As Pennsylvania Enters 5th Budgetless Month, Schools Borrow Money Just to Stay Open

by | November 3, 2015

By Kristen A. Graham

Two weeks ago, the School Reform Commission warned that without a state budget it would be forced to borrow hundreds of millions just to keep schools open through the end of December.

On Monday, it did just that, authorizing the borrowing of $250 million and shifting $40 million from its capital funds to pay for everyday costs.

In all, if the Philadelphia School District needs to use all the funds now allowed, the state budget stalemate will cost the Philadelphia School District $2.5 million in interest and fees.

As the state budget stalemate dragged into its fifth month, SRC officials underscored their dismay with what one called a seeming failure of lawmakers to do their basic jobs. Philadelphia is among dozens of districts statewide that have had to borrow to make ends meet in the absence of state budget.

"I mean, we've elected these folks to govern," SRC Chair Marjorie Neff said after a special commission meeting. "And I guess at this point, I'm more concerned that it doesn't feel like governing is happening. That we're at this place and that you have school districts that are going to collapse sooner than Philadelphia might. And there just doesn't seem to be the urgency."

And with winter recess looming for the legislature, the SRC may be forced to go to the money lenders again -- a tough prospect, school officials admitted.

Philadelphia is banking on something close to what Gov. Wolf proposed for the district -- $159 million in new money. The Republican legislature has balked at that sum.

"It is not enough to pass a budget that keeps the inadequate status quo," Neff said.

She declined to say what would happen if no budget accord is reached by the end of the year, when Monday's credit line will run out.

Neff said she did not want to comment on why lawmakers are now in recess.

"I'm not going on vacation any time soon," she said.

The district, which is borrowing the money from PNC Bank and Bank of America, will take the money in two $125 million chunks, relying on shifting $40 million from its capital projects budget in between the two bank disbursements.

If a state budget is passed soon, the district would not need to draw on the second infusion of money.

Erin Davis, the district's deputy chief financial officer, said that tapping into the capital money will not affect any projects currently in the works, and that if a school needed major emergency repairs not currently in the budget, the district would still be able to fund those.

But, Davis and Fran Burns, the school system's chief operating officer, said the district will continue to keep a careful eye on cash flow, slowing or lowering payments to some vendors.

The school system, which is responsible for about 200,000 students in traditional public and charter schools, spends on average $10 million a day.

Philadelphia must pay the funds back by the end of the fiscal year, June 30.

Burns said the state may pay costs associated with the borrowing, but that officials have made no assurances.

Still, she said, "right now, we're not projecting any cuts to service as a result of the cost of this borrowing."

Further borrowing could be difficult, said Davis.

"We're not the banks' only clients," she said, noting the large number of school systems across Pennsylvania also looking to borrow funds. "We're cognizant of the fact that there's not unlimited credit in the world."

Had a budget been passed over the summer, Philadelphia would have received over $600 million from the state by the end of December.

Two speakers at the SRC meeting expressed frustration with the state situation, but said the district could be spending its existing funds better.

Retired district teacher Karel Kilimnik took the SRC to task for its spending on outside law firms. She and Lisa Haver, another retired Philadelphia teacher, also called the school system out for outsourcing substitute-teaching services.

The firm it hired, Source4Teachers, has managed to fill less than a quarter of all sub jobs most days, leaving schools scrambling to cover classes. Source4Teachers was awarded a two-year, $34 million contract, though it will only be paid based on the number of vacancies it fills.

Haver said heads ought to roll over the substitute crisis. The district, she said, is increasingly acting like a business.

"In the corporate world," Haver said, "people resign or are fired for a screw-up of this magnitude."

(c)2015 The Philadelphia Inquirer