City's schools said to face new fiscal crisis

Baltimore's school system likely will face a severe cash flow problem again in March, but city officials say they will consider several options in coming months to prevent a crisis of the magnitude of this spring's near-financial collapse.

For the first time since lending the school system $42 million to avert insolvency, city officials are offering concrete proposals for solving the long-term financial problems.


The proposals were revealed last night in a report released by the new Financial Operating Committee, composed of representatives from the city, the state and the school system, that was created several months ago to make the system more financially accountable.

While the report recommends that the system tighten financial controls and explore creative solutions to the cash-flow problems, it does not suggest that the city jeopardize its good bond rating again by handing out a loan from its rainy day fund.


"I think we have made a lot of progress; at the same time I think we have a lot of progress to be made," Mayor Martin O'Malley said yesterday afternoon.

The proposals have yet to be endorsed by city school board members, who, according to city and school officials, have been arguing with the committee for the past week over the wording of the report.

The school board was to hand out the report last night at its meeting and take a vote on whether to adopt the plan. But it did neither. Instead, the Financial Operating Committee made a brief report to the board and then released the report to the media in the hall outside the meeting room.

The plan calls for the school board to reduce the $58 million accumulated deficit by 60 percent in the coming school year, improve its budgeting process and further reduce staffing by about 250 teachers.

The report says that the recovery is "still tenuous," and that the system faces significant problems.

Last winter, the school system was weeks away from being unable to meet its payroll when the city agreed to lend the money to get the system through the school year.

But with the loan came greater control by City Hall. O'Malley required the city school board to agree to work with the Financial Operating Committee. The committee has since met weekly to create the financial recovery plan released last night.

The system has reduced its work force by 1,000 - to about 11,000 employees - and has instituted routine accounting measures to keep finances in order.


But the school system must pay back the majority of the mayor's loan in early August, and many state politicians and education advocates questioned whether the system would stay afloat financially after that.

In March, O'Malley pledged that if the system needed more help, he would offer it. But the report indicates that cash flow won't become a concern until mid-March, and it proposes two options:

First, the city owes the school system about $31.6 million, which it was to pay back over many years at $2.8 million a year. If payments would be accelerated, the school system's cash-flow problem would be eased.

A second option would be for the school system to sell a piece of property to a private buyer, then lease it back. Revenue from the sale would relieve the cash crunch, and the new owner would receive a tax credit. After the lease ends, the property would revert to school system ownership.

Whether either proposal will work is not clear, said Peggy Watson, the city's finance director and a member of the Financial Operating Committee. "The critical point is that we would have the time to go through that evaluation and come back with a proposal," she said.

Sections of the report are critical of the school system, asserting that the school administration possesses "limited analytic capabilities" and hasn't hired enough staff in the finance area.


School administrators, the report said, have yet to "fully embrace" a process called CitiStat - weekly meetings that use statistics to assess each city agency's performance. O'Malley says the process has greatly improved the efficiency of city government and wants the school system to use it.

The committee also suggested several changes in the areas of transportation, trash collection and food services. For instance, the report analyzes the number of times trash bins are emptied at schools each week and suggests they be reduced.

Other cost savings could come from having the city take over some of the functions of the information technology department, which has been seen as overstaffed for a number of years. O'Malley said the city is not trying to control the school system, but he noted some economies of scale would save the schools money.

For parents, one of the most interesting elements of the plan is a suggestion that the system begin rezoning students to different schools. The system might move students from areas where schools are crowded to those that are under-enrolled.

The Financial Operating Committee also wants the school system to report to it by October on ways to reduce the cost of special education, which accounts for about 30 percent of the total budget.