Philly School District's financial assurances leave city controller Butkovitz unsatisfied

In a letter to City Controller Alan Butkovitz, Recovery Officer Thomas E. Knudsen stressed that the district "is very much a going concern and the district's management and governing board are unwavering in our commitment that it remains so."
In a letter to City Controller Alan Butkovitz, Recovery Officer Thomas E. Knudsen stressed that the district "is very much a going concern and the district's management and governing board are unwavering in our commitment that it remains so." (SARAH J. GLOVER / Staff Photographer)
Posted: January 28, 2012

The School District of Philadelphia's new chief recovery officer responded Friday to the city controller's request for information about bridging a funding gap of at least $61 million by June 30.

But City Controller Alan Butkovitz said he was not sure whether the district fully had addressed his concerns about the school system's financial viability.

He said an initial review of the responses contained in the three-page letter from Recovery Officer Thomas E. Knudsen "has done little to satisfy our concern, but there are ongoing written communications going back and forth to clarify our respective positions."

On Wednesday, Butkovitz said he might have to include a warning in the district's annual financial report that could hamper the district's ability to borrow money and sell bonds.

"Unless the School District management can provide compelling evidence to alleviate this doubt, our Independent Auditor's Report will include an explanatory paragraph to reflect our conclusion of substantial doubt [about the district's ability] to continue as a going concern."

That report, prepared by his office, is included in the district's comprehensive financial report sent each year to bond-rating agencies and bondholders. The target date for the report is Feb. 10.

Butkovitz asked Knudsen to address a series of concerns including the "district's continued ineffectiveness in solving its growing budget gap" and its "limited authority to further cut costs" by the end of business Friday.

Knudsen's letter, which arrived several hours early, stressed that the district "is very much a going concern and the district's management and governing board are unwavering in our commitment that it remains so."

He said: "We can fully assure that the School District is in no danger of failing to meet its debt service and payroll obligations in the foreseeable future as a result of the actions we have already implemented and intend to implement."

Knudsen said he understood that Butkovitz's audit report might mention the serious financial challenges facing the district. But in light of the actions the district is taking and will take, he said, Butkovitz should not have doubts about "the School District's ability, capacity, and determination to maintain itself as a going concern."

Knudsen, a financial turnaround specialist who has been in the job for barely a week, pointed out that the budget presentation at the Jan. 19 School Reform Commission meeting outlined steps that the district had just taken that would save $23.4 million. Those actions include cuts to central office budgets; a drastic scaling back of summer school; and imposing furloughs, salary freezes, and new health-benefit contributions for nonunionized employees.

"The district is currently implementing all of these initiatives, which it expects will reduce the identified gap to $37.7 million," Knudsen wrote. He said the details were available for Butkovitz to verify.

Those moves, he said, would not require the district to make further cuts in school-based services that affect students.

The district has listed other possible areas for cuts, including eliminating gifted programs, spring athletics, and the remaining instrumental music programs. In an effort to avoid such drastic measures, Knudsen said, the district was pursuing other savings options.

One, he said, is working with the district's unions to agree "to a set of measures to reduce the district's labor costs" through June 30.

"The School District has initiated discussions with its collective bargaining units," he wrote. "We are hopeful that out of these discussions, a way will be found to finish the task" of balancing the district's budget without further deep cuts to school programs.

Jerry Jordan, president of the Philadelphia Federation of Teachers, said Friday that he had not been contacted by the district. And Robert McGrogan, president of the Commonwealth Association of School Administrators, which represents the principals and other administrators, said he had not been contacted by the district about additional givebacks. His union already had deferred raises and agreed to other changes to help the district this fiscal year.

"We have made concessions," he said. "It has come from our pocketbooks."

District spokesman Fernando Gallard confirmed that the district met Friday morning with George Ricchezza, president of Local 32BJ, Service Employees International Union, which represents bus aides, cleaners, building engineers, and mechanics.

Ricchezza had been asking to meet with district officials for weeks.

His members did not receive expected raises this month, and pink slips went out to 1,406 members warning they could be laid off Dec. 31. The district has said that the number of union employees to be let go would depend on whether a dispute over contract concessions could be resolved.

Ricchezza did not return a call left at his office seeking comment about Friday's meeting.

Although the district has not yet presented a formal plan for how it will close a separate funding gap of at least $269 million in the fiscal year beginning July 1, Knudsen assured Butkovitz the district would meet its legal obligations and approve a balanced budget.

District officials have said the financial woes stem largely from cuts to state and federal funding.


Contact staff writer Martha Woodall at 215-854-2789 or martha.woodall@phillynews.com.

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