District downplays IRS auditors; elected officials mixed

City and state elected officials had mixed reactions to news that the IRS is conducting an audit of the Philadelphia School District's finances at the same time the district has asked for up to $110 million from the city because the district faces a $629 million funding gap for the upcoming fiscal year.

On Tuesday, the same day that school district officials appeared before City Council to ask for between $75 million and $110 million to shore up the budget shortfall, Internal Revenue Service auditors appeared at school district headquarters prepared to work on the audit, the Inquirer reported Friday. . District officials asked them to reschedule their meeting.

On Wednesday, district officials fired Eileen Pelzer, who as payroll director had been responding to IRS requests since April, the newspaper also reported.

In a statement Friday, school district officials characterized the IRS inquiry as "a random, routine audit." Jamilah Fraser, district spokeswoman, said the district would have no comment on the reported dismissal of Pelzer.

"It is not a criminal or civil investigation," the statement released by district officials said. The statement noted that "school districts nationwide" are "audited by several entities every year.

"The purpose is to ensure that we are complying with the tax code and that our employees are doing the same.

"When the IRS came in to the office, they gave us a list of 28 items. It was not expanded to that number and it did not contain questions about expense reimbursements for School Reform Commission members. We intend to fully comply and answer each of the items. . . . "

On Thursday, State Sens. Shirley Kitchen and Vincent J. Hughes sent a joint letter to Mayor Nutter and Council President Anna C. Verna asking for extra funding for the city's schools. Kitchen told the Daily News that the audit had not changed her position.

"I think the city should demand answers from the district," Kitchen said in an interview late Friday. "Accountability and answers are warranted. But still we should not turn our backs on our responsibilities to the children of Philadelphia."

A district official familiar with payroll issues, who asked for anonymity, said that some school employees who work in after-school activities for different schools are paid as independent contractors.

Nutter has voiced his support for getting the requested funds to the schools. But he has not made clear how he wants to provide those funds, although his administration has said that it doesn't want to shift more property taxes to the schools, which would open up a hole in the city budget. That leaves a tax hike to generate revenues as the most likely option, but Council has shown little appetite for such a move.

The city is set to provide $815 million in tax revenues and grant funding to the district for the budget year that starts July 1, roughly 30 percent of the district's budget.

Councilman Curtis Jones Jr., who has been vocal in his backing of the schools, said the audit wouldn't slow his call for funding.

But Councilman Bill Green said the news of the audit reinforced his belief that any funding for the schools should have strings attached.

"We don't know at this point whether there's anything to be concerned about or not . . . ," Green said. "We simply have not gotten a response from the school district on how open they're going to be."

Other members said they were not initially alarmed by the audit. Councilwoman Blondell Reynolds Brown said she had no issue with it. Councilwoman Jannie Blackwell said she would take a wait-and-see approach.

Staff writer Jan Ransom contributed to this report.