Budget & Finance

Bailout Deal Reached For Baltimore Schools

By John Gehring — February 25, 2004 4 min read
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Acting to avert a financial meltdown that could have left the Baltimore school district insolvent by the end of the academic year, Maryland’s governor, the city’s mayor, and a local foundation offered the system millions of dollars in loans last week.

Pictured from left to right are Baltimore Mayor Martin O'Malley, Lt. Gov. Michael Steele, Gov. Robert L. Ehrlich Jr., state schools chief Nancy S. Grasmick, and Baltimore district chief Bonnie Copeland. Address.

Pictured from left to right are Baltimore Mayor Martin O’Malley, Lt. Gov. Michael Steele, Gov. Robert L. Ehrlich Jr., state schools chief Nancy S. Grasmick, and Baltimore district chief Bonnie Copeland.
—Photograph by Matt Houston/AP

After several days of negotiations involving Gov. Robert L. Ehrlich Jr., Bonnie Copeland, the chief executive officer of the Baltimore schools, and state Superintendent of Schools Nancy S. Grasmick, the governor announced on Feb. 18 that he would ask the state legislature to provide a $42 million advance to the district.

The state’s offer came just days after Mayor Martin O’Malley pledged that the city would provide an $8 million loan and the Abell Foundation, a Baltimore nonprofit organization that has provided grants to the district for years, matched the mayor’s offer with another $8 million.

The infusion of money appeared to have halted the possible layoff of 1,200 employees, many of them teachers, from the 90,000-student system. Ms. Copeland had pointed to more layoffs as the only alternative to address the $58 million deficit in the system’s $914 million budget after members of the city teachers’ union on Feb. 12 roundly rejected a 3.5 percent pay reduction to avoid job cuts.

“We are pleased the school system has been able to find money,” said Carla Tyler, a spokeswoman for the Baltimore Teachers Union. “The resources are out there. Teachers are feeling proud they were able to stand their ground.”

The district has already faced significant downsizing. Ms. Copeland laid off 800 central-office employees in November, a day after she was appointed as the CEO by the school board. (“Velvet Glove, Steel Hand,” Jan. 14, 2004.)

‘Never Again’

Gov. Ehrlich’s loan offer, which must be approved by state lawmakers, comes with conditions. City school leaders must present a plan for how the system will become more accountable for its budgeting decisions, and the governor wants someone to report directly to him about the system’s ongoing financial condition.

“The governor has been very clear that he is going to demand accountability for the first time in a long time,” said Henry Fawell, a spokesman for the Republican governor. “His focus is on finding the root of the problems, and taking it out of the equation so it never happens again.”

Ms. Grasmick, the state schools chief, has already appointed a three-person panel to investigate the Baltimore schools’ finances. A former Baltimore County circuit court judge, a lawyer from a well-known Baltimore firm, and another lawyer who once served on the Baltimore County school board will report back this spring.

If any evidence of criminal misconduct is found, the information will be turned over to Maryland’s attorney general, according to the state superintendent.

The new money will be used by Baltimore school leaders to address what they are calling a cash-flow emergency for this school year. Money will help pay employees’ salaries for the rest of the year, and help pay bills for food service and maintenance provided by contractors.

While the bailout announced last week made it less likely that up to 1,200 employees could be fired, layoffs could still be necessary to address the district’s budget deficit, which has accumulated over a period of years.

“Everything is on the table, because we’re not sure how much we have to demonstrate to the legislature and the governor in terms of making up the deficit in 2004 rather than in 2005,” Ms. Copeland said last week.

If state officials end up pushing for a deficit reduction sooner rather than later, she said, salary cuts, furloughs, and layoffs will all be considered.

Financial Fix

Ms. Grasmick met with Ms. Copeland last week to help city school leaders begin structuring an accountability plan to present to Gov. Ehrlich’s administration. Meetings over the past two weeks, Ms. Grasmick said, have focused on addressing the system’s immediate cash-flow problems.

“There was an urgency in all of this,” she said. “This is about creating a level of discipline within the system and an understanding that you can’t spend more than you have. That hasn’t happened in Baltimore in a long time.”

The state has not been a stranger to working with the city schools. In 1997, a city-state partnership was formed under which the Baltimore schools received $254 million in additional state funds over a five year period. In exchange, the district agreed to let the Maryland Department of Education have a greater say over curriculum issues and other areas of academic accountability.

But Ms. Grasmick said last week that the financial problems that have plagued the Baltimore schools do not mean the city-state partnership has been a failure.

“The academic dimension of the system has improved considerably. What was not part of the legislation was a focus on the financial dimension,” the state superintendent said. “In retrospect, we should have said it would have been a good idea for more financial oversight, but you have to understand the dynamics. People viewed any state involvement as a takeover.”

Robert Embry, the president of the Abell Foundation, said Mayor O’Malley, a Democrat, told him that the governor would be hesitant to provide a substantial infusion of state aid unless immediate cash-flow concerns were dealt with first. The foundation’s loan—along with the mayor’s promise of $8 million from the city—will address those issues.

Mr. Embry said he expects the Baltimore schools to make progress. “We have a great deal of confidence in the new team that is running the school system,” he said.

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