Pa. budget impasse worries local school districts

As Harrisburg's budget battle continues, school districts throughout Pennsylvania again may have to borrow and cut costs as they are forced to make do without state revenue.

With the new school year just weeks away, Pennsylvania's Department of Education announced yesterday that it would not give the state's 500 districts their first scheduled subsidy payment of more than $416 million for the 2009-10 year.

The payments were scheduled to go out yesterday.

No school district - not even the most cash-strapped - will receive money, officials said.

"We cannot legally pay anybody if we don't have a budget in place," said Michael Race, an Education Department spokesman.

The crisis is unlikely to jeopardize the start of the school year, if experience is a guide. In 2003, districts made it into December without the state funding when negotiations on an education budget stalemated during Gov. Rendell's first year.

But in today's tough economy, districts may have a harder time borrowing, said Dave Davare, director of research services for the Pennsylvania School Boards Association.

"Credit was a lot easier to get. There was a different economic situation going on," he said.

Poorer districts that depend more on state revenue and have fewer cash reserves are likely to feel the loss of the first subsidy payment the most, state officials said.

"The impact is going to be devastating for us," said Gregory Thornton, superintendent of the 4,500-student Chester Upland School District. "Failure to receive those funds would place our salaries and vendors' payments in serious jeopardy. Every bill we pay would be in jeopardy."

Thornton said the district, which receives about 75 percent of its revenue from the state, could make it through payroll today, but with then would have difficulty.

In Philadelphia, state money accounts for 55 percent of the district's budget, but the situation is not yet dire for the 167,000-student district, whose budget is $3.2 billion.

This month, the district borrowed $400 million to meet its short-term needs. Michael Masch, the district's chief business officer, said the district anticipated the budget stalemate and guessed its $29 million state payment would be late.

"It was already early July, and we could see there wasn't any budget, with no deal expected any time soon," Masch, Gov. Rendell's former budget secretary, said yesterday.

The short-term borrowing will tide Philadelphia over for now, but if the next payment - about $200 million due late next month - is late, things will become tougher.

"If we don't receive our Aug. 27 payment, we will begin to see our cash reserves dwindle very quickly every day thereafter," Masch said. "If money is not coming in, we will have to slow the flow of cash out, and that will have implications for anyone who receives a check from the School District of Philadelphia. I can't cut a check if I have nothing in the bank."

State officials said the Aug. 27 subsidy allotment - $876 million statewide - could be affected because it takes about two weeks to authorize payments after a budget is enacted.

Masch said the Philadelphia district would hope to borrow again, but in a tough economy, getting further credit "is a very big question."

And even if the district could borrow more, it would have to pay a higher premium, Masch said.

Still, Masch said he much preferred delayed payments to a budget that slashed funding.

"It's more important that we get the right budget than it is to get the budget quickly," Masch said.

Overall, Philadelphia is banking on about $1.1 billion in state basic-education money to make its 2009-10 budget work. Last year, the district received $933 million.

Some districts anticipate no problems.

"We're capitalized well enough to make it through the summer and into the fall," said Eileen Kelliher, spokeswoman for the 6,300-student Bristol Township School District in Bucks County.

Even though state revenue makes up a third of the district's budget, Bristol can get by on tax revenue and cash reserves, she said.

The West Chester Area School District called the impasse's impact negligible. Expenses in the summer are lower, spokesman Rob Partridge said. The state provides about 12 percent of the district's budget.

Many districts that invest the state subsidy will face a loss of interest income, which happened in 2003.

Some districts held off on filling positions and made other short-term reductions to save money during that year's funding standoff, recalled Davare of the school boards association.