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Published in Print: March 3, 2004, as Baltimore Bailout in Doubt; State Takeover on the Table

Baltimore Bailout in Doubt; State Takeover on the Table

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Maryland's plan to bail out the Baltimore city schools was in limbo last week while Gov. Robert L. Ehrlich Jr. and city officials negotiated a possible state takeover of the district's finances.

The change of course happened after Mr. Ehrlich rejected the financial plan that the 90,000-student system submitted under an earlier agreement, in which the state would have lent the district $42 million to keep it solvent past May. ("Bailout Deal Reached for Baltimore Schools," Feb. 25, 2004.)

But the district's plan didn't adequately show how the district would solve its current deficit, nor did it explain how the system would tie future financial planning to student achievement, James C. DiPaula Jr., the secretary of the state's department of budget and management, wrote in a letter to the Baltimore school board.

The Republican governor and his staff met daily last week with the city's legislative delegation and school board members to hash out a solution to the district's $58 million shortfall.

No 'Status Quo'

The ultimate solution will likely put some of the district's management into the hands of state officials, according to a spokesman for the governor.

"There cannot be solutions to the fiscal problems without restructured governance," Henry P. Fawell, the governor's press secretary, said in an interview last week. "Anything less would be preserving the status quo."

Mr. Ehrlich and his aides have been discussing various options, Mr. Fawell added, but he stopped short of saying the state would completely take over the district.

Late last month, Mr. Ehrlich promised to push a bill in the legislature to advance the district $42 million of its state funding to prevent large-scale layoffs and other cuts before the end of the school year. The governor acted after the city and a local foundation promised two $8 million loans to tide over the school district.

But before formally endorsing the legislation, the governor said that he wanted to know what steps the school district would take to dig itself out of its hole.

According to Mr. DiPaula's analysis, however, the school district hasn't done what would be needed to ensure that the short-term measures would aid efforts to stabilize its financial health.

Despite the promise of state money and $16 million in loans, Mr. DiPaula said, the district's financial reports forecast a $71 million deficit by the end of May.

"There is no certainty this $58 million [in state, city, and private money] is sufficient to meet your current needs," wrote Mr. DiPaula, an appointee of Mr. Ehrlich's.

Also last week, former state Sen. Robert R. Neall resigned as the district's financial adviser. He said the system hadn't done enough to cut costs to avert its financial crisis.

Since 1996, Maryland has helped manage the schools in state's largest city. Under the agreement, the Maryland governor and the Baltimore mayor have jointly appointed school board members and installed a new management team to overhaul the district.

In a Feb. 25 letter to Mr. Ehrlich, Baltimore Mayor Martin O'Malley said he agreed that the district's financial plan was inadequate, but he proposed a solution that would retain the district's current governance while balancing its books.

Mr. O'Malley, a Democrat, said the state could pay $33.6 million this year to cover personnel costs the state had previously agreed to pay for over the next 12 years.

"While this maneuver will remove a future ... revenue stream," Mr. O'Malley wrote, "it would address a pressing, current, and potentially ruinous fiscal condition."

In exchange, the mayor said, the district could cut costs by offering early-retirement incentives to almost 1,000 teachers who have more than 30 years in the system. With the infusion of cash from a bailout plan, those and other personnel reductions could happen this summer, ensuring the school year could end without a major disruption, the mayor added.

The governor and the mayor could also safeguard against future financial problems by appointing school board members with financial and management expertise, Mr. O'Malley added.

The focus on the district's budget problems has been a distraction from the academic progress made on student test scores and high school graduation rates in the five years since the state intervened in the district, according to one city school member.

"It's very disappointing," said Samuel C. Stringfield, the vice chairman of the city school board and a principal research scientist at the Center for Social Organization of Schools at Johns Hopkins University in Baltimore. "To detract from [those gains] is so sad."

Vol. 23, Issue 25, Page 6

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