I was here long enough to know that if there are no 19 questions up on the board, it's time to get out of this seat. Thank you for having me back. I'm glad to be here at this particular moment. I look forward to working with all of you during the course of the next few months of the campaign. Should I be 88 5/23/07 - WHOLE - BILL 070015, ETC. successful in November, I want to have a very good, close, warm and friendly working relationship with City Council. Thank you, Madam President.
We are going to share. We're going to spend wonderful time in the sandbox. We're going to exchange our toys and information. And I'm going to spend a lot of time up here on the fourth floor of City Council from a different office. Thank you, Madam President.
Thank you, Mr. Vallas. I think we're finally ready for your testimony again, and thank you very much.
I think the Madam President asked me not to go through my testimony. Let me for the members, though, just point out a few things, because every year I present rather detailed, very specific testimony and then sometimes questions emerge that were actually in the testimony. So if you can just indulge me.
As I just summarize the document for you. And I think it will be helpful, 90 5/23/07 - WHOLE - BILL 070015, ETC. because you may have some questions that you wanted to pose, but you didn't think of. What I did in the document on Pages 2 through -- and this will go on 7 our website, incidentally, today after the testimony has been given -- is really to summarize what the District has become, about our successes in teacher recruitment and retention, the doubling of the number of kids in early childhood, the curriculum reforms, the small high schools -- we have 33 small high schools -- what we've done with school choice, what we've done on the student discipline side, and it really lays out -- it contrasts 2002 with 2007. So as you're looking at the District's budget for this year, please look at what the District has become. RAND, Mike Casserly, the Council of Great City Schools, they all came here to a public forum to discuss school reform in Philadelphia the other 91 5/23/07 - WHOLE - BILL 070015, ETC. day and they all had good things to say about the progress that the District has made, granted the District still has a long way to go. So I do ask you and I really beg you to take a look at the document. On and of the budget, we really lay out a pie chart on where the money goes and where the revenues come from. Rather than to get into those numbers, I think those numbers are pretty revealing, and the numbers do not say anything that I haven't said privately. So please take a look at those pie charts, because it shows where the bulk of our money goes and it shows where the bulk of our money comes from. And rather than to belabor the point, I think the point is pretty much there in writing. On 10, we identified, Madam Chairman, the cost drivers, the things that have been driving our costs since 2002. And the charter schools have grown 92 5/23/07 - WHOLE - BILL 070015, ETC. in cost by percent a year. Alternative education costs have gone up $47 million. We all want to be tough on zero tolerance, but that also comes with a price. Utilities have grown by nine percent. Debt service has grown by 100 percent. Let me point out for anyone who thinks that we have too much debt, you can't say we have too much debt and we're not doing enough on capital. There's five billion in identified needs. 5 billion capital plan in Phase 1. And in our second five-year plan, we have $730 million in capital over five years. So we're not done. We need 160 million a year just to maintain the physical condition of our buildings. And we all know about the neglect. Plus our employee benefits have gone up 72 percent since 2002. So, you know, if you looked at SEPTA, if you looked at the Housing 93 5/23/07 - WHOLE - BILL 070015, ETC. Authority, if you looked at the state, if you looked at all of the other governments that are walking around with a hundred-million-dollar-plus deficits, you would see the same thing. It's the same cost drivers driving our costs up. The fundamental question we have to ask, though, is what have we gotten for these cost drivers? If you look at and 12, and talk about how we've been able to finance these reforms over the last five years, and it's due to the fact that we've gotten more money from the City and it's due to the fact that we've gotten more money from the state. It's also due to the fact that we've done a lot of creative financing things and we've done a lot of fiscally accountable things in the District to reprogram dollars. Because you don't do this much school choice, you don't expand early childhood this much, you don't replace every textbook in the system, you 94 5/23/07 - WHOLE - BILL 070015, ETC. 5 billion construction program, you don't open 31 small high schools, you don't pay for four years of labor, peace and benefits, you don't have large after-school and summer school programs without doing something -- without bringing some efficiencies to the table.
So we've documented what those revenues are that we've gotten from the state and we've also documented what the savings and efficiencies that we've brought to this district. And let me point out that all of our audits have had literally no material findings. The question here is, we're just overextended because we've probably done too many charters, we've probably -- our after-school, summer school programs are probably too large. I mean, we've probably -- school choice has probably cost us more than we anticipated. The capital plan is more than we can finance 95 5/23/07 - WHOLE - BILL 070015, ETC. locally. I mean, we're carrying the entire capital plan ourselves. It's on our book. It is our debt, yet it only addresses about a third of our need. I know there's frustration over the Salzberger addition and things like that, but the bottom line is, we have a lot of needs and we just don't have enough money to finance it. On is what Councilman Clarke had requested. This lays out the '05-'06, '06-'07 shortfall in specific audited details, and this tells you why we're going to finish this year with a budget deficit, and it lays it out specifically point by point by point. And this isn't new testimony. This is testimony that I've put out. 2 percent in salary increases, 10 percent in benefits. We got hit very hard with PSERS. The state 96 5/23/07 - WHOLE - BILL 070015, ETC. retirement bill came due this year. 8 percent. So it really shows where 6 the cost drivers are coming from. 7 And in the documents in Pages 8 15 through 19, we talk about the revenues 9 and expenditure proposals in the budget, 10 all designed, in effect, to balance the 11 budget. And then on , we talk 12 about taking reform to the next level. 13 So that's an outline of the presentation, and I'll be more than happy to respond to any questions about any element of it. We've been briefing staff, as we always do. Of course, this is on our website. It is going online. Let me indicate that the request in additional money that we're requesting from the state and from the City I think are reasonable based on historical contributions. 7 percent increase in state funding. That's very comparable to what 97 5/23/07 - WHOLE - BILL 070015, ETC. we've received in the past from the state. And let me point out that all but $14 million of that money is already in the Governor's budget. There's already -- the alternative schools money has been put into the budget. The money for the EMO schools is in the budget. The money for the increase in accountability and categorical grants are in the budget. It's just a matter of us getting our fair share of that. So we're actually asking for about $13 million more than what is currently in the Governor's budget that we are either going to receive or be entitled to. So when you see a number saying we want $55 million in new money from the state, actually we're asking for a little over 13 million more than is currently in the Governor's budget to help us address our needs. And we are asking for 27 million from the City. Obviously we support Councilman Goode's resolution on 98 5/23/07 - WHOLE - BILL 070015, ETC. the millage, and we are requesting some additional funding to help us pay for our after-school, summer school programs. 8 percent increase in our City funding request. So that's kind of a summary of the budget document. We lay out our proposed expenditure cuts in very, very specific detail. With the additional money from the state, we're confident that we'll be able to pass a budget that does not dismantle critical programs if we are able to receive the additional funds. We have identified some contingencies if those funds are not received, and those contingencies are documented on . And then, finally, at the request of the Council, I provided an analysis of where we need to go to get to the next level, and that's on and beyond. And so I've attempted to cost out what district-wide class size 99 5/23/07 - WHOLE - BILL 070015, ETC.
reduction will cost us, what classroom modernization will cost us and how we might secure the money for it, expanded student behavioral supports, expanded alternative and transitional schools, dropout prevention and reduction initiatives, expanded capital initiatives. So I have critiqued those recommendations and I've talked about -- I've made some suggestions on how we may be able to address those issues. So it's a pretty comprehensive document. I'll be more than happy to talk about any aspect of it. I'm sure we'll have other opportunities to do so, but I submit the document for your review and I make myself available to answer any of the questions that you may have.
Thank you. I only ask one that's not directly yours, but one group who will be testifying, that on Tuesday, the 29th, the SRC meets. Is that true, and that 100 5/23/07 - WHOLE - BILL 070015, ETC. they'll be dealing with teacher cuts, budget cuts, school closing, et cetera?
Yes. I believe that's the date to vote on the budget. Yes, ma'am.
And they say that includes teacher cuts, school closing, et cetera.
Let me point out that our schools are losing population. Some buildings need to be closed. And we've closed a lot of buildings, but we've converted most of those buildings to small high schools. We've closed a number of middle schools that we've converted to small high schools, very successful small high schools. While test scores across the nation in high schools are going down, our test scores are actually inching up. 101 5/23/07 - WHOLE - BILL 070015, ETC. And they're not where they should be, but everyone else in -- other districts are not releasing their test scores. They release their elementary school test scores, and then the high school test scores are kind of like released on late Friday afternoons when they get the minimum coverage. Our high school test scores have been improving. Our high school attendance has been improving significantly, and our high school dropout rate has actually been declining, although it's still far too high. But the bottom line is, we've gone from six high schools making adequate yearly progress to 30 high schools making adequate yearly progress. And we've created so many high school choice options. I mean, I live in Northwest Philadelphia in one of ten regions, and in the old days, so to speak, Germantown High School and maybe King were the high schools of choice, but now you have the 102 5/23/07 - WHOLE - BILL 070015, ETC. Leeds Military Academy, now you have the Arcadia University High School for Peace and Social Justice. As somebody likes to joke, they call the military academy the war school and the peace school. We have -- there are two charters in the area serving kids. Lankenau is being converted to a Masterman type school. You look at South Philly where South Philly High School used to be the only high school of choice. Well, in addition to South Philly, Audenreid will be open in September. The Audenreid High School will be open in September. There's plans to convert Peirce to a small high school. As you know, University of Pennsylvania is very interested in putting an international high school program there, at least temporarily. We converted Palumbo to a Central High School, a Central High School type high school and we're doing massive renovations. There's two 103 5/23/07 - WHOLE - BILL 070015, ETC. high-quality charters in the area. There's -- is it Prep Charter and there's Mastery Charter. And all you have to do is visit Thomas School with the renovations that they've done. And that is in every area. And even in West Philly, the long neglected West Philly, there is a Microsoft, there is a Sayre, there will be a West Philly. As long as Sandra Dungee Glenn lives and breathes, there's going to be a West Philly, and she will follow me to New Orleans or to the ends of the earth to make sure that West Philly becomes a reality, and you'll be close behind, I know that, Jannie. And Salzberger will be converted as soon as we get the Barry kids out. So there are options. And in Northeast there's a new Lincoln under construction. Rush has been closed for a year and a half as we're converting it to a Kappa Northeast. There's a new Fels High School under construction. There's a new Gamp under construction. There's a 104 5/23/07 - WHOLE - BILL 070015, ETC. new Carver under construction, not to mention the National Constitution Center High School and the Franklin Science High School and the numerous small high schools that we've opened, not to mention seven small schools and additions that are currently under construction right now. So there are a lot of things. There are a lot more choices and there are a lot more quality choices than we've had in the past. That's not to suggest that anything is where it should be. We are light years ahead of where we should be.
And you're absolutely right, Councilman Goode, when you say that there is a direct correlation between dropouts and crime and poverty, and when you look at the individuals who are victims and both victimizers and you look at their educational breakdown, there is a direct correlation. There has been and there always will be. So obviously we have to 105 5/23/07 - WHOLE - BILL 070015, ETC. change the dynamic. But I want people to recognize that what you bought for this deficit is something pretty special, and this is a district that is in far better shape today than it was years ago, with fewer structural problems than it was years ago. But, again, we remain a relatively underfunded district, and I don't care who comes in and testifies afterwards, there's no escaping the fact that we can't do school reform on the cheap and we're going to need to step up to the plate to provide more funding. The Governor has been trying to make up for years of underfunding, 18 both this Governor and Governor 19 Schweiker, who did a lot for us, too. 20 And, of course, the City has its own challenges with the need to address the issues of public safety and infrastructure. Certainly the City's finances are stressed, too. Maybe not this year, but over a four- or five-year 106 5/23/07 - WHOLE - BILL 070015, ETC. period, you need to think long term about these things. But if you look at the presentation, I think you'll see that there is a lot to be proud of and that there has been a lot of success. And I think when Michael makes his presentation next week, he's going to conclude the same thing. We've done a lot of good things for our expenditures here, and there are more choices and more opportunities than there have been in the past. But that said and done, I think we now have the opportunity to get to the next level, and that's what I've tried to do by articulating my testimony. And I guess I ended up making by budget presentation anyway, didn't I? So I'll take whatever additional questions you might have.
Thank you, 107 5/23/07 - WHOLE - BILL 070015, ETC. Madam Chair. Good afternoon, Mr. Vallas. Thank you for your service over the last five years, and I am actually sorry to see you leave. Let me ask you two broad questions, one related to the $27 million request in new local funding. It's a two-part question. One, what does that $27 million buy us? And the second part of that question is simply, if we did nothing but the millage transfer, which would amount to about $18 to $20 million, what does that buy us?
I've got a head cold, so I didn't hear the second part of that question. I apologize, because I have like -- my ears are permanently --
The second part of the question was, if we did nothing above the millage transfer, which amounts to about $18 to $20 million, what does that buy us?
If we don't -- the 108 5/23/07 - WHOLE - BILL 070015, ETC. additional $9.2 million that we requested from the City -- I'll answer the millage question in a second. The additional $9.2 million that we requested from the City will allow us to continue to sustain what is a pretty large after-school and extended-day program and our summer school programs. I'd like to say that additional $9.2 million would buy us more summer school and more after school, but I, in all honesty, can't say that. That will help us sustain those programs. As you know, we do have one of the larger after-school and summer school programs in the country. The millage transfer will allow us to maintain the status quo when it comes to our teacher-student ratios. It will allow us to maintain our status quo when it comes to our staffing. Without the additional millage transfer, we will have to begin to attrit out teaching positions to what we refer to as our 109 5/23/07 - WHOLE - BILL 070015, ETC. contractual level, because the ratio of teachers per students right now in the District is about one to 26, and when you take out the special education teachers, it's about one to 28. And so as the public schools have lost population and as that population incidentally has shifted to charter schools -- because our population is stabilizing for the first time in a number of years. A lot of people talk about -- I saw a story that talked about the diminishing School District, and I pointed out that we still have, what, upwards to 200,000 kids in the system, because we've got the charter school system and we've got the alternative school system, and that's what's the choice, school choice. But what we've done is, through hold harmless and through supplemental staffing positions and through keeping the de-seg money in the schools, even though we're no longer required to 110 5/23/07 - WHOLE - BILL 070015, ETC. provide de-seg funding, we've been able to, in effect, staff beyond what the ratios that we're required to staff by in our contracts. Now, is that enough? No. We need to hire more teachers, but the millage will allow us to sustain those additional staffing allocations. Because right now, look, we have too few counselors than we have kids, but we have more counselors than we're statutorily required to have. We have too few nurses than we have children, but we have more nurses than we're required to have. But being able to sustain those levels and even slightly increase those levels is going to depend on the millage, in all honesty. So I think we'll be able to stabilize the system to maintain the status quo from a staffing standpoint if we get the additional money. If we don't, we're going to then start to -- we're going to have to reduce our 111 5/23/07 - WHOLE - BILL 070015, ETC. numbers. I'll also point out, too -- and I think when CFO Masch makes his presentation next year -- the cost drivers this year are very high. The cost drivers next year are much, much lower. Where we had 150 million plus in cost drivers this year, next year our preliminary cost drivers are $45, $50 million. Why? Because all of our contracts are up, our labor contracts, everything. And our expenses are always -- the expenditure increases are always smallest in the first year of our contract agreements. They're always highest in the last year of our contract agreements. So if we are able to structurally balance this budget and get additional money this year so that the budget is balanced, not on one time but the budget is balanced structurally, it will put us in a position to begin to run -- we will run a surplus next year 112 5/23/07 - WHOLE - BILL 070015, ETC. and we will begin to rebuild our fund balance. So we've introduced a status quo budget plan, a status quo budget plan for this year, but if this budget is structurally balanced -- I mean permanent revenue base with expenditures -- then it will put us in a position to have more flexibility to begin to do additional things next year.
Well, the state resources help pay for the reforms, too. We are trying to get -- this is the additional money we're requesting from the state that is not in the Governor's budget currently, and it's about 14, 15 million -- it's 13 -- I think it's $13.2 million.
Can you tell me about the first portion before you get to the additional 13 million?
Well, first of 113 5/23/07 - WHOLE - BILL 070015, ETC. all, there's money in the budget. I believe there's about $22 million in the budget, and those are our basic grants, the special grant, the General Fund grant. And let me point out that that's not a lot and that barely allows us to maintain the status quo. In fact, that money is less than our salary increases, our compensation. Certainly you saw what we got hit with in terms of PSERS, a ten percent increase. So, clearly, that does not cover the cost increases for special ed and the cost increases for general School District operations. We are requesting that the $22 million for alternative school funding be restored, in addition to the basic grant and the special education grant. And that comes to about $22 million. We are also requesting that we get our fair share of money that is put in the Mayor's budget for early childhood all-day kindergarten and technology. And we've already dramatically increased our 114 5/23/07 - WHOLE - BILL 070015, ETC. early childhood programs. We got 50 percent more kids in early childhood than we've had in the past prior to 2002. We have one of the large early childhood programs in the country. And we already do full-day kindergarten. So we think we should get our fair share of that. And it could be as high as $30 million, although we're only counting $15 million for budget purposes, because we want the flexibility to do that. I'm also asking the state for the flexibility to spend our education support dollars. They give us this EAP money for tutoring, supplemental education services. I'm asking for the flexibility to spend that as we see fit rather than to spend it in a very restricted way that the state sets for us. I'm also asking for a full reimbursement for the statutorily required reimbursement for our charter expenditures. We're supposed to be 115 5/23/07 - WHOLE - BILL 070015, ETC. reimbursed at 30 percent. We're reimbursed at about 27 percent. We're appreciative of that. I'm also asking for our funding for the new autistic grant reimbursements, and that comes to about 3.2 million. If you look at , it lays it out in detail what the additional requests are. And, again, what's missing from that is the three percent increase in the state's basic grant and special ed grant. That's worked into the base. So that's what we're requesting. And all but 13 million of that is currently in the Governor's budget, and what's not in the Governor's budget is the transportation reimbursement for charter schools, the charter school reimbursement funded at the -- mandated at the statutorily required level and the earmark for special education services for the autistic grants. So really, we're asking for the 116 5/23/07 - WHOLE - BILL 070015, ETC. state to fund the mandates and to give us the flexibility to -- we're asking the state for fair share. We're asking the state to fund some of our critical mandates, our state mandates, and we're asking for the state for flexibility. Those are the three things we're asking them for. And that's kind of where we're at. We're also hoping that they don't cut the EMO money, because let me point out, even though in this budget we do recommend a reduction in EMO spending, we are spending upwards to $70 million on contractual educational services, be they supplemental education services, after-school, summer school programs, privately run schools, university partners. So I think we can make alternative schools -- because we don't get fully reimbursed for alternative schools. So I think I can make a case to the Legislature that even though we're 117 5/23/07 - WHOLE - BILL 070015, ETC. cutting back on funding for the private managers, we are still spending far more than we're getting reimbursed by the state for contractual educational services.
Thank you. One last question, and I will end where we began. You may not remember where and when you met me, but I actually met you after you were hired on the Parkway at Unity Day and had the opportunity to ask you a few questions about what your tenure would look like, and one of the questions I asked was about inclusion in terms of contracting by the School District, and your answer was very direct and you said that you had been very successful in Chicago, that you opened up contracting, and the biggest thing was about opening contracting in terms of new contractors would lead to more diversity.
And I believe that you've done that. And I 118 5/23/07 - WHOLE - BILL 070015, ETC. salute you for what you have done in the School District, which has not been done pretty much anywhere, particularly within local government, but that brings to me the concern --
-- that there are severe cuts to the Office of Minority Business Development within the cuts that are outlined here, and can we actually sustain those cuts, particularly because while we don't talk about it a lot anymore, there was a time when many people believed that the school Board was just there for patronage purposes, the school Board was just there to pass out contracts and jobs, that people did not care about the education of the children in the City, and that people looked at it as basically one of the political tools by which they gained power and kept power. I believe that your approach has been different, particularly because 119 5/23/07 - WHOLE - BILL 070015, ETC. you've opened up the contracting and particularly diversified the contracting. Is this office not crucial as we move forward? One, because in view of the fact that you are moving on, in view of the fact that there are some other political plays in motion right now over governance and control, and some of them may be related to patronage, shouldn't we make sure that a system is kept in place --
-- that ensures diversity and ensures that there's openness in terms of contracting?
Well, first of all, let me respond, I've never viewed that office, as you correctly pointed out, that we don't view that office as a patronage office. That office has been important, and it's been very modestly funded, and it has spearheaded our efforts to bring more diversity to our contracting. And so let me just say that 120 5/23/07 - WHOLE - BILL 070015, ETC. my bosses will weigh in on that and I think that we'll reach a resolution that people will be satisfied with. I also want to say that it's been very easy to push these initiatives when you've had a School Reform Commission who has really made diversity and inclusion a top priority and, through Jim Nevels and, of course, Sandra Dungee Glenn, constantly asking for monthly updates on contract allocations and things of this nature and, of course, Marty Bednarek and others. They've made this a top priority. Also, as you're looking at our diversity, too, look at the leadership positions, too. We've had an extraordinarily diversified staff, and the majority of our principals in this District are African-American. And it wasn't because we're seeking out to do -- we don't have quota systems in the District. We sought out the best candidates, and the best candidates are 121 5/23/07 - WHOLE - BILL 070015, ETC. running our schools. And the majority of our principals, for the first time in the School District's history, are African-American principals. So, again, it's easy to do when you've got a School Reform Commission that has really made this a priority. It's been easy for me. I think this thing will be resolved to everyone's satisfaction.
So you plan to be around to -- because during your response to Councilman Goode's question, you referred constantly to "I will do this" and "I will do that." Do you plan to be here to manage the budget 122 5/23/07 - WHOLE - BILL 070015, ETC. process in Harrisburg?
Well, the Governor has asked me to stick around until the budget process takes its course. Now, that, of course, could be August, which may -- because the Governor has a reputation for holding out until he gets his priorities met, and that's -- and sometimes you need to do that. So I am going to continue to be available beyond June at the School Reform Commission's request, and it will really be up to them to determine what that need is.
Who is managing your process in Harrisburg? Do you have lobbyists or someone who is there --
Of course. We have Lee Whitaker and Hugh Allen. I mean, they've done -- I don't think there's -- I've worked with some terrific intergovernmental people, but I'll be honest with you, when I robbed from the 123 5/23/07 - WHOLE - BILL 070015, ETC. City Council, and literally, I robbed from the best. They have been absolutely fantastic. They have been absolutely fantastic. They're tireless. They're extraordinarily loyal, but they require competency as a prerequisite for loyalty, and they have really -- I mean, they have a way of just communicating and making things happen. They've also been the public service end. I don't think there's a Councilperson who has called me in the past five years that we've not attempted to be responsive to, but as you know, it's easy for me to be responsive when I can hand the ball off to Lee Whitaker or Hugh Allen or ask Heather Fatone or, for that matter, to ask the chief. So they have really managed the intergovernmental aspect of our system for the last -- really since Tim Spreitzer's departure, and they, of course, did a lot of the heavy lifting when Tim was here, too. And they've done 124 5/23/07 - WHOLE - BILL 070015, ETC. a superb job, and they are very respected down there, just as -- up there, just as they are with City Council. So they're going to continue to manage that process for us. And, of course, I'm sorry. Bob O'Donnell also is our permanent lobbyist in Harrisburg, and I wasn't in any way not trying to denigrate him by omitting him. He's just been an institution down there. But the people that I work with on a day-to-day basis have been Hugh and have been Lee and Heather. In fact, they're inseparable. So they've really, really done a spectacular job.
In listing your number of accomplishments, you do give discussion on of your 125 5/23/07 - WHOLE - BILL 070015, ETC. testimony to the recruitment and retention of teachers, and for sure when you came in 2002, that was a major hurdle that the School District faced. Speak to the retention of teachers to date.
Well, our first year retention rate has significantly improved. It's gone to about 91 percent from 73 percent in 2002. It's too early to make a call on long-term retention. I think those rates are slightly better, but, again, we're still attriting out over a four- or five-year period. There's different views on whether or not that's bad or good. There's going to be some attrition. People are changing professions now more than ever before. But we've had a much better job filling vacancies in all of our schools and we've had a much better job at least initially retaining those teachers. And generally if we keep them for one or two years, they're going to stay longer. I think 126 5/23/07 - WHOLE - BILL 070015, ETC. there's a lot of reasons for that: the standardized curriculum and instructional models, the professional development, the coaches that are assigned to the teachers. Now, we have cut back on the citywide first-year teacher coaches, but we are restructuring our school-based coaching to compensate for that. But I think clearly we're starting the year with far fewer vacancies and we're carrying far fewer vacancies than we ever have in the past, and we have far more applicants than we have slots. I'll tell you, there is one program that's been invaluable in helping us recruit and I think helping us with our early retention, and that's the University Intern Program. That's where we subsidize university students to come and work in the District. And people don't realize that this year we had over a thousand university students working in our school system as student teachers. 127 5/23/07 - WHOLE - BILL 070015, ETC. We had about a hundred counselors. We have close to 1,200, 1,300 university students working in the District in a variety of capacities. And what this does is, it gives us almost like a triple A team. Because teachers come in and when they go through the subsidized student-teacher program, it allows us to attract three times the numbers that we used to attract. We used to attract about 330 a year. Now we're over a thousand. They also come in and they've given the curriculum instructional models, so they can become an asset to the classroom almost immediately, because they also go through training similar to first-year teachers. So they're immediate assets in the classroom. But what also happens is, we now have a larger number of potential teacher candidates who have spent time in our schools. So when they come and apply for jobs, it's not like future shock, 128 5/23/07 - WHOLE - BILL 070015, ETC. because the teachers that a lot of times leave right away are teachers who have no 4 familiarity with our school environments. But when you have a teacher that has done a semester student teaching and maybe the second semester has worked as a teacher aide or maybe they've worked as a tutor or maybe done some work in the after-school program, when they apply for the job, they know what they're getting into. So I think those programs have helped us. I will tell you this, though, the best way to recruit and retain teachers is to pay them and to compensate them and to reduce class sizes. So I think while we've made gains, if we're going to have long-term gains, we've got to finance class size reduction. And there is nothing in this budget or nothing on the horizon that will allow us to reduce class sizes to the degree that we wish to reduce them without significant increases in funding. I've 129 5/23/07 - WHOLE - BILL 070015, ETC. told the Governor that and the Governor's staff and I've told Michael Masch, because Michael has asked me that class size reduction question. I said if the state can increase the accountability grant by $50 to $60 million a year, our share of that would enable us to, in effect, add another 150 teachers to the budget in each of the next three years. So just a reasonable increase in the accountability grant earmarked for things like class size reduction will allow us to begin to make progress.
But short of those things happening, we're going to continue to struggle just to kind of maintain the status quo.
Speak to the need for special interest area teachers, math and science.
Well, our biggest shortfall this year, critical shortfall, has been ESL teachers, and we're always -- we always have more shortages in math and science than we've had in the 130 5/23/07 - WHOLE - BILL 070015, ETC. past, but we haven't had a lot of serious shortages. There's still the problem of certain schools having more shortages than others, although with the improvement in recruitment and with programs like Teach for America, which has been very widely embraced and supported by the principals -- and our Teach for America teachers have done very well -- we've begun to address some of the shortages and some of the staffing shortages in some of our more distressed schools. But, clearly, high schools remain a bigger challenge than elementary schools, although the small high schools have proven in many cases to attract more teacher candidates than some of the large behemoth high schools. And we continue to have some shortages in math and science. But Sean Krauter can speak to this specifically, but I think our problems are not severe in nature. Our big problem is getting the more 131 5/23/07 - WHOLE - BILL 070015, ETC. experienced teachers into the lower-performing schools and the more isolated schools, and that's going to continue to remain a challenge for us, and getting stability in the more economically isolated schools where there is a lot of mobility. Your more affluent schools, which, of course, we don't have a lot of, and your less racially isolated schools do have a tendency to have a little more stability in terms of teacher staffing than perhaps the more racially isolated and economically isolated schools.
Okay. On of your testimony, you talk to a number of causes that have resulted from this year's deficit. So walk through them and let us know lessons learned, since you've indicated that you anticipate some level of surplus next year.
The lessons learned, don't try to balance the budget 132 5/23/07 - WHOLE - BILL 070015, ETC. based on anticipated property sales. So, I mean, we came up short there. Even if you've actually sold the property, there's always Common Pleas Court to hold up that -- the Durham building, the classic example that we sold for 6.6 million and it was challenged in court, and we still haven't sold that building.
So what's the status of -- oh, you still have not sold it?
We still have not sold that building. We're still hoping. And, again, the building continues to remain idle, but there was divisions within -- well, there were groups who challenged that sale. But the District has a lot of buildings. And, look, we've closed a lot of buildings, but all but a handle of the buildings have been converted to schools, to small high schools, new schools. Believe me, we haven't done a lot of wholesale just closing of the buildings and closing them 133 5/23/07 - WHOLE - BILL 070015, ETC. down period. But the population has declined in some of our older buildings, and we can't go to Harrisburg and say, We need more money, when we're not closing buildings that are half full or a third full, not when -- Pittsburgh is going to close another buildings. Pittsburgh, 9 I think, this year has like a projected 10 budget deficit of like 50 million plus, 11 and they're, of course, one-sixth our 12 size. And they're closing 20 buildings 13 and consolidating and things like that. 14 Our dilemma here is, we don't 15 want to close buildings and then make 16 schools bigger when we're trying to make 17 schools smaller. So in many of our 18 schools, the population hasn't reached 19 that threshold, like the Key School. 20 There was a push to close the Key School, but the Key School, even though it has half the kids that it used to have, but it's a good school and it has 430 kids.
Where is that? 134 5/23/07 - WHOLE - BILL 070015, ETC.
South region. South region. But the Key School has 430 kids. That's kind of an optimal size. So that's our dilemma, where in other cities, like Pittsburgh that have 140 kids in a school or 160 kids in the school, those buildings need to be closed or consolidated. But that's a challenge that we're -- but I digressed from your specific question.
Oh, yes. Let me go through a few others. What lessons have we learned? Well, look, we always budgeted based on a historical salvage, and that's unspent expenditures. It has always been about $25 to $30 million, and in '06 we salvaged $6 million. Part of the reason was, I think, the local budgets were squeezed, so people went out and I gave people flexibility to move money around. That's what they did, they spent their money. I can't criticize 135 5/23/07 - WHOLE - BILL 070015, ETC. people for what they spent their money on. We just didn't get our historic salvage. So what we did was, we reduced our salvage rate. Like this budget we're assuming a much smaller salvage level than we have done historically. The same thing with term pay. We paid $30, $31 million in term pay, about million, 10 million higher than 11 was budgeted. Well, we're budgeting term pay at a much higher level. So I think what we've done in terms of learning our lessons is, we're being much more conservative on those unknowns, what's our salvage going to be, what's our term pay going to be, what's our severance payout going to be. So we're budgeting conservatively. I mean, I could easily budget at historic levels and bring down kind of the initial budget deficit for this year by $20 or $30 million, but we refuse to do that. So we're basing our budgets on a much more conservative assumption, having been 136 5/23/07 - WHOLE - BILL 070015, ETC. burnt in '05-'06, and basically what we're saying is, if our salvage is higher and if our term pay is lower, great, we'll have a surplus. We'll run a surplus or a larger surplus. And so we want to err on the side of -- just as the City has done, the City has budgeted conservatively and I think they've reaped the benefits for that. But there's an urgency to do things when you're dealing with children. I mean, there's an urgency. We put 117 teachers back in the budget in June. Why? Because schools -- because at the end of the budget process, schools were still saying, Look, we need more staff. So we surveyed the schools. We said, How many more teachers do you need? And we got like 180 requests back and we added 117. And we gambled that our salvage for the year would cover that. Well, it didn't. And maybe it was a mistake to make, but all I know is, those 117 teachers probably sure made a big 137 5/23/07 - WHOLE - BILL 070015, ETC. difference in the schools that they were working in.
Now, you also mentioned that the charter school payments were higher. Is the School District obligated to continue to open up charter schools?
Yes. And we don't -- the charter school formula sometimes can work against us, because the charter schools -- as our population declines, the District's population, and as the funding per pupil goes up, that average per-pupil funding number is then used to calculate the charter reimbursement. You see what I mean? So as a consequence, I mean, the charters benefit. It actually provides kind of a residual benefit. And I'm not criticizing that. I think charters deserve to be adequately funded, and a lot of charters are doing a great job. But the charter program, it has certainly created some degree of financial stress. 138 5/23/07 - WHOLE - BILL 070015, ETC. This year we're going spend $237 million in charters. And someone from the back just shouted off on that. But that doesn't count the 10, million 6 that are being spent on these cyber 7 schools. The state has approved these 8 cyber schools and they just sign up kids 9 and then we got to pay regardless, 10 because we have no control over the 11 cybers. And, of course, the state is attempting to get some control and to bring some accountability to the cybers. And I'm not making a value judgment, but the bottom line is, we could be looking at a charter bill of about, by the time we're done this year, $245 million and next year $270 million. And that's a lot. And while we get reimbursed for a portion of the charter expenditures and while we -- obviously there is some -- as you reduce the number of students in traditional public schools, obviously you have to hire less staff. Unless those schools are closed, you don't get that 139 5/23/07 - WHOLE - BILL 070015, ETC. dollar-for-dollar savings, because, great, Keys has 430 kids instead of 530 kids. They may lose a teacher or two, but you still have to operate that building, maintain the support staff, you still have to have principal, assistant principal. So, clearly, charters have contributed. The biggest funding increase has been for charters. That's why it's important that the state work -- and Dwight Evans is helping us and Vince Fumo has helped us -- work to get us reimbursed for the 30 percent on the charters, and that's what we're trying to get, a parochial school type reimbursement for our charter transportation costs. And the School Reform Commission -- and I can't speak to that. I'll just generalize -- is looking at a way of coming up with a charter policy that, in effect, kind of not only controls the growth, but we're trying to -- I don't want to say cap the charter 140 5/23/07 - WHOLE - BILL 070015, ETC. population, but we're trying to have a more manageable charter population. I mean, maybe if a school is failing, it should be converted to a charter. Just as if a charter is failing, it should be converted back to a public school. So we can have more revenue-neutral charters. So, for example, if we need to open schools to relieve overcrowding, you open a charter because you have to open the school and it's got to be open. You've got to relieve overcrowding. Or if you want alternative schools, the Commission is considering proposals for three alternative schools that are charter schools. We need more kids in alternative placement. There's some charter experts out there that can provide quality alternative placement. So what we need to do is, we need to be less free and open-ended in the approval of charters and to come up with a more rational -- because 20 percent increase a year in funding, I 141 5/23/07 - WHOLE - BILL 070015, ETC. mean, $270 million is a big chunk of our budget. That and the cost of debt service and the cost of employee benefits, particularly healthcare and retirement benefits, constitutes the bulk of our costs. It's not spending on governmental operations.
Now, you mention that you advocate for more schools that are tied to discipline. You just used another term. Yet, you stated in your earlier testimony that there's not full reimbursement from the state for disciplinary type schools.
Yeah. The state has paid for the expansion of our alternative schools, but they do not reimburse us for the full cost of our alternative schools. And so we get -- and really the former Speaker of the House single-handedly was able to secure us 22 million, and he's put the 22 million back in the budget this year, too. Every year he puts the money back 142 5/23/07 - WHOLE - BILL 070015, ETC. in, and he doesn't -- he won't support the budget unless that alternative school money is in there. So he continues to be heroic on this despite the outcome of the House election. But we don't get fully reimbursed. And we need alternative schools not just for zero tolerance kids, we need alternative schools for overage underachieving kids. One of the proposals of the dropout prevention initiative, Project Leap, which speaks to the very issues that Councilman Goode appropriately lectured me on the last time I was before this body, was -- I mean, one of the things that they propose is to create a series of transitional programs for these overage underachieving kids, because the overage underachieving kids are the kids that are getting into trouble and the kids that are dropping out. And if we can get overage underachieving kids in these small transition high schools, like 143 5/23/07 - WHOLE - BILL 070015, ETC. Youth Build -- some of them are charters -- and others, like the wonderful school Camelot runs up in the Northeast, they won't drop out, they won't get into trouble. And we'll get sometimes a very challenged population out of the general schools, which will ease the impact on the general schools. So the School Reform Commission under Mr. Nevels' direction is looking at opening transition -- approving charters that take alternative school kids. Everybody accuses charters of taking the best kids. I think charters take any kid who applies and gets through the lottery, but we're looking at alternative school charters, transition schools. Vernard and I have talked about the need to open these transition schools, and the charter route is one way to do that. Plus if we get reimbursed for that charter and we're taking troubled kids out of our main schools and putting them in charters and then getting the charter reimbursement, 144 5/23/07 - WHOLE - BILL 070015, ETC. then that becomes a win for us, that becomes a win-win situation.
On 20, you talk about taking reform to the next level. In the items that you cite there's no discussion or mention of vocational training and where the District is with that and where it may need to go for young people who simply aren't college material. Can you speak to that?
Drop down to 6, and I can give you the more -- there's an attachment that goes with this. The attachment is based on the findings of Project Leap and the dropout prevention initiative. What we're pushing for is dual enrollment in not only dual enrollment programs and not only college courses, dual enrollment in job-training programs and vocational ed.
I'll tell you, Time Magazine's article, their special 145 5/23/07 - WHOLE - BILL 070015, ETC. edition, a story called "Dropout Nation," focused on why inner city kids -- why poor kids drop out, because they looked at kids in the inner cities, suburbs, rural areas, the Appalachian, and they said for two reasons. Forget about they're not prepared for high school, because somewhere along the line they weren't motivated to do well enough to prepare for high school. So what zapped them of their motivation? And they said there's a perception out there among many low-income children that college is not an option and that it's not affordable and that it's not financially affordable, so they go through elementary school not viewing high school as a way to go to college and a job and things like that. So they don't have an incentive. I mean, project -- Chaka Fattah's initiative to --
The GEAR UP program. I had a mind freeze for a 146 5/23/07 - WHOLE - BILL 070015, ETC. second. The GEAR UP program was designed to address that very issue, to begin working with the middle grade kids and beginning to convince them that college is an option. So what we have said in Project Leap is, if we could do two things, if we could have early college and dual enrollment in every one of our high schools, so every one of our high schools was connected to a college and university -- and there's only, what, 80 colleges and universities in the Philadelphia metropolitan area?
If we could do that, if every high school could be connected to a vocational technical educational program, like the 250 kids in the Sunoco -- I'm sorry; in the Sunoco training academy at Bok, when they get out of Bok, they can go right in to get a job at Sunoco. And if all of our schools can have work study so that every kid 147 5/23/07 - WHOLE - BILL 070015, ETC. knows that once they get into their junior and senior year there's a work study program available to them -- remember the summer jobs program back in yesteryear where like in Chicago 18, 19, thousand kids would work the summer? 8 They were all put in work study, things 9 like this, the old CEDA program. If we 10 could do those things, we could do more 11 to turn the tide on dropouts than 12 anything out there. 13 But dual enrollment and early 14 college, while it's not going to take a 15 lot of money, because the high school 16 office is looking at restructuring our 17 curriculum so that many of the electives 18 and many of the courses that are taken in 19 the high schools can be substituted for 20 university courses or courses at the Community College and things like that, so we can have some course substitution. And we're working with Dwight Evans and we're working with the Governor's Office to try to get funding for dual enrollment 148 5/23/07 - WHOLE - BILL 070015, ETC. type programs. But if we could have a system-wide work study program where every kid had a job-training opportunity or had a paid work study opportunity, if you told the kids entering high school, If you stay in high school and get to your senior year, you'll be in a paid work study program and you can actually take courses at a university, community college, vocational technical educational program for dual credit, the kids aren't going to drop out. When I walk through a high school, if I shout "job," I have 20, 30 kids surrounding me. The most asked question by a student isn't "I'm getting bullied" or "I'm afraid to go to school." The most asked question is "Can you find me a job somewhere." So that's something well worth taking a look at. And I've suggested that as the casinos come in, maybe each dedicate $5 million to a work study program so that we can put our high 149 5/23/07 - WHOLE - BILL 070015, ETC. school kids to work. You know what it is? It's the Fattah Mayor program -- the scholarship program taken to another level. There's a high school in Chicago that's called Cristo Rey. It was started by the Jesuits. And leave it to the Jesuits always to be the great innovators that they are. And all the kids who go to that high school are in paid work study, all of them, and they graduate 95 percent, 98 percent. It's 99 percent poverty, and the majority of those kids go on to college, community college and they go on to a job. So I think you're on to something here. Early college, dual enrollment, work study I think can have a transforming effect, can have an absolute transforming effect, that you're not going to have to wait five or six or seven years to get results from. I honestly believe that. But I also honestly have to admit that we don't have 150 5/23/07 - WHOLE - BILL 070015, ETC. the capacity to provide those services in the schools. That's going to require that someone else step up to the plate and provide the funding for those initiatives.
Finally, there was no discussion or mention on the status of beacon schools, where they are.
They're alive and well. They are. They're alive, thriving, and our schools remain open for all the Safe and Sound programs.
Well, the issue always is what's going to happen in August, because there's always a fight, because we got to get our buildings cleaned. And the shorter our duration to go in and get the buildings up to speed, the greater the cost to the District, not 151 5/23/07 - WHOLE - BILL 070015, ETC. only the delay. So believe me when I say it's us not trying to tweak the City.
It's us trying to allocate enough time to go in. Because our buildings are very old and very worn out, and when we have a two-week window to go in and clean -- and I don't care what you say. If you have a summer program, you can clean one side of the building and not the other side, but some of the buildings you can't do that to, because they're not that large and they're smaller and it is difficult to do. So that issue is clearly one of cleanliness. But we're going to slug it out, and at the end of the day, the School Reform Commission will tell us what to do on that. Sandra Dungee Glenn and Marty will weigh in on that before we're done, trust me on that. But beyond the debate over whether or not we close our buildings in 152 5/23/07 - WHOLE - BILL 070015, ETC. August for cleaning or we wait until the second week in August, that's always kind of a slug fest. Fortunately, I'm going to defer to someone else to make that decision.
Mr. Vallas, let me echo Councilman Goode's comments. You have done an admirable job on the toughest of circumstances. So we thank you for the difference you've made in your tenure here.
I keep on calling it Project Leap. It's Project U-Turn. It's the youth collaborative. But you know me. I call my son Paulie "Gus" and I call Gus "Mark," and they just -- as long as I'm speaking in their direction, they respond regardless of what I call them. I'm getting worse as I get older, 153 5/23/07 - WHOLE - BILL 070015, ETC. too.
Thank you, Madam Chair. I want to also echo the comments of my colleagues on the job you've done over these years, Mr. Vallas. Just quickly, when you talk about the state money that has not been committed yet, what feelings do you have, either you yourself or reports you've gotten, of the likelihood of that funding coming through? I mean, I know you can't predict it totally, but --
I'll tell you, the basic grant, three percent grant, which is already in the budget base, that's going to happen no matter what. The alternative schools money will be put in the budget or we will downsize the alternative schools. It's as simple as 154 5/23/07 - WHOLE - BILL 070015, ETC. that. So get them screaming and lobbying. You can't talk to us about law and order, I can't get lectured about not moving fast enough to transfer students to alternative placement and then take the funding away. And obviously the former Speaker has made it a priority, as he always has, and he's always been extraordinarily supportive of us, and he still carries a little clout in the House. And I know Dwight Evans is supported and the Philadelphia Caucus is supported and, of course, Senator Fumo in the Senate and Senator Williams, they're going to work on our behalf. So I think we'll be okay. The additional money, I'm not sure. We're trying to get full reimbursement on the charters. I say it's a 50/50 proposition. Representative Evans is going to pass a budget into the Senate that has our stuff in it, but then, of course, it will go into 155 5/23/07 - WHOLE - BILL 070015, ETC. conference committee and then who knows. If we don't get the additional transportation reimbursements, we're going to have to come back here and we're going to have to do some transportation cuts. We're going to have to start cutting things that we're not mandated to provide. Let me point out that we spend about $96 million on transportation. And, I mean, we bus everybody, parochial, private school kids, public school kids. We bus everybody, special education. Our bussing mandates are killing us, and we don't get fully reimbursed for those. The Governor has put $160 million in the budget for certain categorical grants, like early childhood, technology, classroom of the future, accountability grants. Our fair share of that should be more than $15 million, but we're only budgeting $15 million. So we're hedging. We're assuming that the Governor is going to -- that if the 156 5/23/07 - WHOLE - BILL 070015, ETC. Governor gets less than what he had anticipated or if he has to compromise, that we're not caught short-ended. So we're not saying, Oh, there's 160 million, we should get million of 7 that. So I think we're trying to budget 8 conservatively on that number. 9 And for the rest, we've really 10 asked Senator Fumo and others to give us 11 maximum flexibility. Anything coming out 12 of Harrisburg, we want maximum 13 flexibility. We don't want to be told 14 how to spend the money. We want the 15 flexibility to move that money around. 16 So if we're able to get a lot 17 of technology dollars -- well, we got a 18 pretty sizable technology program 19 ourselves. Maybe we're going to use some 20 of that money for class size reduction or 21 maybe we're going to use some of that 22 money for counselors or maybe we could 23 use some of that money to fill some of 24 our special education vacancies. 25 So I'm reasonably optimistic, I 157 5/23/07 - WHOLE - BILL 070015, ETC. mean, that we're going to come close to getting from the state what we've asked for. And, of course, I feel more optimistic because Michael Masch has been so involved and so immersed, and he's told me that what we're requesting is reasonable, I mean, given our track record, given our results, and I think he'll testify to that effect next week. So I'm hopeful. I'm hopeful that we'll come close to getting the money.
Thank you. Mr. Vallas, we're going to ask you to allow us to let some other people come and testify, but don't leave, please. We have other people here who want to testify. We may call you back.
I'm going to step out for about ten minutes. I have to return a couple emergency calls. I'll be there at the door. Thank you so much. 158 5/23/07 - WHOLE - BILL 070015, ETC.
Thank you. The Chair calls Ms. Barnett, Jacqueline Barnett.
I just want to thank you for this opportunity to testify on behalf of the School District. And before I begin, on behalf of the Mayor, I want to acknowledge the five years of service by --
Jacqueline Barnett, Secretary of Education. I beg your pardon. I just want to acknowledge Paul Vallas and the SRC for five years of dedicated service, and a lot of their efforts certainly have given the District quite a bit of hope. And I'd like to say on behalf of the Mayor that in fact we are on the right track, and through their 159 5/23/07 - WHOLE - BILL 070015, ETC. dedicated and tireless leadership, the School District has implemented reforms that have improved the quality of our schools. They provided greater opportunities for our students and built on the academic foundation for moving towards what has always been our shared goal: providing a first-class education for all of Philadelphia's children. While our discussion today is focused on the District's finances, we can't lose sight, nor should we minimize the achievements that have been made. Notwithstanding the progress that has been made, we have not achieved as much as we must if we are to provide our children with the education they need for their personal fulfillment or for them to assume successful, meaningful employment in our local economy. The District has achieved significant gains in K to 8, although our high school level reforms certainly leave room for improvement and are more likely 160 5/23/07 - WHOLE - BILL 070015, ETC. to be achieved with reduced class size and continued implementation of the small schools initiative. Class size reduction is central to reform and we strongly discourage any gap-closing measures that would compromise the District's ability to move toward smaller class size. From the middle years through high school, our truancy rate remain a cause for serious concern, as they indicate that students need additional support to complete high school and pursue higher education and to mitigate the troubling dropout rate. The City is currently exploring ways to increase contributions to the School District, because we believe that these reforms must continue. We participate in ongoing discussions with the state and the District regarding the additional funds necessary to support the District, and we hope that in concert with the additional funding from the City, the Governor and the General Assembly, we will provide 161 5/23/07 - WHOLE - BILL 070015, ETC. further resources to close the gap. We also hope that the Assembly will provide further, as Paul has mentioned, their commitment to charter school reimbursement and for other alternative ed commitments that they have made in the past, and we hope that as a new source of funding develops, that a percentage of that funding provided by the City and the state would reflect the appropriate funding ratios. When the state assumed control over the District, it was understood that state-wide reform of public school funding would be necessary for the District's long-term financial stability and continual educational improvement. Secretary of Education Debra Kahn testified before this Council to that point on March 19, 2002. State-wide school funding reform has not occurred. While we await that reform, the City must do its part financially to support and advance the educational achievements that 162 5/23/07 - WHOLE - BILL 070015, ETC. have occurred in our schools. For the last six months, Governor Rendell's Budget Secretary, Michael Masch, has led a collaborative effort between the City, state, the District to analyze the District's finances and to report on them in a manner that identifies the District's key cost drivers and funding needs.
Secretary Masch's report will be released at the end of this week, and I'm strongly urging Council to recess this hearing at the end of today's testimony and delay the Committee vote on the tax reauthorization bills so that the Masch report will inform any final decisions or consideration, thus both the City and state will be guided by Secretary Masch's fiscal analysis to determine the magnitude of the funding gap, as well as the additional funds required from each governmental entity. The decision about additional City support for the District must be made with a clear, detailed 163 5/23/07 - WHOLE - BILL 070015, ETC. understanding of the District's needs and an understanding of the consequences of providing or withholding support. Upon release of the Masch report, I will request a subsequent hearing for Secretary Masch to testify and present his analysis to this Council. In addition, the Mayor's Education Advisory Task Force report, which speaks to the District's comprehensive needs, will be available 30 days after the release of Masch's report. As the Mayor has said repeatedly, he supports additional revenue for the District. The specific level of City support must follow careful review of Masch's report. The Mayor also will request that these funds be made available to the District subject to several conditions. First, the SRC must revise its budget plan to address the issue of lower class size and truancy. The SRC must also abandon the current proposal to eliminate teachers as 164 5/23/07 - WHOLE - BILL 070015, ETC. enrollment declines. This proposal makes class size reduction impossible, and class size reduction is critical to boosting academic achievement. In lieu of the teacher reductions, the SRC must also offer an alternative set of reductions that do not adversely affect the District's most important reform efforts and achievements. The SRC must provide the Governor, the Mayor and this City Council with detailed implementation plans for spending reductions with specific milestones and timetables so that the funding authorities can have confidence that the promised spending reductions will occur. Finally, when such a proposal is finalized, the Administration asked the District and the SRC to provide a public forum for our most important stakeholders, parents and students, to learn the anticipated effects of the cuts on specific schools. We all understand 165 5/23/07 - WHOLE - BILL 070015, ETC. that even with additional revenue, some cuts will be necessary. And I know from speaking with many parents, teachers and students that it has been difficult to envision any cuts in light of what our children currently lack, art studios without art teachers, not enough paper to make copies, split grade classrooms where children do not have dedicated teachers for their grades. But our goal is to achieve transparency and clear communication regarding proposed cuts and to seek opportunities for you to understand what options we have in such difficult circumstances. Over the last five years, the quality of education has improved in our city. If we are to continue to make improvements in the education we provide to our children, we must continue to act collaboratively with the Governor, as well as with the District, and we look forward to working with Council and the Governor over the next several weeks to 166 5/23/07 - WHOLE - BILL 070015, ETC. assure that progress continues. I'd like to add one last thing that was not a part of my testimony that was mentioned earlier. We have been working with the Governor's Office as well as with the Chairman and other SRC members to look at the District's finances, and this morning I received a letter from Secretary Masch stating that he wanted to bind those finances in a report and report out on those at a subsequent hearing.
So that is sort of the genesis of our request, to allow Secretary Masch to share in detail his understanding of the finances, and I will submit a written copy of Secretary Masch's letter for your review.
Is Secretary Masch auditing the District or what is he doing in terms of determining what the gap might be?
My name is Joyce Wilkerson. I'm Chief of Staff to the Mayor. 167 5/23/07 - WHOLE - BILL 070015, ETC. What Secretary Masch, working together with the Administration and the School District, has done is try to deconstruct the School District's finances so we can really get a sense of what's driving the current deficit that's projected in excess of 100 million that grows to about a billion. So what are the specific items. Also, trying to get a better understanding of where the dollars have been spent. We know that charter schools have been eating up a lot of money, but Masch's analysis is also taking a look at what's happening with other segments within the school. For example, what's happening with the elementary schools, have their budgets been growing, have the District-operated schools been growing at the same rate that charters and other portions of the District's budget, how much has gone to things like transportation, maintenance, debt service, so that we really have an understanding of why we are in this 168 5/23/07 - WHOLE - BILL 070015, ETC. situation that we are, and as we begin to talk about making cuts, what impact are those cuts going to have on the District's finances, what impact will they have on the program initiatives that everybody thinks are important. Masch has also been working on trying to construct a budget and a budget model that will allow us to generate a five-year plan. It's one thing to understand what's going on in the current year, but we need to understand how that plays out over time. I think that one of the things that everybody agrees on is that most of the money has bought good things for the District. Most of the changes that have happened are changes that we want to embrace. They were things that largely were put in place in the first year. But what none of us had was an adequate understanding of how those things were going to play out over time. If we had had an adequate five-year model, we would 169 5/23/07 - WHOLE - BILL 070015, ETC. have seen this coming and could have prepared for it years in advance. We wouldn't be facing the current crisis that we do. So Masch, working with the District people and the City people, have been developing that kind of model that will allow us to understand what happens to the District's finances over time, what the state's need is to supply additional revenue and what the City's need is to supply additional revenue.
Well, wouldn't it be most advantageous for the School District to have the capacity to do this analysis on an ongoing basis?
And I think they are developing that. Some of what I sense is -- I think this has happened in a crisis atmosphere, but I think that the experience working over the last several months has allowed everybody to develop an understanding of the District's finances. The District will have the 170 5/23/07 - WHOLE - BILL 070015, ETC. capacity to talk to the state in a language it understands. I think if we get the kind of reporting that is being requested, we'll all have the ability to follow the District's finances moving forward. They'll be providing us with reports in a format that we will all be able to understand. The District has very complicated finances. They get a lot of categorical grants. They track their dollars in a way that was hard to understand from the outside. Some of what the Masch analysis does is put it into spending categories and it looks at it in a way that's more transparent for parties from the outside. But I found just -- I haven't seen the report. The final report is not finished. I think Secretary Masch worked hard trying to get it completed by now. It's not complete. Although they've done a lot of the analysis, the report is not complete. They expect -- their goal is 171 5/23/07 - WHOLE - BILL 070015, ETC. to have it by the end of the week so that they can begin sharing it around and presenting it publicly next week. But I found that it was very, very helpful in understanding why the District is where it is and what its need is moving forward.
And to further that point, the Chairman offered a resolution to create and establish the Financial Accountability Unit within the School District that would report out quarterly and would be able to give us indicators of if in fact there was overspending or where we are with regard to revenues and/or expenses. So they have set up an internal unit to report out to both the City and the state with regard to the state of their finances.
So because they didn't have this model or this process, they were caught off guard?
I think that -- I can't speak for whether they were 172 5/23/07 - WHOLE - BILL 070015, ETC. caught off guard. I think that -- my sense is that there wasn't the handle on exactly what was going on because -- and you always do have variances that you don't anticipate, revenue doesn't come in like you want. The City experiences the same kind of thing. We're projecting -- we had been projecting really aggressive ongoing growth in the real estate transfer tax. It's not happening like we thought. So those kinds of swings really do happen, but I don't think there was a sufficient appreciation of the way the deficit was going to grow, when it was going to grow. The question you asked, what did you know and when did you know it, my sense is there was not enough sense of that, and that's some of why we're sitting here with a crisis.
Do you suppose that the analysis provided by Mr. Masch will show a difference in the gap from the School District's proposal? 173 5/23/07 - WHOLE - BILL 070015, ETC.
I think that it -- I don't think it will be far off. I think that -- I don't think it will be far off. I think that one of the other things that they do is take a look at the gap-closing measures, and I know that the Administration has concerns about one measure in particular that would reduce the teacher complement by 100 teachers. We don't support that, that we would rather see other -- as Jackie testified, we would rather see other attempts to balance the budget. And if that's not possible, it would be that kind of thing that would change the revenue requirement for the District and force the need for more, not less, revenue than is projected.
Do you have an idea where the Administration would call for the revenue that the City would provide?
It's our position it would need to be new revenue, 174 5/23/07 - WHOLE - BILL 070015, ETC. that we cannot transfer revenue within the Five-Year Plan. New revenue meaning new tax revenue is what we would propose and would be prepared to support for the School District. As Councilman Goode has said repeatedly, education is probably our largest -- our most important need. We're prepared to recommend additional revenue, additional new revenue. Yesterday when --
I said new revenue. I didn't identify a specific source. There are a number of sources, millage, other --
No. I'm sorry. What I meant to say is additional new 175 5/23/07 - WHOLE - BILL 070015, ETC. revenue.
I think new tax revenue. I think there are different sources you could look to. When you look at what happened, the action Council took yesterday, when I look at the budget that was proposed and the impact it would have on the Five-Year Plan, if the FY08 budget were rolled through the Five-Year Plan, we end up with a negative $55 million fund balance by FY12. That's not a Five-Year Plan that can absorb another $27 million additional expense and keep all the other items that were proposed yesterday. I think that we need new revenue. I think it's not currently available. If we were -- I think that if we simply take the money out of the District, I think we're going to end up -- out of the City, we're going to end up with challenges with PICA, which will -- my guess is we'll all end up 176 5/23/07 - WHOLE - BILL 070015, ETC. being back here with a rejected Five-Year Plan and having to develop a Five-Year Plan that requires Council concurrence.
So when you speak of new revenue, you mean raising real estate taxes?
How do you balance that with the whole notion of this fair --
I think that we could increase millage without doing either the full valuation or the reassessment. The City needs to do both those other pieces, but the increased millage would not be dependent on having first done either full valuation or citywide reassessment.
But if you have a real estate increase and then you 177 5/23/07 - WHOLE - BILL 070015, ETC. come behind it with the full valuation, that's going to have -- and without any in-depth discussion about that, it has a serious impact on the citizens.
Well, it would have a serious impact on the people who live in Philadelphia. I mean, if you want to raise the real estate tax for the schools and then you move to full valuation as being supported by certain segments of this community, and then in that situation, maybe not everyone, but there would be some communities that would have a large increase in their taxes on top of the increase you give for the School District.
The City faces a challenge with real estate reassessment anyway. I think that it's not constructive to marry all these issues. It becomes an intractable problem that we can never deal with. 178 5/23/07 - WHOLE - BILL 070015, ETC. What we have is a public school system that needs additional revenue and we don't have the capacity within the Five-Year Financial Plan. As we've said repeatedly, we've extracted $1.3 billion out of the City's resources through tax reduction. We can't now ladle on top of that another 27 -- or $17 million a year in support of the School District and also address all the other concerns, some of which PICA raised in its letter just last week. We need additional revenue. The Administration is prepared to support the District.
Even if PICA doesn't specifically say the City needs to address a fiscal crisis in the School District?
And if the Five-Year Financial Plan does not do that, it should? 179 5/23/07 - WHOLE - BILL 070015, ETC.
The City needs to do it, and what we're saying is, we don't need to do it within the four corners of the Five-Year Financial Plan. We need to put more revenue on the table and that --
The PICA letter said that your Five-Year Plan does not address the School District in a way that it should.
We don't within the corners of the Five-Year Plan. We would propose putting new revenue, not simply transferring revenue, but putting new revenue on the table in support of the public schools.
So PICA has essentially said that not looking at the School's fiscal crisis is irresponsible on the part of the Administration; is that correct?
PICA says we need to deal with that. And what I'm saying is, we do need to deal with that. 180 5/23/07 - WHOLE - BILL 070015, ETC.
I have a whole host of questions regarding how you have not dealt with it and how you're still playing games now, but my point of information was strictly related to the fact that how you characterize the PICA letter. The PICA letter said that you were irresponsible by not dealing with the School District crisis.
That's what it said. It said you can't do a Five-Year Plan without taking into consideration the School District crisis and the SEPTA crisis. That's what it said.
Well, there are a couple of different responses. One, we are working with the Commonwealth on both the School District situation and the SEPTA situation.
But you haven't done anything. You haven't put 181 5/23/07 - WHOLE - BILL 070015, ETC. anything into the Five-Year Plan yet. You referred to the PICA letter, so I'm just clarifying for the record, the PICA letter said that you need to do something about the School District fiscal crisis.
We do need to do something about the School District, and what the Administration would propose is that we raise new revenue.
Until we have a final review of the Masch report, I think it would do us all well to sit down and review the Masch report. We're not prepared to put a dollar figure on it. As I said earlier --
So the Mayor is putting no money on the table right now? 182 5/23/07 - WHOLE - BILL 070015, ETC.
The Mayor has proposed to, if we can get nine votes for it, put new revenue on the table in support of the School District.
You're saying the Mayor is prepared to raise taxes. But Council is not, so I can tell you that already. Council is not looking to raise taxes. We're not considering raising taxes today. We're considering a millage shift. So without raising taxes, is the Mayor willing to take any of the money out of his Five-Year Plan and put into the School District's Five-Year Plan, yes or no?
The Administration would shift millage before it would -- I believe would shift millage before it would see the District go without any money. In saying that, there will be dramatic changes to the Five-Year Plan. All of those changes that were supported yesterday end up 183 5/23/07 - WHOLE - BILL 070015, ETC. being --
We voted it out with no recommendation. We didn't support it.
Well, the City's budget and Five-Year Plan cannot absorb $100 million of additional --
My question was a yes or no question. Is the Mayor willing to take money out of his Five-Year Plan, the City's Five-Year Plan, and put into the School District's Five-Year Plan? It's a yes or no 15 question.
If it came down to that, my sense is that he would, that it's imprudent -- it's his sense that the more prudent path is to put more revenue, new revenue, on the table in support of public education.
Over the last five -- 184 5/23/07 - WHOLE - BILL 070015, ETC.
If I may respond, over the last five years, the City has taken the path of simply reducing taxes. We can't continue along that road. We don't have the revenue to support core City services. We can't make changes in the Fire Department, the Police Department, the Recreation Department, the Health Department, the Fleet Management. All across the City are departments that we can no longer touch. We can't sustain that. The City simply cannot sustain that.
Since you decided to continue to talk about it, I asked a simple question. Since you 185 5/23/07 - WHOLE - BILL 070015, ETC. decided to continue to talk about it, the issue is the City has not sufficiently grown over the last eight years, not due to Council's actions or inactions per se, but the City has not grown at the level it should have, and it has not failed to grow because of tax reform. The truth of the matter is, it has continued to grow probably because of tax reform.
Tax reform said a lot of things. Tax reform said reduce tax rates. It called for reductions. It also called for --
All I'm suggesting to you is that we don't necessarily buy your strategy anymore.
The Chair 186 5/23/07 - WHOLE - BILL 070015, ETC. recognizes Councilman Greenlee.
Thank you, Madam Chair. Ms. Wilkerson, just so I'm clear here, because we were distracted there for a while, you said about new revenue on the table and various options. All that new revenue, you're talking about in some form some tax increase?
Other than Councilman Goode's bill, which is shifting the millage.
Which then has a severe impact on the City's current Five-Year Financial Plan.
Point of information. My legislation amounts to about one half of one percent of the Five-Year Plan; is that correct? 187 5/23/07 - WHOLE - BILL 070015, ETC.
I don't know what the percentage is. We have over a $3.5 billion Five-Year Plan, so your legislation on the face of it --
We have over a $3.5 billion annual budget. So the Five-Year Plan is --
We have a $3.925 million budget this year, which is expected to increase. We have about a $20 billion Five-Year Plan. One percent of $20 billion would be $100 million. This bill amounts to less than $100 million. So we're talking about less than one half of one percent of the Five-Year Plan; is that correct?
And of these taxes or the new taxes, at least the Administration's viewpoint -- and I don't necessarily agree -- but that 188 5/23/07 - WHOLE - BILL 070015, ETC. Councilman Goode's bill would have too severe an impact, but do you have suggestions on these taxes for the schools? I mean, is there something you're advocating as we sit here now?
But you do agree that there needs to be more money to the schools?
There needs to be more money to the schools. We've invested, going back to the beginning of the Administration, an additional support for public schools in this City. At the time we made the initial investment, we knew that there needed -- there were going to be even more revenues needed, and my guess is that what the District is bringing to us today is modest in comparison to what the need is if we're going to have the kind of public school system that we want. Seventeen million 189 5/23/07 - WHOLE - BILL 070015, ETC. is not enough. The 27 million will get us through the short term, but if we're going to be serious about reforming education in this City, it's going to take substantially more revenue.
I guess my question -- and I don't mean this confrontational, but it's May 23rd and I haven't heard the term "new taxes" until today.
We have been working with the Commonwealth and the SRC and the School District to try to determine exactly what the need is. We have just a year ago sat here with you and heard that there are not problems or that it's a minimal problem. It's not a small problem. It's a huge problem. The Administration determined not to come forward until we had a real understanding of what the District's need was, why the need existed, and we think we are near the point of having that, that there's been a 190 5/23/07 - WHOLE - BILL 070015, ETC. lot of time spent analyzing what's going on with the District. The Secretary of Budget for the Commonwealth working with the City and the District have a report. I would urge you to take the time to look at what the report says, look at the recommendations being made before making any final decision about the size of the funding that the District needs and before we make final decisions about the type of support that is available to the District.