to strike a tricky balance: to provide the city schools with more money from the state and independence from City Hall - without giving the state so much oversight authority that the new arrangement would be viewed as a takeover.


Today, with the school system facing a $58 million cumulative deficit and an additional cash flow emergency that requires loans from the state, city and a nonprofit foundation, the cries of dismay from parents are different.

Now, they wonder why the state or city didn't exercise more control long before a financial calamity threatened to bankrupt the school system.

A proposal to ease the imminent cash flow crisis will again trade money for control. In addition to $8 million loans from both the city and the Abell Foundation, the state will advance the schools $42 million, and Gov. Robert L. Ehrlich Jr. wants more accountability for tax dollars.

That sort of accountability was absent seven years ago. In retrospect, some who helped advance the 1997 legislation say potential problems were overlooked, and the system was ill-equipped to operate apart from the city's close control. While the reform of the city schools improved academic performance, the new structure helped create the current money crisis.

"The bottom line is that the partnership came about [in 1997] as an attempt to settle this multiple litigation," Schmoke said. "It wasn't as though we sat around and said what was the most wonderful structure."

At the time, the city school system was an agency of the city government and Schmoke exercised enough control over the school board that he was nearly free to choose the superintendent.

Under an agreement to settle the lawsuits, Schmoke gave up the power to control the schools in exchange for a $254 million infusion of state money over five years.

The settlement agreement required legislative approval, which was passed in 1997. What emerged was an independent school system, with a governing structure unlike almost any other in the nation. The mayor and the governor jointly appoint the nine-member school board from a list that is screened by the State Board of Education.


"The thing that spawned the partnership was the abysmal performance of the schools," Grasmick said. The state has had much greater control and involvement over academics since the partnership began, she said.

In the past year, the state has made 3,000 visits to city schools to monitor academic progress. When city students had a poor showing on the Maryland State Assessments last year, Grasmick stepped in quickly to declare the entire system in "corrective action." That gave her the ability to order changes in instruction.

But the city-state partnership did not give her, or the mayor, similar control over the system's finances.

Authors of the partnership legislation envisioned a city school administration that would perform much like those in surrounding counties, Grasmick said. It was expected the city system would take care of its finances, write its payroll checks, and track students and employees by computer.

Still in its infancy in the 1999-2000 school year, the hybrid school system began to falter, overspending its budget that year by $33 million.

Several architects of the plan now say they may have underestimated how much help the system would need with the basics of finances and budgeting.


"I think we were overly optimistic about the split [from the city]," said Barbara A. Hoffman, a former legislator who helped get the bill passed.

She said she thought then that the city government might transfer some personnel to the school system to help it get started. Instead, the system was on its own as it tried to build a new finance department and other administrative infrastructure.

"I do think in hindsight it is clear that the school system probably needed more help from the state, from the city, from whomever, in working its way through this, particularly in the areas of budget and accounting controls," said Louis Bograd, one of the lawyers representing the ACLU in its lawsuit against the state.

Lack of expertise

The failure to put together an efficient administration created problems that continue. For instance, the system has trouble counting its employees, which poses obvious problems in devising a reliable budget.

Without in-house expertise available to do some key administrative tasks, such as complex computer work, the system has often hired outside consultants, at enormous expense.


"This system has never been able to demonstrate that it can handle itself with the same level of authority that exists" in other jurisdictions, Grasmick said.

The 1997 partnership legislation neglected to require the system to balance its budget each year - as both the city and the state must do.

Hoffman said she assumed that the system couldn't carry a deficit, but time would prove her wrong.

In most years, the system simply continued to add to the deficit. By June 30, it was $58 million in the red. That deficit and the continued overspending this year, despite layoffs and cost cutting measures, has put the system in jeopardy of bankruptcy.

Baltimore's state legislators are sponsoring a measure that would require the city school system to balance its budget.

Another failure of the original partnership legislation, Bograd believes, was its failure to provide enough cash.


Today, he said, the system is still underfunded by $170 million to $200 million a year, a figure consistent with the conclusions of a state judge who presided over one of the lawsuits, and a state panel that studied state funding.

With a requirement to make sure test scores rose and student performance improved, the city school board and top administrators spent more money on new programs, raised teacher salaries by about 50 percent over five years and lowered class size.

City elementary schools did improve, with students in the lower grades scoring above the national average on standardized tests. But the price for that achievement has been the enormous deficit.

Other cities and states have had to wrestle with the issue of who should control a failing urban system.

In the 1990s, several mayors and governors gained control of urban school boards, often restructuring those boards or reducing their power.

Boston voters replaced an elected board in 1991 with one appointed directly by the mayor.


The Illinois Legislature shifted control of Chicago schools in 1995 to Mayor Richard M. Daley. Since then, there has been academic improvement in elementary schools, but high school reform has been more difficult.

And in 2001, Pennsylvania gave control of the 200,000-student Philadelphia district to a joint city-state commission whose members are picked by the governor and mayor. Academic results have been mixed in Philadelphia.

'In this together'

Despite the problems of Baltimore's city-state partnership, no one has proposed that either the mayor or the governor take over the city schools. However, there has been much discussion of more collaboration and control over finances.

Hoffman would like to see a control board that would review financial decisions. Grasmick thinks the state will step in with stricter accounting, at least as long as the $42 million is an outstanding debt.

The question remains, she said, whether the system will develop an organization sophisticated enough to handle its finances without assistance.


"My greatest desire is to create a structure in the system," she said. "There needs to be a fair amount of hand-holding to get to that place."

C. William Struever, who was the only member of the school board to serve before the transition to the city-state partnership and continue on the board until June 30, would like to see the city and the state have equal roles in the partnership.

If there is a recognition by all the partners, he said, that the success of the school children in Baltimore is important to the health of the state, there may be better collaboration.

"A partnership means much more than providing money. It means that we are all in this together," Struever said. "The chance now is, rising out of this heartache, to go to a much more fundamental level of collaboration."