Philadelphia schools lost federal and state aid

As the Philadelphia School District grapples with a $629 million shortfall that could end full-day kindergarten, eliminate most busing, and lop 3,820 positions from the payroll, officials have heard the same question over and over:

How did this happen?

It's a question that will likely be asked May 24 and 25, when City Council holds hearings on the district's budget.

One factor is the federal stimulus money that has flowed to the district over the last two years.

Since everyone knew the stimulus money would dry up July 1, didn't the district see this coming?

The short answer, officials say, is: Yes. And no.

Philadelphia, along with districts throughout the state and across the country, knew they would face challenges once the stimulus programs ended.

But Philadelphia got caught in a double squeeze, between evaporating federal funds and proposed massive cuts in basic state aid and programs that have the greatest impact on poor districts.

"We have never had an instance like this year, where the state has proposed not a small increase in funding or a zero increase in funding, but a 10 percent decrease in funding," chief financial officer Michael Masch said. "What is happening is unprecedented. . . . Nothing this bad has ever happened before."

If the state legislature approves Gov. Corbett's budget, the district's operating budget of $3.2 billion this school year is slated to shrink to $2.7 billion after July 1.

When school districts signed on for the federal aid, officials expected the economic downturn would be over when the stimulus ended. But economic woes turned out to be more stubborn than expected, and state and local tax revenues have not fully rebounded.

And in Pennsylvania, no one imagined that Corbett would introduce a $27.3 billion budget proposal that would cut $1.1 billion in state aid for schools, including a $292 million drop in funds for Philadelphia alone.

Overall, Corbett's budget would shave the district's share of basic education funds ($107 million); eliminate charter-school reimbursements ($110 million); end accountability block grants for full-day kindergarten ($55 million); cut educational assistance funds for after-school tutoring ($19 million); and excise dual-enrollment programs that allow high school students to earn college credit ($1 million).

"Every budget is a first draft," said Masch, who was a budget secretary under Gov. Ed Rendell. "We hope this one will have a major rewrite."

Even if an alternative budget plan House Republicans unveiled in Harrisburg this week is adopted, Philadelphia schools still will have a $610 million shortfall, he told the School Reform Commission on Wednesday.

The role of stimulus funds in the district's financial woes has surfaced repeatedly at public meetings and during budget briefings. The district received $113 million this school year to add programs that helped advance educational reform. The district elected for part of it to fund Superintendent Arlene C. Ackerman's Imagine 2014 program.

"We knew the money was for two years," Masch said. "We could have said 'No thank you,' in which case other people would have gotten more."

Under the rules, districts were required to spend the money to supplement and add education reform programs.

When the federal stimulus package was passed in February 2009, Masch said, many districts "were scratching their heads" trying to come up with reform initiatives to qualify for funds.

But Philadelphia had a blueprint in hand because Ackerman had just released her outline for boosting academic performance.

That plan includes the Renaissance Schools program aimed at turning around schools that have been performing poorly for years.

"Imagine 2014 and the stimulus money went together," Masch said in a recent interview. "Our hope is that we can maintain some of the most worthwhile programs with ongoing funding once the stimulus ends, the economy recovers, and our traditional sources of funding begin to grow again."

The stimulus allowed the district to hire 1,200 people, including counselors and teachers, to reduce class sizes.

District insiders warned at the time about the risks of using short-time funds to expand staff. Now 1,029 teachers and 183 counselors and student advisers are among the more than 3,800 positions slated to be eliminated.

Masch said if the district's financial problems were caused solely by the loss of the stimulus funds, the district would be cutting only 1,200 jobs, not 3,800.

He said the district knew it might have to roll back some initiatives if the federal stimulus aid was not replaced by other funds.

For example, there are two key parts of the Renaissance Schools program: turning some schools over to charter operators and making others district-run Promise Academies that receive additional funds.

The Renaissance charters - a total of 11 next year - do not cost extra money because these are schools the district had been operating itself, and the charter operators pay the district fees for the buildings.

The Promise Academies are more expensive because they have a longer school day, a longer school year, and Saturday sessions. The district spends an additional $430 for each child in the six Promise Academies this school year.

Next year's budget includes about $24 million for 14 Promise Academies in 2011-12, Masch said. The district plans to trim those extra funds to $215 per student.

Some parents have criticized the district for continuing that program while slashing funding for others.

"We have a $629 million problem," Masch said. "If we didn't do Promise Academies, we'd have a $605 million problem. We would have almost the same problem, but we would be doing nothing more than we are now to turn around persistently failing schools."

He said part of the district's problem stems from the fact that the state itself used money from two federal stimulus sources - the State Fiscal Stabilization Fund and the Federal Ed Jobs Fund - to reduce the state's share of the basic education aid for school districts for two years.

For Philadelphia, the state-provided federal stimulus amounted to $120 million in 2009-10 and $193 million in 2010-11.

Corbett's proposed budget does not make up those funds, either.

And while state aid has been reduced, the money the city provides the schools has remained relatively flat. The district's proposed budget shows the city providing $815 million, or about 30 percent of the district's revenues.

The district cannot levy taxes; only City Council can do that. In the past, the district received 60 percent of the funds; the city 40 percent.

Council raised taxes last year, but the district did not share in the extra funds.

"They changed the split so that the city now gets 55 percent," Masch said. "And that meant that the city's share went up and the School District's share did not."

Some Council members in December talked about returning to a 60-40 split, which would provide an additional $55 million for district coffers.

In recent days, some have publicly raised the prospect that the schools would get more funding.

From noon to 1 p.m. Monday, join Philly.com for a video chat. Education reporter Kristen A. Graham will interview Tina Meier,

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