City officials question state's timing of schools audit

Some fear negative report could undermine progress

July 15, 2004|By Liz Bowie | Liz Bowie,SUN STAFF

A state audit that found Baltimore schools had misused $18 million in federal funds comes at a pivotal time, just a week before the system faces intense scrutiny about its financial stability.

On Tuesday, the state school board plans to release a long-awaited report by a panel it appointed to investigate the cause of the school system's financial problems.

And later in the week, the school system faces a two-day hearing before a state judge and a federal judge, who will review the progress of a financial recovery plan put in place to resolve the system's $58 million deficit.

The series of reports and reviews coming at once has some city officials questioning the state's motivations.

City solicitor Ralph S. Tyler said Tuesday that State Superintendent of Schools Nancy S. Grasmick was trying to undermine the progress that had been made between the city and the city school system in overcoming the system's serious financial problems.

"We think it is inappropriate and we are highly suspicious of the timing," he said.

But Grasmick said yesterday that she made the decision to release the final audit now because she hoped she could work with the school system to resolve the issue before the start of school.

She said she has encouraged schools chief Bonnie S. Copeland to write a letter asking for negotiations between the federal and state governments and city schools.

The audit found that the city schools misused $18.3 million in federal money -- called Title I and designated for poor schools -- between 2001 and the last school year.

State officials say they will withhold the $18 million from future disbursements unless the system comes to some agreement with the federal government.

"The point is that we don't want them to be in jeopardy if this money has to be paid back," Grasmick said. "All I have done is try to accelerate the resolution process. I don't want to get into the middle of a school year and realize that this will add to the deficit. ... I think that is the fair thing to do for the children and the teachers."

But city officials say Grasmick cut off the discussion too early.

The state began a full audit this spring and spent two months at school headquarters, talking to the city school staff and reviewing documents. On June 9, the state gave city school officials a draft of the audit and allowed them two weeks to respond and rebut any of the facts. The school system's responses were included in the final audit released Tuesday.

School officials said they expected that negotiations with the state would continue, but Grasmick said her staff did not believe the system could provide more evidence that would change the state's position on the misuse of funds.

The federal government gives the city about $50 million in Title I funds a year, which is funneled through and administered by the state. Typically, the payment is about 90 days behind the expenditures the system makes.

The audit marked the first time in at least the past decade that the state has reviewed a school system's use of Title I funds. The audit was conducted after the city delayed submitting annual reports requested by the state.

The state has yet to reimburse the city about $23 million of the $50 million in federal funds it owes it for last year.

The state is threatening to withhold $18 million of that $23 million to replace the money that poor children should have received.

The loss of that much federal money could be a punishing blow to the city's $900 million school budget, which has already been approved for the coming school year.

It also could be detrimental to the school system as it tries to make its case before U.S. District Judge Marvin J. Garbis and Baltimore Circuit Judge Joseph H.H. Kaplan next week.

The judges will be hearing evidence on the financial status of the system and on whether it can continue to provide children with an adequate education as it pays back a $34 million loan from the city and reduces its $58 million cumulative deficit by 60 percent.

The arguments will be heard in a politically charged atmosphere that may test the school system's and city's ability to solve the financial crisis independently.

In March, when the school system was just weeks away from insolvency, it rebuffed offers of help from Gov. Robert L. Ehrlich Jr., who wanted more control in return for state loans. Instead, Mayor Martin O'Malley agreed to give the system a $43 million loan, and the school system took that less restrictive deal.

At the time, state leaders questioned whether O'Malley would be able to offer enough cash to right the school system's finances. And now the American Civil Liberties Union of Maryland is asking the judges to order the school system to slow down on its deficit reduction, paying it off over more than two years so that it can put more money into classrooms.

Progress is being made, said school board Vice Chairman Brian Morris. For the first time in several years, the city has not overspent its budget, and test scores have risen. The audit, he said, is being released before the process is complete.

"I am not sure who benefits from that," he said. "I can't say whether it is politically motivated, but the actions would lead one to question what the motivations are."

Until the audit was released, it appeared that the city had achieved some equilibrium after enduring months of turmoil, with the layoffs of teachers and staff, demonstrations by schoolchildren, sit-ins at school board meetings and contentious union votes.

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