Warnings lined road to disaster

The school board, city and state officials saw the pit opening up, but no one acted in time.

Baltimore Schools In Crisis

April 04, 2004|By Liz Bowie | Liz Bowie,SUN STAFF

For Baltimore school board member Sam Stringfield, the beginning of the end came one day last September.

Board members had worried for months about the school system's budget-busting spending. They had extracted promises from top administrators to reduce the payroll by $24 million - about 600 employees - over the summer.

And now there were grave new concerns: Chief Financial Officer Mark Smolarz had just reported the deficit was a whopping $30 million, greater than projected. Stringfield met with Shelia S. Dudley, director of human resources, and asked whether the necessary cuts had been made.

"She looked at me and said, `Sam, we have more employees than we did on July 1st,'" Stringfield recalled. "I feel like at that moment I knew what it meant. ... This is the front door to disaster."

His prediction proved accurate, as over the next few months the long-ignored financial problems brought the school system to the brink of insolvency.

Nearly 900 employees were laid off. Four of six top administrators were dismissed or left. Some students saw their class sizes grow and favorite programs eliminated.

Stringfield's meeting with Dudley epitomized the core cause of the financial meltdown: a sweeping managerial failure that began at the top with former CEO Carmen V. Russo and permeated the ranks of senior school administrators.

All the backup controls failed as well. Documents obtained by The Sun through a public records request provide new evidence that school board members and state and city officials with oversight authority saw numerous danger signs a year ago.

In fact, some of the financial weaknesses had been widely reported for at least three years. And yet, no leader responded decisively until it was too late.

A recent audit of the school system's fiscal management by the accounting firm Ernst and Young adds to the picture, as do interviews with top local and state school officials, including Smolarz's first extensive comments on the problems since he quit in October 2003.

Among The Sun's findings:

Russo and Smolarz misinformed the school board, General Assembly, state officials and the public by failing to provide reliable reports about finances and promising action they never took.

The breakdown in accountability extended beyond the board to Mayor Martin O'Malley, state Superintendent of Schools Nancy S. Grasmick, the General Assembly and governor. Under the law, they shared oversight of the system, but none saw the financial failings as their individual responsibility.

The school system lacked an effective budgeting system, and senior executives overspent their budgets by millions of dollars. Russo and the school board forged ahead with spending on summer school, high school reform and class-size reductions even when it wasn't clear they had the money.

At critical points, the school board rejected administrators' proposals to cut spending, despite annual deficits that board members themselves wanted reduced.

Two veteran, respected fiscal managers quit at a crucial time, and Russo ignored board members' requests to hire help. That left Smolarz trying to do two jobs - chief financial officer and chief operating officer.

Partnership successes

"I am embarrassed walking around town," former school board Vice Chairman C. William Struever said recently. "I feel devastated."

Struever, who joined the board after the legislature created a city-state partnership to run the schools in 1997, had seen remarkable academic improvements. Students at once-failing elementary schools were posting test scores comparable to their suburban counterparts. A new technology-oriented high school was taking shape near the Inner Harbor.

Now the gains seem jeopardized.

"There isn't a day that goes by that I don't agonize about what I could have done differently," said Struever.

What is particularly heartbreaking for Struever and other board members is that they knew full well the financial and management issues threatening the system by the fall of 2002.

Russo had gone on a spending spree with the board's approval, even as a steep increase in state revenues was flattening out. The budget rose 29 percent in six years, from $712 million in 1997 to $917 million in 2003.

She added teachers to reduce class size, put at least two academic coaches in each school and gave teachers a 5 percent pay increase for the second year in a row.

Meanwhile, two employees who might have kept a lid on spending - a budget director with more than a decade of experience, Howard L. Linaburg, and chief financial officer Henry Raymond - left abruptly in the fall of 2002.

School board member Kenneth Jones said the board erred in failing to give Raymond a two-year contract that would have protected him from retaliation.

"He was unwilling to do what he was being told to do," Jones said. "He left because he was prevented from saying the emperor has no clothes."

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