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District spent its way into massive shortfall

City school officials have only themselves to blame.

By Christopher Paslay

The French novelist Honoré de Balzac once wrote: "Finance, like time, devours its own children." The Philadelphia School District's administrators should take a moment to ponder that. Their financial ineptitude and gross mismanagement of public money has put the children of Philadelphia in an unfortunate position.

The district's budget deficit for the 2011-12 school year, which stands at $629 million, has prompted talk of doing away with full-day kindergarten; cutting athletic, art, and music programs; and laying off thousands of employees, many of them teachers.

Last week, the School Reform Commission voted to reopen its contracts with the district's unions and ask them for more concessions to make up the shortfall. Incredibly, the commission is asking city school employees to give up pay and benefits even as the district is being audited by the IRS because of questionable accounting procedures and financial practices.

According to a recent Inquirer story, the IRS has targeted 28 areas for inquiry. It's seeking "information on reimbursements for travel and meals, the use of district automobiles and credit cards, and 'checking account data for payments that are processed outside the district's general fund.' "

City officials have also expressed serious concerns about how the School District handles tax dollars. The City Controller's Office has recommended that the district be required to present a five-year financial plan to an independent accounting authority because of "material weaknesses" found in its financial statements.

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Where's the money?

Of course, it doesn't take an accounting wizard to notice the district's financial mismanagement. The numbers speak for themselves.

In the 2008-09 school year, when district schools enrolled more than 169,000 students, they had an operating budget of approximately $2.75 billion. There were a plethora of athletic and after-school programs; there was full-day kindergarten; there were art and music programs; and all the teachers who wanted to work had jobs. In short, the district was able to make do.

During the 2010-11 school year, when enrollment in district schools had dropped to 162,000, the operating budget had gone up by almost half a billion dollars, to $3.2 billion.

The question is, where did the money go?

In the 2010-11 school year, nearly $200 million went to schools Superintendent Arlene Ackerman's reform plan, known as "Imagine 2014." The money was spent on expanded summer programs, Renaissance Schools, Regional Talent Centers, parent ombudsmen, student advisers, an expanded Parent University, improved counseling services, reading support, and reduced class sizes, among other things.

Unfortunately, the School District was investing in this ever-growing reform plan with money it didn't have. It was public knowledge that the federal stimulus money the district was receiving was temporary: It would be gone at the end of the 2010-11 school year.

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Forgotten plan

District officials not only banked on these temporary funds as if they were permanent; they also ignored the advice of their own financial planners.

In June 2008, just as Ackerman was taking over as superintendent, the District issued a five-year financial plan, for the years 2008-09 through 2012-13. Put in place to help close the budget deficit left by former schools Superintendent Paul Vallas, the plan promised "tight fiscal restraint" and assured that the district would enjoy operating surpluses in 2010-11 and 2011-12.

Coincidently, that document projects a 2011-2012 budget of $2.8 billion, which is almost exactly equal to the operating budget the School District is scrambling to balance right now. If only the SRC had followed its own financial advice, it would be well-positioned for such a budget today.

But as we now know, the district did not stick to this plan. It spent quite freely. The pending federal and city audits may help us gauge how much of this spending was proper and aboveboard, and how much of it was reckless and questionable.

However, even if the audits don't reveal questionable accounting procedures, the district's current situation suggests overall financial mismanagement, and school leaders must be held accountable for that. Students, on the other hand, shouldn't have to pay for the district's financial ineptitude, and neither should school employees.