City makes mistake in rejecting state help

March 18, 2004|By Joan M. Pratt

BALTIMORE CITY should not have abandoned its state partners in its efforts to resolve the school system's fiscal crisis.

The school system has a growing cash flow deficit of about $58 million in addition to a $58 million cumulative deficit from previous fiscal years. Although it is expected that recent cost-saving measures will lead to a realized savings this fiscal year, it is still unclear how the cash-flow deficit and recurring cumulative deficit will be resolved.

The city's $42 million package from its $56.2 million rainy day fund will not resolve the school system's immediate crisis or the recurring cumulative deficit. The decision to advance $34 million to the school system was made without a definitive plan that outlines cost-containment measures, accountability measures and a debt repayment plan.

What is definitive is that the bond rating agencies are concerned, and our bond rating is in jeopardy. Although the city's proposal for the $34 million anticipates a 90-day repayment - in August - that proposal barely mitigates the negative perception of our fiscal stability as a city. Baltimore cannot afford to save our schools alone.

The short-term plans for the city to advance $34 million only to have the school system repay the city back with funding in Fiscal Year 2005, which begins July 1, amounts to the school system robbing Peter to pay Paul. The remaining $8 million would be due by June 2006.

Gov. Robert L. Ehrlich Jr. had offered to bail out the school system with a $42 million loan, but Mayor Martin O'Malley rejected the proposal March 8 and decided the city should try to rescue the school system itself.

Baltimore is about to embark on a long and difficult road. Tough decisions will have to be made that will inevitably lead to an increase in class sizes, a decrease in staffing and a lot of belt-tightening. By abandoning our partnership with the state because of proposed measures that are likely in a system whose budget is primarily salary and benefits, the school system will remain in a fiscal crisis while the city tests its fiscal stability as it approaches its own budget cycle.

The state proposal was a temporary measure that would have brought millions of dollars to the school system and an immediate solution to the cash-flow crisis. Although the proposal was not without conditions, the expectation that the school system control its budget, reduce its costs and create a structure implemented to institute the plan by the school board should have been a foregone conclusion. Critical to the school system returning to solvency will be the amount of time it will take for it to resolve this crisis.

Without a specific plan in place, a fiscally sound school system poised for continued academic achievement cannot be obtained. Sufficient accountability should include the following:

Implementation of safeguards to ensure that internal controls for cash receipts, payroll and cash disbursements are being adhered to.

Timely and periodic reports to compare the budget with actual expenditures.

Preparation of monthly cash-flow statements to ensure the school system stays on target.

Re-evaluation of purchasing so contract expenditures do not exceed contract amounts.

Negotiation of cash-flow expenditures to reduce the amount of debt.

The failure of the school board to implement the recommendations of Thompson, Cobb, Bazilio & Associates - which conducted an audit of the school system in November 2003 - Ernst & Young or the Greater Baltimore Committee and the Presidents' Roundtable amounts to neglect.

Although it is clear that the school system has accomplished historic academic success, that success will not continue without effective leadership at the school board level. The complexity of the immediate task, the size of the budget and the school board's nonresponsiveness to the recommendations it received prove that the volunteer school board cannot be successful under this current structure. An oversight expenditure control board should be implemented.

Our 90,000 students of the city school system deserve an adequately funded public education. The depth of the system's fiscal crisis cannot be solved by an emergency package from the city's rainy day fund. We cannot afford it, and a negative bond rating will impact the city's ability to borrow money in the future.

Working, maintaining and continuing to build relationships with our state partners, and not advancing a perpetual line of credit, is the most expedient and realistic solution to this crisis.

Joan M. Pratt is the comptroller of Baltimore City.

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