All alone

March 10, 2004

SINKING OR SWIMMING, the city of Baltimore now sets out on its own to pull the public school system out of an intense financial bind.

At almost the last minute, City Hall managed to concoct a bailout plan Monday in such a way as to leave virtually no alternative. Baltimore's political officials cheerfully burned their bridges to Annapolis, where a state relief bill was heading for emergency consideration. That bill is now dead, and there's no going back to where it came from.

Mayor Martin O'Malley believes his plan, which involves a short-term $42 million loan out of the city's rainy day fund, can work. Most of that money would be repaid in three months, with the first regular installment to the school system of state and city funds in the new fiscal year beginning July 1. Other, very-short-term loans would likely follow as subsequent, but smaller, cash crunches develop -- short-term, so they don't drag down the city's bond rating during those times when it might actually be trying to sell bonds.

It's an extraordinary risk, because the bond rating houses have already taken notice, and because the city will be leaving itself with a very thin cushion against some other unexpected emergency. The mayor calculates that the school system now has a handle on its problems, and a viable 18-month recovery plan that was put together over the winter by schools CEO Bonnie S. Copeland and former financial adviser (and current City Hall anathema) Robert R. Neall.

Mr. O'Malley is counting on the current school board -- which is to get three new members in June -- to tighten up its act and provide tough oversight.

A few questions:

The system's unions, which twice rejected pay deferrals to help defuse the pinch, were facing state-imposed pay cuts in the Annapolis bill. Having dodged that, will they play ball with the mayor and forgo scheduled pay increases this summer?

Does everyone in the system understand that layoffs are still probable over the summer, as the schools adjust to declining enrollment?

The new fiscal year will start off with an immediate deficit, as the system pays back part of the city loan. Will the accountability be in place to ensure that that deficit isn't simply rolled over a year later?

The state plan wasn't perfect, but it did impose tight controls on the schools. Will the City Hall plan allow the system's managers to imagine that business can continue as usual?

The mayor has bought himself a school system, though the state still pays for most of it. Can he persuade the governor to go along with new school board picks? Does Mr. O'Malley understand how much responsibility he has now shouldered for the schools' performance -- financial and academic?

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