The School Reform Commission yesterday adopted a $2.3 billion 2008-09 operating budget for the city school district that officials said was balanced, but does not include raises for teachers and other employees.

The spending plan includes $11.3 million to reduce class sizes in the lowest-performing elementary schools, and $6.7 million to expand art and music instruction in every school across the 167,000-student district.

"We consider this budget-phase-one of a multiphase focus in funding for classroom priorities that can have significant impact in teaching and learning in our schools," said SRC Chairwoman Sandra Dungee Glenn.

But the absence of raises for teachers and other employees raised eyebrows.

"If the district hopes to be able to recruit and retain teachers, one thing that is clear is that they are going to have to pay them competitive salaries," said Jerry Jordan, president of the Philadelphia Federation of Teachers.

"We will be fighting for pay increases," added Jordan, whose members' contract expires Aug. 31.

Wayne Harris, the district's budget director, said the budget contains nothing for the five employee unions, which also represent principals, school cops, blue-collar workers and cafeteria staffs.

"This is just a budget," he said. "Budgets are built on assumptions. When reality intrudes and things change, budgets are adjusted. The budget does not decide how the world works."

Michael J. Masch, who yesterday was named the district's chief business officer, said incoming Chief Executive Officer Arlene Ackerman and her team would make getting a handle on the budget a priority.

"I am confident that Dr. Ackerman and the new management team, working with the commission, will bring the district back to fiscal stability in short order. It won't be magic and it won't be easy," he said, "and it will involve difficult choices."

Though $10.3 million in savings still must be found, officials consider next year's budget to be balanced because those savings and cuts will be made soon, Harris said.

Some $5 million of that outstanding amount is to come from savings to be identified by the shared-services task force that the district and city recently created. The district will identify the remaining $5.8 million in cuts.

Also, a list totaling $38.9 million in cuts and new revenue was released yesterday explaining how the budget was balanced.

Among the cuts are the elimination of 15 principals on special-assignment positions to save $1.4 million and the renegotiation of alternative-education-provider contracts to save $4.2 million.

The budget also assumes that $85 million earmarked for the district in Gov. Rendell's budget proposal will be approved by the General Assembly.

During the meeting, the reform commission also approved a resolution to pay six private companies $44.4 million to operate alternative schools for disruptive and overaged students for next school year. The largest of the six, Community Education Partners, was not named in the resolution because the company and the district have not come to terms on payment.

The resolution says the "provider" will be paid $24 million. A final vote on including CEP in the contract will be on June 11. *