Phila. school budget gap grows by at least $37M

Posted: July 06, 2012

Stung by having less city money than planned, and bracing for a loss in revenue from property-tax appeals, the Philadelphia School District's budget hole has grown by as much as $64 million, officials said Friday.

Previously projected at $218 million, the 2012-13 budget gap is now anywhere from $255 million to $282 million.

The district had been banking on $94 million in new city money - the amount Mayor Nutter had proposed would come through Actual Value Initiative, his tax-reassessment plan - but a skeptical City Council delayed AVI and ultimately gave $40 million, some of that with conditions.

Other changes that resulted in positives on the ledger sheet were $9 million from improved city tax collections and $8 million in state adjustments. But the district must also plan for up to $27 million in property-tax appeals, warned chief recovery officer Thomas Knudsen.

Rather than make further cuts or borrow more, the district hopes to make up the lost revenues by going after delinquent taxes.

But those are not sure things, officials acknowledged.

The district's share of uncollected city taxes is about $230 million, with about $150 million of that being "collectible," meaning not involving vacant properties or properties where owners are in bankruptcy, Knudsen said. The city and the district are about to hire a firm to help accelerate back-tax collection, he said.

District officials had already been planning on borrowing $218 million to make ends meet, and financing more than that figure - while technically possible - is not the way the district wants to go, School Reform Commissioner Feather O. Houstoun said.

"There's growing skepticism about whether we can bring the School District into fiscal, structural balance over the next year or two," Houstoun said at a news conference. Financing the full deficit "rather than addressing the size of the hole that's grown would just be a really poor decision."

The district simply can't afford to employ another one-time revenue stream that would have to be replaced in a year, she emphasized.

Should the tax-collection plan fail to generate enough money, the district would be forced to cut elsewhere - "reductions and adjustments in salary and benefits, nonschool based cuts, and, lastly, school-based program adjustments," Knudsen said.

The possible salary and benefit adjustments could be to unionized and nonunionized employees, though no decisions have been made.

"Right now, I'm focusing the bulk of our attentions on this delinquent-tax situation," Knudsen said.

When Knudsen was brought in to turn around the Philadelphia Gas Works, he went aggressively after delinquent payments. But as its financial distress becomes more and more acute, the district doesn't have the time PGW had to establish the same kinds of programs to pursue back payments, he said.

It should be clear "within a couple of months" how realistic the plan to cut the deficit back to $218 million is, Knudsen said.

"The situation we find ourselves in as a result of the City Council's actions have complicated the circumstances, no question about that," he said.

No decisions have been made on whether to move forward with plans to lay off several hundred blue-collar workers next week, he said.

Every member of SEIU 32BJ Local 1201, the union that represents bus aides, mechanics, cleaners, and other low-wage workers, has received a layoff notice. The first notices would go into effect on July 15.

Knudsen said the district was "still talking" with the unions; 32BJ leaders have said they've put millions of dollars in concessions on the table but have not heard back from the district.

Also unclear is whether any of the new city money will be tied to layoffs' being taken off the table. Of the $40 million City Council authorized, $20 million is predicated on the district's meeting certain conditions. Those conditions have not been firmed up, but it appears that some members of Council wanted a tie-in to the 32BJ negotiations.

In the long term, the district is relying on $156 million in concessions from all of its unions over the next five years. The Philadelphia Federation of Teachers, the largest union, has said it will not negotiate prior to its current contract's expiring next summer.

The School Reform Commission has contended that the state takeover law of 2001 gives it the power to impose terms on unions in times of financial crisis, but it's not certain those powers would hold up in court.

In the spring, SRC Chairman Pedro Ramos and a lawyer hired by the SRC made the rounds in Harrisburg, asking legislators to help with a stronger law that would give the commission the absolute right to cancel contracts, The Inquirer has reported.

Those efforts were squashed when Philadelphia lawmakers, who had been kept in the dark, got wind of them and Ramos' efforts became public.

Contact Kristen Graham at 215-854-5146, or on Twitter @newskag. Read her blog, "Philly School Files," at

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