School Reform Commission moves to cover deficit with $300M loan

Posted: September 12, 2012

The Philadelphia School Reform Commission moved Monday to borrow $300 million to bridge a massive deficit, emphasizing the bond deal will probably be the district's last for several years.

In a brief, sober meeting, the commission approved a tough five-year financial plan for the district as a prelude to the bond sale to cover a deficit of more than $200 million in the current $2.5 billion budget, as well as a shortfall anticipated in the fiscal year that begins next July 1.

Thomas E. Knudsen, the school district's chief recovery officer, called the size of the financing "staggering." And, if the district does not make major changes and continues on its current course, he said it could be facing a potential shortfall of $1.35 billion over the next five years.

"But things have to change," Knudsen said.

His five-year plan, which was adopted by the SRC, maps out a strategy for averting that calamity by reining in labor costs, changing practices, closing underused schools, and seeking additional revenue sources.

For months, Knudsen and the SRC have been talking about taking such actions to redress long-standing financial problems and bring expenses in line with revenue. By approving the plan, the commission signaled that it intends to implement the changes.

In July, the SRC reached a labor agreement with the district's blue-collar union that preserved jobs but will provide $100 million in savings over the next four years through its restructuring of wages and benefits. Knudsen said the district intends to seek savings of between $167 million and $180 million per year as it negotiates with other unions.

Under the "bare bones" financial blueprint, the SRC's top priority remains offering a quality education. But Knudsen said the district does not have enough money to carry out the commission's ambitious goal of increasing the number of spots for students in high-performing schools, such as expanding successful charter schools. Although the plan the SRC adopted includes $194 million over five years to continue, that is "substantially less" than the district believes is necessary.

The district's chief recovery officer also said he does not believe that the district will be able to return to the bond markets to cover other deficits for at least five years.

"We must proceed with the greatest care; a deficit borrowing is an extraordinary action that we will not be able to undertake again in this planning horizon," Knudsen said in a letter accompanying the five-year plan.

"Under the best of circumstances," he said, the bond deal will add approximately $22 million each year to the district's annual debt cost of $264 million.

Before the district can go to the bond market next month, it must receive approval from the State Public School Building Authority, Knudsen said.

Knudsen said the district then plans to make a presentation to bond-rating agencies in early October.


Contact Martha Woodall

at 215-854-2789 or at martha.woodall@phillynews.com

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