Schools face shortfall of $36 million

Baltimore deficit forces 100 layoffs, freeze on vacancies

6 administrators cut

Russo determined to protect pupils from spending trims

January 05, 2001|By Liz Bowie | Liz Bowie,SUN STAFF

The Baltimore school system's projected deficit has soared to nearly $36 million, officials said yesterday, requiring layoffs and other potentially painful cuts.

Just two months ago, officials reported the deficit left over from last year was $5 million. But an audit by the firm Arthur Andersen increased that figure to $18.8 million.

Adding to last year's financial trouble is overspending this year which would hit $16.7 million by the end of the fiscal year on June 30 if no reductions are made.

Cutting expenses by $20 million in one year would require drastic measures and would hurt teaching, said chief executive officer Carmen V. Russo, who took over shortly after the end of the last fiscal year. She said she's unwilling to do that and believes the system will have to carry a deficit for several years and reduce it gradually.

She has taken significant steps to reduce spending, and finance officials said they believe they can make up all but $20 million of the $36 million projected deficit.

Letters went out this week to 100 temporary employees, mostly custodians, telling them that their last day of work is today.

In addition to the layoffs of temporary employees, Russo said she is eliminating six administrative positions, but she hopes to transfer those people to other jobs. She said some of those six people have teaching certificates and could fill vacancies in schools.

She is also freezing more than 100 vacant positions, will no longer allow overtime and is sifting through 60 to 70 suggestions to further cut spending. In the next several weeks, she said, the school board will be forced to make some difficult decisions.

"We don't want to hurt instruction. We have this wonderful momentum," Russo said, referring to a recent rise in test scores of elementary school children.

While a $16.7 million deficit in an $850 million budget appears relatively small, the school board has discretion over only about a quarter of the total budget. The rest goes to salaries or is federal or state money designated for specific programs.

The reason last year's deficit is much larger than previously stated, school officials believe, is that they recently discovered they are missing about $15 million City Hall owed but never paid in October 1999.

Under legislation passed in 1997, the city schools were supposed to operate independently. Up until last year, the city government cut paychecks, paid bills and collected revenues for its schools. When the school system became more independent, the city transferred more than $200 million in federal, state and city funds to the school system in a lump sum.

School officials, none of whom were in charge last year, said they believe that the transfer was $15 million short, but that no complete audit was done at the time so it is difficult to know.

"There is no dispute. We are not having an argument [with the city]," Russo said.

The city's finance director, Peggy J. Watson, concurred, saying that she is working closely with the school system to try to resolve the issue of how much might be owed. The city and the school system have agreed, she said, to hire an independent auditor.

But the school system's financial problems are not all related to the $15 million difference. The system has been spending far more than it budgeted for the past 18 months on everything from computer contracts to building repairs to teacher raises and lowering class size.

Why that occurred is not completely clear. In a presentation before the school board's finance committee yesterday afternoon, Arthur Andersen manager Jenny Toth said the audit showed that the school system had not been preparing regular financial statements.

As a result, managers did not have a current handle on their spending.

School board member C. William Struever said the board approved spending - about $10 million last year alone - on a computer contract knowing that it had not budgeted the money.

But, he said, the school board regularly requested updates on the financial picture from top management, but did not always get them.

Struever did not blame the former chief financial officer, Roger Reese and the former chief executive officer, Robert Booker, who both left in June, for the current financial crisis. But he said, "The board was clearly aware that there were issues in budgeting, finance and contracting. ... We made decisions about changing senior staff."

In addition to Russo, the board hired Donald Manekin to be the new chief operating officer and Mark Smolarz to be the new chief financial officer.

"I think we all feel deeply responsible here. I wouldn't want to say we are walking away from it," Struever said.

School officials believe the city may well agree to give them $15 million, reducing the deficit to a more manageable size. But Struever said he did not want to diminish the magnitude of the numbers.

"I figure it this way: $50,000 buys us a good teacher - and I want money for teachers - and $1,500 buys us a slot for one [child] in summer school. It drives this board nuts and makes us sad when we don't have money to give the kids what they deserve."

Reese had no comment. Booker could not be reached for comment.

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