COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE SELECT COMMITTEE ON FISCAL STABILITY AND INTERGOVERNMENTAL COOPERATION - - - Room 400, City Hall Philadelphia, Pennsylvania Monday, June 5, 2000 10:45 a.m. - - - RESOLUTION 000232 - Authorizing the Committee on Fiscal Stability and Intergovernmental Cooperation to hold hearings in order to fully examine and analyze the current and future financial conditions of the Philadelphia and to receive testimony from Mayor John F. Street and the Board of Education on proposed plans to stabilize the funding base of the School District to prevent fiscal insolvency, avoid a possible State takeover, and ensure a quality education for Philadelphia's public school children. PRESENT: COUNCIL PRESIDENT ANNA C. VERNA, Chair COUNCILMAN MICHAEL A. NUTTER, Vice Chair COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DAVID COHEN COUNCILMAN FRANK DICICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILWOMAN DONNA REED MILLER COUNCILMAN ANGEL L. ORTIZ COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILWOMAN MARIAN B. TASCO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 6/5/00 - FISCAL STABILITY - RES. 000232 I N D E X Mayor John F. Street. . . . . . . . . . . . . 5 * Debra Kahn, Secretary of Education. . . . . 25 6 * Pedro Ramos, President, Board of Education 36 * Superintendent David Hornbeck . . . . . . . 51 * Rhonda Chatzkel, CFO, School District . . . 59 Richie Feder, Chief Deputy City Solicitor 157 Appeals and Legislation, Law Department Janice Davis, Secretary, Financial Oversight 187 * Joseph C. Vignola, Exec. Director, PICA 221 * Michael Churchill, Chief Counsel . . . . . 239 Public Interest Law Center of Philadelphia (* - Also provided attached written material.) 3 6/5/00 - FISCAL STABILITY - RES. 000232 P R O C E E D I N G S
Good morning. This is the public hearing on the Select Committee on Fiscal Stability and Intergovernmental Cooperation. Before we start, I have a very brief statement that I would like to make. As you all know, this is a hearing being held by City Council's Select Committee on Fiscal Stability and Intergovernmental Cooperation. This committee was initially formed at the request of then-Councilmember John F. Street, in the light 1980s, to bring focus upon the fiscal difficulties facing the City, which, at that time, was on the verge of bankruptcy. Since that time, this committee has become a standing committee of the Council, with the responsibility of monitoring the ongoing financial condition of the City and annually reviewing the Administration's proposed Five-Year Financial Plans, which approval is required by State law. Mayor Street and Governor Ridge have reached a tentative agreement to keep the schools open for the next school year, whereby the only additional bankable revenues from the State are 4 6/5/00 - FISCAL STABILITY - RES. 000232 $10 million and interest earnings on money advanced or obligations deferred by the State and $20 million in additional City contributions. It is totally appropriate for City Council, which has the sole local authority to authorize taxes for School District purposes, to hold this hearing in an attempt to ascertain the true financial condition of the School District and whatever measures are to be proposed to correct its difficulties. Although City Council does not have a right to approve, or disapprove, the School District's Operating Budget, since the Educational Supplement to the Philadelphia Home Rule Charter merely requires that the Board of Education submit to the Mayor and Council a lump-sum statement of anticipated receipts and expenditures and a request for authorization to levy taxes to balance its budget, Council has routinely held hearings regarding the School District's budget prior -- prior to the reenactment of the District's tax authorization. Because of the School District's inability to submit a budget to the City Council in a timely manner this year, Council was not able 5 6/5/00 - FISCAL STABILITY - RES. 000232 to conduct such hearings prior to the District's adoption of its operating budget, which inability was condoned and requested by Mayor Street. On May 31, 2000 the Board of Directors of the School District of Philadelphia adopted an operating budget that was not balanced and, therefore, in violation Section 12-303 of the Educational Supplement to the Philadelphia Home Rule Charter. That budget shows a cumulative deficit for the current fiscal year and a larger cumulative deficit for Fiscal Year 2001. Arguably, these deficits are understated since they rely upon the number of assumptions, which are very tentative, which assumptions we will discuss later in this hearing. While I am aware that the School District is at the beginning of a process to develop a long-term strategy for dealing with the educational needs of the children of this City and ways to fund these needs in a responsible manner, I believe that this is an appropriate time for City Council, which has the sole local authority to authorize taxes for School District purposes and which, in recent years, has also appropriated 6 6/5/00 - FISCAL STABILITY - RES. 000232 funds to assist School District, to begin upon what will undoubtedly be an extended process to understand and evaluate the educational opportunities of this city and what feasible means are at our disposal to provide for these means. At this time, I would ask Mr. McPherson to please read the title of Resolution No. 000232.
Resolution No. 000232, a resolution authorizing the Council Committee on Fiscal Stability and Intergovernmental Cooperation to hold hearings in order to fully examine and analyze the current and future financial condition of the School District of Philadelphia and to receive testimony from Mayor John F. Street and the Board of Education on proposed plans to stabilize the funding base of the School District to prevent fiscal insolvency, avoid a possible State takeover, and ensure a quality education for Philadelphia's public school children.
At this time, the Chair will recognize Mayor Street.
Good morning, 7 6/5/00 - FISCAL STABILITY - RES. 000232 Mayor Street.
Good morning, Council President Verna and members of City Council. Actually, this might be my first time here.
All right. Actually, we've been very, very busy. As most of you know, we just had a press conference where I announced the resignation of Superintendent David Hornbeck as the head of our School District. And, unfortunately, these things take time, and we got involved in some questions and answers, and we were a little bit late starting, and I want to apologize to the members of Council, this legislative body, for our tardiness in arriving to this hearing. This, of course, is a very significant development, but I want to assure the members of this Council several things: one -- and I appreciate the fact that most of you were unable to be at this announcement. I want to assure you that, one, Superintendent Hornbeck's leaving was a decision that he made and with which the Mayor and 8 6/5/00 - FISCAL STABILITY - RES. 000232 the Board concurred. There, apparently, is some concern that someone other than the Board or the Mayor somehow forced David Hornbeck's departure from the system. We believe that this was a decision that he made and with which we have agreed, and notwithstanding some of us had a very good working relationship with him, we respect his decision. We also want you to know that very shortly, we will be announcing a plan to replace the superintendent, and there will be a search committee, and we will be looking forward to representation from City Council, through the Council President, to be a part of the process to replace the superintendent. As most of you know, a lot of work went into creating an environment and a financial condition at the School District of Philadelphia where we would be able to operate the schools for the entire school year next year. During that period of time, we made a commitment that we would ask City Council to help us raise $20 million directly or indirectly to support the School District of Philadelphia. 9 6/5/00 - FISCAL STABILITY - RES. 000232 Now, much has been said and written about it, but I would like to make this administration's position very clear. The Mayor of the City has no capacity to bind the City Council of Philadelphia to do anything. It is soley and completely and exclusively within the prerogative of this legislative body either to make a part or all of $20 million in cash or in kind available to the School District of Philadelphia. And there are some people who have said to me, Oh, Councilmembers look like they don't want to do it, or they might not want to do the $20 million. Councilmembers are entitled to reserve their judgment on $20 million or on any other amount of money to the School District of Philadelphia, and they're entitled to make -- this legislative body is entitled to make an independent judgment on it after asking and getting any reasonable information that it wishes. So for those of you who have said, Well, we want to know this and we want to know that, those are entirely reasonable questions. You're entitled to know what other people are 10 6/5/00 - FISCAL STABILITY - RES. 000232 doing, how all this is going to impact the School District, why we think it's a good idea, and where and what recommendations will be made as to sources of money. We thought we made it clear that this is a one-time commitment because the longer term objective is to make sure that there is an education program reasonably funded at the Board that puts this system in a position to provide high-quality education for the 210,000 children that attend the system. So two points: One, we did not presume to tell the Governor or anyone else that absolutely Council was going to do this, you don't have to worry, we never said that. What we said is, we will make a request and then Council will exercise its own judgment as to what it thinks it wants to do and how. We have some reservations and we don't want to be put in an unfair position as a city, and we will work with City Council to create the mechanism whereby we can give whatever money we collectively decide should be available.
We think, however, in the main, getting a commitment from the Commonwealth of 11 6/5/00 - FISCAL STABILITY - RES. 000232 Pennsylvania, assuring the parents, the student and the teachers and administrators and advocates and other folks who are stakeholders, who are interested in the continued public education, we think it's good that they know that there will be a school year and that it will happen from the beginning to the end and that we're not talking, Well, maybe in February or March. People are tired of that, and I know you're tired of that, and especially the students and parents are tired of it. We didn't want to carry this all through a possible school shutdown or takeover in the middle of the year. We are appreciative of Council's support. We would like to make a commitment that City Council will be engaged in this whole process. We actually met with -- with actually the Pennsylvania Senate delegation this morning. We have met with the delegation to the Philadelphia delegation of the Philadelphia House of Representatives. We hope to establish a broad-based stakeholders group so that during the course of the next year, we can, as best as we can, agree on what is in the best interests -- 12 6/5/00 - FISCAL STABILITY - RES. 000232 programmatically, what's in the best interests of the School District of Philadelphia and then go about carrying that message to the variety of different places to which it must be carried. We appreciate very much the opportunity to come here. As you can see, I am surrounded by folks who probably can answer -- hopefully, they can answer in great detail any question that you have. I think that we have made some progress and that if we all work together, we can do good things for the children of this city.
Thank you, Mr. Mayor. I think that we all want to work together to make sure that we're not here next year to talk about a very, very huge deficit. And in all fairness to my colleagues, we were questioned about the $20 million after we passed the City budget. We have been waiting for recommendations from the Administration as to where the $20 million would be coming from. Further, we wanted a guarantee that next year we would not be asked for $20 million again because if, in fact, under Act 46, if that were to happen 13 6/5/00 - FISCAL STABILITY - RES. 000232 next year -- which we hope it wouldn't -- then we would have to pay $35 million in perpetuity. And that was the concern of many of my colleagues, and I think we made that very clear to members of the Board that attended the meeting, that it's certainly not that Council does not want to support School District; it is how we support them. And, as I said, we are waiting for a recommendation from the Administration as to where the $20 million would come from and a guarantee that it would not be reoccurring next year.
Well, I couldn't agree with you more. And one of the reasons why we did not -- we refused to commit where it was coming from, we refused to commit what time it was going to be there. We, in fact, are going to engage in this process. We will work with City Council to determine what is the best way to come up with whatever resources City Council concurs is necessary or reasonable. And we, too, agree that we shouldn't put ourselves in a position where -- where we become obligated on a recurring annual basis to make $20 million available under circumstances 14 6/5/00 - FISCAL STABILITY - RES. 000232 that don't warrant it. When that decision is made, then we should be making that decision; we shouldn't be making any other decision, and so we couldn't agree with you more.
It would be the $20 million plus the $15 million grant that we've been giving.
Well, the $15 million is in the Five-Year Plan. I mean, we are --
So we don't think that test the credibility of the Five-Year Plan, but the $20 million would create a $100 million difficulty in the Five-Year Plan, and we just haven't made that commitment. And we -- and not only do we agree with that assessment, but we appreciate very much Councilmembers' agreement that this is something that we should be really, really careful about.
Thank you. Are there any questions or comments from members of the committee or any other Councilmembers? Councilman Cohen. 15 6/5/00 - FISCAL STABILITY - RES. 000232
Mr. Mayor, there's just one thing about the agreement that puzzles me. Until the agreement was announced, I did not know that part of the deficit consisted of money allegedly due back to the State from the School District. Could you explain what that was and why there had been no reference to it before.
Well, Councilman, during course of the relationship between the Commonwealth of Pennsylvania and the School District, there are always audits. And, really, there are audits with the School District by the Commonwealth of Pennsylvania, there's audits by a number of different agencies. During the course of these audits, sometimes it is determined that -- in this case, that some of the school districts, there was a difference in agreement as to some of the population of the school district that the Commonwealth of Pennsylvania claims would then require a return of money that was based on certain population figures, and we disagreed with it, but sometimes we get caught up in it. And the Commonwealth of Pennsylvania has agreed to take some actions in deferring any 16 6/5/00 - FISCAL STABILITY - RES. 000232 collection of some of this money until we resolve to hold the School District funding problem in the next year, and this helps us adopt a balanced budget for the upcoming fiscal year and we will be able to have some further discussions about all of that. It's -- I mean, it is a fairly routine kind of practice, and we argue a lot about the application of funding formulas in a variety of different ways down at the Board. If you want a real specific -- that's a very general kind of explanation. If you want real specific information, I suggest you ask at the appropriate time Mike -- or Board member Masch, excuse me. I understand he's in Los Angeles. We'll get him on the phone. But we have folks here who can answer in detail all of those kinds of questions.
One other question, Madam President. It seems to me in this agreement that the State in this agreement is, in fact, is not giving any new money but that the State seems to be wanting the City of Philadelphia to grant new money. All the State has done in this agreement 17 6/5/00 - FISCAL STABILITY - RES. 000232 is to say, as to that $59 million, which allegedly the School District owes, and I don't know for what period of time it's supposed to be, we will just let you delay payment of that, and with respect -- and we'll advance the money which they had agreed to do and have done in the past at various times. It seems to me that there's an imbalance here in that the request is being made to the City of Philadelphia to add new money while the State, at least thus far, has not offered any new money.
I would like to have one of the members of our team here explain in detail, because we won't make money off of the advance. I think it's about $10 million. We do get money out of the Empowerment Act, which is about $16 million. I mean, there is some new money from the State. It would be incorrect to say that 18 6/5/00 - FISCAL STABILITY - RES. 000232 there's $69 million from the State, but there is new money from the State, and we'll get you a very clear and specific answer to that question.
Thank you. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. Good morning, Mr. Mayor. Under the circumstances, I thought it important to give you the opportunity in a more public fashion and in, quite honestly, hopefully, a more friendly environment to share with us, without violating any confidentiality, the circumstances that you found yourself operating under with regard to the Commonwealth on the issue of the $20 million and what significance in the whole scheme of things that is to the State given their financial situation as compared to our financial situation and why there's this emphasis, and continued emphasis, about the City putting in an additional $20 million and the circumstance surrounding that.
I think that answer -- 19 6/5/00 - FISCAL STABILITY - RES. 000232 actually, I think that's a very good question. The Commonwealth of Pennsylvania is always concerned about the relative contribution that the City makes versus the contribution that the Commonwealth makes. And whenever we go to the Harrisburg and start asking for additional revenues from Harrisburg, a number of questions are always coming up, and they go something like this: Well, you're cutting taxes and you need to be -- you need to be putting more money into the School District. And you have X-millions of dollars of surplus, and you need to go putting more money into the District. And they're always questioning what has become known as the so-called "local effort." And we get criticized -- and we disagree with the criticism, but we get criticized on the local effort made by the City of Philadelphia in funding public education. We have our own story to tell on what the local effort is, and if you want some detail on that, then you can, but this is -- this is a regular -- this is as a result of a regular and routine effort on the part of the Commonwealth of 20 6/5/00 - FISCAL STABILITY - RES. 000232 Pennsylvania to get the City of Philadelphia to put in more money to fund School District activities. We were also requested not only to make money available -- and we, of course, refused to make any commitment that would result automatically in a recurring obligation to fund, but we were also pressured to make additional cuts. Now, you know, I sent a letter to the Board suggesting that we should be looking for ways to reduce the cost of managing the District by $100 million, 'cause I think that we need to be looking for ways to reduce the cost of administering public education in this city. What the Commonwealth of Pennsylvania did was say, We would like to see some of that now. And, you know, it wasn't our first inclination. It was my inclination to say we need to engage in a process that will allow us to save serious money. And we talked about, you know, getting rid of -- selling the building down there and putting, you know, the Administration in reasonable facilities but not in that particular 21 6/5/00 - FISCAL STABILITY - RES. 000232 facility, and a number of other things. As is always the case, the Commonwealth wanted to see us show some kind of commitment, some kind of, you know, act of good faith, and that's how some of these things are characterized. And we during the course of the negotiations resisted many of the things that were suggested, but in the end, we understood that we were going to have to do something, and we wanted to do something. And we didn't want a takeover, we don't -- we think that public education and its administration is a local matter, and we want to remain in charge locally, but we knew that we were going to have to do some things that were different. And this was in the end to balance that.
Lastly, Mr. Mayor, under the circumstances -- and this is not a new concern -- would you support any effort to have greater financial oversight of the budgetary process at the School District by the City in general and City Council specifically?
Thank you. 22 6/5/00 - FISCAL STABILITY - RES. 000232 Thank you, Madam Chair.
You're welcome. The Chair recognizes Councilwoman Tasco.
Could you please explain the negotiations around the lawsuit and what impact it may have on the School District. And if we had to -- if you had to use that as a part of the negotiations, could you might have gotten a higher per capita based on their request to delay the lawsuit?
Actually, I don't think we could have. As most people know, in the truest spirit of candor, there are certain officials in the Commonwealth of Pennsylvania who do not like the lawsuit, and we steadfastly resisted any effort or anyone suggesting that we dismiss the lawsuit. But we did agree with the Governor and 23 6/5/00 - FISCAL STABILITY - RES. 000232 others that if we're going to try to work cooperatively to work out a long-term funding solution for the children of this city, that we ought to do it in a more friendly venue at the moment. And so we agreed to put it off, to put it on hold, to stay a lawsuit for one year, while we're all trying to come together and work. If we don't work out a long-range funding -- because what we have done, with Council's cooperation and approval, is work out a situation where the schools will be able to be open for an entire school year, which we thought was very important. During that one-year period, we wish to engage the Commonwealth, both the Governor and the General Assembly, in discussions around where we're going with public education in this city and, you know, what's our future, you know, where -- you know, how many children are we going to have in these classes? what kind of after-schools programs are we going to have? how are we going to deal with the problem of compensation and technology and a lot of things that are important in the system? And during -- that while we negotiate 24 6/5/00 - FISCAL STABILITY - RES. 000232 and try to work out a program, the lawsuit will be stayed. If we don't work it out, then we'll pursue with the lawsuit. I mean, it's as simple as that. And we thought it made sense to give us all an opportunity to work on a long-range solution to the problem.
Thank you, Councilwoman. Are there any other questions or comments from any of the Councilmembers? (No further questions or comments.)
I know that Mr. Vignola has been sitting here since 9:30. Are you in a hurry?
All right, good. Is someone going to make an opening statement, or do you want us to simply go into questioning? 25 6/5/00 - FISCAL STABILITY - RES. 000232 SECRETARY KAHN: If you would like, I do have brief prepared remarks.
Kindly identify yourself for the record. SECRETARY KAHN: My name is Debra Kahn, and I am the Secretary of Education in the administration of Mayor John Street. I do believe that my remarks are being distributed at the moment. Good morning, President Verna.
Just a moment, please. We don't have copies of your remarks. Who are they being distributed to? Councilman Cohen?
Before the questioning, I wanted to state that I was at the press conference this morning in connection with the resignation of Superintendent Hornbeck, and I wanted to state, at least speaking for myself but I think I speak for many other members of City Council at the same time, that I not only thought that he and the Mayor both conducted themselves in an outstanding fashion. And I wanted to congratulate 6/5/00 - FISCAL STABILITY - RES. 000232 Superintendent Hornbeck for what I regard as a tremendous job that he's done over the last six years. He would not have thought that from the responses he's gotten from City Council over the years, but that's our job, to raise all kinds of question. But in my judgment, certainly there's no question that he's moved the School District along, that the education of children is much more advanced, much better than it was when he entered and that I, for one, in fact regret his leaving and hope that whoever replaces him has the same general kind of vision that Superintendent Hornbeck has. And I want to thank him for that. I hope he will be available in the future when the new superintendent comes in, as well as during the next two months to be available. And before the fireworks begin again today, when it will seem as if everyone here is opposed to him, probably if it runs like other hearings involving in the School District, I wanted him to know that services have been appreciated. SUPERINTENDENT HORNBECK: Thank you very much. I appreciate those comments. 27 6/5/00 - FISCAL STABILITY - RES. 000232
Thank you. Do all members have copies of Miss Kahn's testimony? Okay, Miss Kahn, please proceed. SECRETARY KAHN: Thank you. Good morning President Verna, Vice Chairman Nutter, members of the committee, and other members of City Council. My name again is Debra Kahn, and I am the Secretary of Education in the administration of John Street. Seated with at the table this morning are the President of the Board of Education, Pedro Ramos; our Vice President, Dorothy Sumners Rush; and Superintendent David Hornbeck. Also here are several members of the Board of Education and the School District's new Chief Financial Officer, Rhonda Chatzkel. Other members of the Street Administration are also here and available to answer your questions in their areas of expertise. They are: our Secretary of Financial Oversight, Janice Davis; and the Deputy City Solicitor, Richie Feder. We do appreciate this opportunity to 28 6/5/00 - FISCAL STABILITY - RES. 000232 discuss with the current and financial condition of the School District of Philadelphia as part of our ongoing efforts to work cooperatively towards the goal of achieving fiscal stability and quality education for all Philadelphia public school students. It has been three months since we last appeared in this chamber to launch the School District's Fiscal Year 2001 budget process. At that time, the brand-new School Board had not yet adopted even its preliminary budget for the next year. But we said then that the District faced a deficit of as high as $300 million and the prospect of running out of cash in July. We faced the equally real prospect of the School District being taken over by the Commonwealth of Pennsylvania, under Act 46 for failure to adopt a valid budget. Today, thanks to unprecedented cooperation between the Ridge and Street administrations, Philadelphia students can look forward to summer vacation, starting next week, with the assurance that they can return in September and look ahead to an uninterrupted year 29 6/5/00 - FISCAL STABILITY - RES. 000232 of study. We also have the assurance that the management of our schools will be where it belongs -- under local authority. This resolution to an exceedingly difficult problem may not have come about exactly when and how we would have liked, but it is a solution that should provide a great deal of relief to parents, teachers, principals and pupils, and to all of the citizens of Philadelphia whom we serve. And perhaps, most importantly, it is a temporary solution that provides the foundation for us to work towards a long-term solution with the Commonwealth as our partner. Let me just outline for the record the components of the agreement with the Ridge Administration which Mayor Street accepted last Wednesday. In early spring, the School District determined that $115 million in cash would be needed to enable the schools to open and operate for a full school year. The City Administration and the Board of Education proposed a cost-sharing arrangement among the State, City, and School District that we believed would be feasible to 30 6/5/00 - FISCAL STABILITY - RES. 000232 obtain the $150 million. The State share was identified as 69 percent, which is equivalent to the current state aid ratio, or about $80 million. The School District was already to receive an additional million in State funds 7 through the new Education Empowerment Act. So the 8 balance needed was $64 million. 9 The City's share was proposed as 10 $20 million in new funds. The School District's 11 contribution would be in the form of 15 million in 12 budget reductions, which were to be added to the 13 $15 million already assumed in the preliminary 14 budget, for a total of $30 million. 15 After the Commonwealth budget was 16 passed without the necessary additional funds, Governor Ridge and his staff set forth to work with the Street Administration and the School Board to identify other sources of funds that could be made available to the School District.
The resulting package consists of: First, an advance of $363 million for the Fiscal Year 2001 subsidies, which will yield the District an estimated $10 million in interest earnings; and 31 6/5/00 - FISCAL STABILITY - RES. 7 million in intermediate unit reimbursement payments. 3 million, which the School District was able to incorporate into the revenue estimates in its adopted budget. On the strength of the Mayor's pledge to seek one-time nonrecurring funding from the City, the School District also included the City's recommended share in its revenue calculations. The combined impact enabled the School District to reduce its projected Fiscal Year 2001 cumulative fund balance deficit to $80 million, down from the nearly $205 million forecast in its March preliminary budget. This aid enables the schools to be open for a full year and precludes the State from assuming control of the schools during that time. In exchange, the City and School District agreed to join with the Commonwealth in requesting a stay for that same one-year time period of the discrimination lawsuit that had been filed previously. 32 6/5/00 - FISCAL STABILITY - RES. 000232 This is the resolution of our immediate problem. It was achieved through months of relationship-building with the Governor and his administration. We are grateful for the cooperation and initial trust that enabled this agreement to go forward. But we also know that much work remains to be done so that its value is fully realized. All along, as Mayor Street sought this short-term solution, he asked for that most precious of commodities -- time, time for his new administration and the new School Board to work together and with City Council and with the State to develop the long-term solutions that will restore financial stability to the School District while supporting an effective educational program. One year can pass quickly, and the challenges are enormous. But the fact that much has already been accomplished should be cause for more hope and confidence. In just a few months, this dedicated and talented volunteer Board of Education has demonstrated a tremendous capacity for hard work and tough decisions. It hit the ground running by 33 6/5/00 - FISCAL STABILITY - RES. 000232 approving new charter school applications, adopting a policy for mandatory school uniforms, and appointing a chief financial officer for the District. It also undertook that most painful and arduous task of significantly cutting its budget. Following a series of four detailed public budget meetings and numerous working sessions with School District managers, the Board last week proposed a very difficult $30 million in spending reductions to fulfill its commitment to the short-term funding solution. This Board now faces many other challenges, including the need to negotiate a new teachers' contract in an atmosphere of very high expectations and financial constraints. The Board has shown the ability and the will to get the hard jobs done. The announcement made just this morning that Superintendent Hornbeck will leave his post sometime this summer adds to the complexity of our situation and, in my view, strengthens the necessity for all of us -- City, State, and School District -- to pull together for the good of the kids. I will quote Mayor Street in noting 34 6/5/00 - FISCAL STABILITY - RES. 000232 that the superintendent, like all of us, is not perfect, but David Hornbeck will leave the School District much improved, with a long, tangible list of improvements that include full-day kindergarten, early leveling of classes, and steadily rising test scores. His conviction that all, all kids can learn, and his passion for doing what it takes to help them are qualities that few can match and still fewer will soon forget.
No 11 matter what else we do in seeking new executive and educational leadership for the School District and in righting its finances, we must continue that momentum and retain that focus, which is the real bottom line of children achieving. In reaching our short-term funding agreement with the Ridge Administration, we have set the stage for the City and the School District to work in partnership with the State towards a long-term solution through least two vehicles: One is the development of a five-year plan to be prepared in concert with stakeholders and City and State government and the private sector. We want this participation to ensure that the process and resulting plan engender the 35 6/5/00 - FISCAL STABILITY - RES. 000232 confidence, commitment, and financial support needed to implement an effective educational program and achieve as we work towards achieving a balanced budget. The second vehicle for cooperation will be the Education Empowerment Act. This legislation establishes a process through which the School District and the State identify needs and develop an educational improvement plan aimed at increasing student performance. 4 million through this act. In future years, as the District and State reach agreement and work towards goals and means, we have in place now programmed State legislation to which Philadelphia can expect to receive about 80 percent of all State funding that is appropriated annually. Both of these vehicles and others that we can also develop also provide opportunities for collaboration among the City Administration, the School District, and the City Council. We remain committed to working with you towards the short- and long-term solutions that will produce financial stability and educational quality in 36 6/5/00 - FISCAL STABILITY - RES. 000232 Philadelphia's public schools. Again, I thank you for the opportunity to make these opening remarks. And with your permission, I would like to ask Pedro Ramos, President of the Board, to present his remarks and then introduce the other School District presenters.
They have not been, to the best of my knowledge.
Yes. Thank 37 6/5/00 - FISCAL STABILITY - RES. 000232 you.
Have all Councilmembers received a copy of the testimony? I believe Councilwoman Miller does not have a copy. Mr. Ramos, please proceed.
Good morning, Madam President, Mr. Vice Chairman, and others. My name is Pedro Ramos, and I am the President of the Board of Education. On behalf of my colleagues on the Board, I want to express our appreciation for the opportunity you've created this morning for us to review the budget adopted by the Board last Wednesday evening. We especially appreciate the opportunity to continue the discussion we last had here on March 6th regarding the harsh fiscal realities that confront the School District and the more than 213,000 Philadelphia children we serve and which we have discussed informally in a couple of briefings since then. I am joined today by the School Board Vice President, Dorothy Sumners Rush, Superintendent David Hornbeck, and Chief Financial 38 6/5/00 - FISCAL STABILITY - RES. 000232 Officer Rhonda Chatzkel. Also with us are Board members Martin Bednarek, Helen Cunningham, Sandra, and Dr. Emilio Mattioli. Other Board members had work commitments that could not be rescheduled following the announcement of this hearing. Michael Masch, our Budget and Finance Committee Chair, who led the budget process, is in California on a scheduled work trip for his employer. In fact, I think we're all lucky to still have jobs and families after the time that our volunteer Board members have been putting in in the recent weeks, Madam President. I should you also note that the last time I introduced the Board, I did not know a majority of the members very well. Boy, have we gotten to know each other. The Board is strong, hard-working, focused, and determined to not be deterred or distracted in moving this district forward. We've also had the benefit of a dedicated and effective superintendent, who has been a passionate advocate for my children, your children, and the children of this city. Although we are sad that the Hornbeck era is coming to an 39 6/5/00 - FISCAL STABILITY - RES. " This Board has a lot to do. In addition to all the telephone calls we had to make today in the wake of this morning's announcement, our work also includes: Working with the managers this week about the implementation of the departmental budget cuts adopted by the Board on Thursday; Identifying an interim superintendent by mid-August; Starting a superintendent search; creating and working with the Educational Empowerment Team under the Educational Empowerment Act; Running summer school programs; Negotiating a teachers' contract that is pivotal to the future academic and financial health of the District; Expanding our reduced class size initiatives; Monitoring the implementation of a new school uniform policy in the fall; 40 6/5/00 - FISCAL STABILITY - RES. 000232 Opening a new alternative school for disruptive students in January; Working with the City and other public agencies to find savings and combining purchasing power and possibly certain operations; All while managing this year's cash flow. With your indulgence, I will provide you with an overview of our budget, Superintendent Hornbeck will set the educational context, and Miss Chatzkel will provide a similar presentation on where we were, where we are, and how we got here financially. Approximately three weeks after we met -- after we last met in these chambers, on March 31, 2000, the Board of Education adopted a lump-sum statement of revenues and expenditures. 7 million for the fiscal year ending June 30, 2001. As a result of the extraordinary efforts of many people who worked up to and through Wednesday, May 31st, we adopted a budget that projects a fund balance deficit of 41 6/5/00 - FISCAL STABILITY - RES. 000232 $80 million for Fiscal Year 2001. This budget incorporates a number of new and significant revenues, expense reductions of $30 million, and a Board commitment for $15 million in new reform initiatives relating to expanded summer school programs, and an initiative to further reduce class sizes for kindergarten and 1st grade.
This budget also incorporates $18 million in possible additional educational reform initiatives, which are wholly subject to identifying additional sources of revenue and/or cuts, beyond the level already identified by the School Board and the District's administration. The projected deficit for the fiscal year ending June 30, 2001 has been reduced by $125 million, compared to the lump-sum payment. 7 million in Intermediate Unit reimbursement payments to Fiscal Year 2000 and beyond. 42 6/5/00 - FISCAL STABILITY - RES. 000232 The State has also agreed to advance the District $363 million of Fiscal Year 2001 subsidies. Interest earnings on this advance should yield the District $10 million in additional revenue. The cumulative budgetary benefit to the District of these deferrals is close to $70 million. The Mayor has recommend $20 million in additional City revenues in Fiscal Year 20001, in addition to the currently budgeted grant of $15 million. 4 million as a result of the Education Empowerment Act passed by the State legislature and signed by the Governor with the past three weeks. These revenues will be recorded as categorical revenues but will be used to pay for expenses in the operating budget. Finally, the Board and Administration have worked to identify $30 million in expense reductions. In recommending these reductions, the Board has upheld the principle of not making 43 6/5/00 - FISCAL STABILITY - RES. 000232 reductions in school-based programs for children. It has also needed to consider the numerous Federal, State, and contractual mandates which govern School District operations. It should be clear that the process of identifying $30 million went to the wire. Each departmental reduction was based on a rationale that we can discuss and which Mr. Masch can discuss in greater detail at a future time. He literally met with each senior manager to discuss his or her proposed budget. What we are not in a position to say is what specific changes managers will actually make to effect budget cuts for their departments. Budget and Finance Committee Chair Michael Masch and our CFO, Rhonda Chatzkel, will be meeting with the Superintendent and senior management throughout the week to discuss the implementation of these reductions. 2 million were cut from the operating budget. Programs related to GED will continue to 44 6/5/00 - FISCAL STABILITY - RES. 000232 be funded through our categorical budget. Additionally, the District will look for ways to continue offering adult education programs through a dialogue that we will generate with the private sector and other adult education providers. We are also exploring providing the classes, keeping them in place, but charging fees to cover the cost. " Secondly, professional development programs in the amount of $5 million will be cut from the operating budget. This represents 14 percent of the School District's total 15 professional development expenditures. 35 million of these cuts will occur within the 17 22 cluster budgets. This short-term hit should be 18 viewed as a short-term budget necessity. We can't 19 execute a long-term educational strategy without 20 significant investment in the continuous training of teachers. 36 million identified above. I know that there is some political sentiment for reducing the number of clusters; 45 6/5/00 - FISCAL STABILITY - RES. 000232 however, Madam President, I do believe that cluster offices are better than regional offices, and that any potential savings from reducing clusters is not worth the havoc it would create at this time. 44 million in aggregate cuts will made from the proposed 2001 budgets of several administrative offices. $950,000 in savings was achieved by budgeting comprehensive day care according to a small increase over actual enrollment.
According to the financial analysis done, the initial budget proposed by staff did not reflect the historical enrollment trends, which are low, and demographic projections, which are going down. We did not expect the number of children served to decline, although we felt the number of sites might have to consolidated some. I am going to ask staff to brief you further on this later this week because there is some apparently conflicting information out there, and I need to get to the bottom of it. 46 6/5/00 - FISCAL STABILITY - RES. 000232 We will achieve savings because -- we will also achieve savings because the alternative school for disruptive students operated by CED will not be ready in September. We have a budgeted January opening. 7 million in savings. The budget also included a $500,000 savings based on the consolidation of the enrollment of three of our remedial disciplinary schools into two schools. Again, staff may have an alternative way of generating that amount without taking the Board's specific recommendations. 6 million, that portion of the District's summer programs for June and July '99, which were to have been carried in the operating budget, will be absorbed through the categorical funding and will not be paid from the operating budget. 2 million have also been identified. 6 million of this comes from the requested increase in the school security office. This reflects a 40 percent increase from Fiscal Year 1999, or 100 additional full-time 47 6/5/00 - FISCAL STABILITY - RES. 000232 positions. While this area continues to grow quickly, we also have to be able to manage our people and our resources. We need to develop a sensible way of deploying this ever-increasing force. We welcome Commissioner Timoney's input and coordination in his new capacity as the City's Secretary for Public Safety. The Board of Education has also made a couple of changes in the structure of senior management of the School District. A new position of Chief Financial Officer was created, reporting to both the Superintendent and directly to the Board. Rhonda Chatzkel was appointed as CFO. Tom McGlinchey was appointed Chief Operating Officer, reporting to the Superintendent. Since our last meeting in City Council, I have appointed new Board member Michael Masch to chair the Budget and Finance Committee of the Board and asked him to take a hands-on role in this capacity, using his particular expertise, and he has done that. The net result of all of the above is twofold. We have projected -- we have a projected fund balance deficit of approximately $80 million for the upcoming school year and a cash position 48 6/5/00 - FISCAL STABILITY - RES. 000232 which enables the District to keep schools open and operating for the full year. Secondly, the Board of Education has been able to remain consistent to the five objectives that I outlined when we met here on March 6th. We said we would not cut school-based programs for children. The amounts going directly K-12 education in school budgets were not tapped in the budget process. Full-day kindergarten, instituted by the Superintendent, supported by you, required by Judge Smith, and not funded by the Commonwealth, continues, along with other school-based reform initiatives. We said we would continue to make every effort to further maximize the efficiency and productivity of the School District's management and operations. We have created the positions of CFO and COO. We are participating in an effort with the City and other public agencies to examine opportunities for savings through greater collaboration and possible consolidation of non-core functions of the District, similar to the suggestions made several years ago by City 49 6/5/00 - FISCAL STABILITY - RES. 000232 Controller Saidel. Some of the savings in the budget also recognize the room for efficiencies and increased productivity. We said we wanted to keep schools open and operating.
Against enormous odds, including skepticism as well some citizens in some parts of our community, our staff, the Finance Committee, the Board-City Harrisburg Team, our mayor and our governor have been able to make this possible. We said we wanted to make a down payment on educational reform initiatives. This budget does make a down payment, although not as large a payment as we had hoped. And we said we would work with the leadership of the City and the State to develop additional short-term and long-term solutions to the fiscal challenges that face the District. Almost every moment since our last visit here has been devoted to creating the short-term solution that would give us the space and time to work with all our partners on a longer-term solution. The longer-term solution must be a joint solution of local and State government. I am pleased that we have made significant progress 50 6/5/00 - FISCAL STABILITY - RES. 000232 in building relations with the Governor's Office, not just institutionally among offices, but between and among individual people as well. We are working towards the same with the legislative leadership. With respect to City Council, I am not yet pleased with the flow of information and the level of interaction between City Council and the District and want to work together with City Council leadership on that as a two-way effort. I know that we have some way to go on that effort. I assure you, the Members of Council, that the members of the Board of Education and the School District administration remain committed to these objectives for the long term. We are eager to move forward to use this intervening time to develop a long-term financial plan, to address the fiscal years 2002 and beyond, which enables us to build on the foundation of the last six years. I know that I speak for the other volunteer Board members who have been putting in extraordinary hours since March to collectively address the myriad of challenges when I say that we will remain focused and that we will keep moving forward. We hope that through your 51 6/5/00 - FISCAL STABILITY - RES. 000232 financial and political support and other actions, you enable us to move forward. I now have the pleasure of introducing Superintendent David Hornbeck, who is going to provide a brief educational context for the presentation by Miss Chatzkel.
Thank you. Good morning, Mr. Hornbeck. Please identify yourself for the record and proceed with your testimony. SUPERINTENDENT HORNBECK: Good morning, Madam President and members of the committee. My name is David Hornbeck, and I'm the Superintendent of Schools. We appreciate the opportunity to appear before you to discuss the single most important issue in the City, public education. Our success in public education will determine whether we take off economically with high-wage jobs, the quality-of-life issues, with which we wrestle constantly, the safety of our neighborhoods, the characteristics of the citizenry, even the strength of our families. There is no single other arena which will drive every single other 52 6/5/00 - FISCAL STABILITY - RES. 000232 component of our life together. As we all know by now, a little while ago, the Mayor and the Board President and I announced that I will be stepping down as superintendent in a couple of months. This has been a very difficult decision for me. I love Philadelphia, I love the children of this city. However, due to the fiscal constraint imposed on the City by the State's school funding formula that exists by virtue of the bipartisan historic actions in Harrisburg, the era of school change I symbolize, and for which I have had the honor to provide leadership, is coming to a close. My sadness in making this decision is tempered by the fact that the next era of school change has already begun with the smart, energetic, and able leadership of the new mayor and the new Board of Education with leadership from Pedro Ramos and Dorothy Sumners Rush. I want to spend a few minutes framing the discussion of the financial challenges we face. If we miss the context, I believe that we will fail to take school change to the next level. 53 6/5/00 - FISCAL STABILITY - RES. 000232 Too many have failed to grasp, or in some instances accept, that our children, as a result of the hard and smart work of our teachers and administrators have made more academic progress than virtually any other city in the United States. To take that one step further, our children have outperformed the voucher kids in Milwaukee, the longest running voucher experiment in the nation. Our kids have even done as well a as the kids in the first Edison School 12 projects, even though those schools didn't open 13 until they were ready to open; children in those 14 schools were handpicked, and they started with 15 extra money. 16 Last week, we had the pleasure of 17 announcing another year of dramatic academic increases by our 15,000-plus 4th-graders. They went up another 8 percent in reading, math, and science. They've now gone up 48 percent since we since established the baseline in 1996. Fifty-nine percent of them are now at basic and above in reading, 51 percent are at basic and above in math; and with a 17 percent increase in science this year, 63 percent of the 4th-graders 54 6/5/00 - FISCAL STABILITY - RES. 000232 are at basic and above. Since the beginning, I would also point out that the proportion of students now scoring at world-class levels, either proficient or advanced, has doubled from percent to percent, which is 7 about 2500 kids. 8 I won't go through all of the numbers 9 other than to observe that as of a year ago, 10 including 3rd, 7th, 8th, 10th, and 11th-graders 11 whose scores we will not get until later in the 12 summer, we had already seen the scores increase by 13 40 percent. 14 Anyone who still does not get it either 15 has not done his homework, or he has an agenda 16 that is different from an agenda in student 17 learning. I illustrate the point with three 18 examples. Speaking of the 4th-graders, one prominent person observed that he was not impressed since 42 percent of the kids still are not at basic or above. In what other industry or enterprise does coming out in the top two or three in the nation result in criticism instead of celebration.
It's an insult to both the kids and 55 6/5/00 - FISCAL STABILITY - RES. 000232 to the teachers. Some still are in a time warp of saying that the progress results from including untested kids in the equation. Unfortunately for those naysayers, our national percentiles rankings relying only on tested kids have gone up so much that the untested student argument is utterly without foundation. I might also add that with 4th-graders, more than 95 percent of the kids are now tested. So if we ever got an achievement bump from including untested children, it's even statistically impossible now. Finally, I heard a talk show caller the other day make the observation that the games are rooted on our artificially deflating the score in the first year five years ago. Because such critics have not done their homework or they have another agenda, they simply don't know what to do with the children's continuing success, like the 8 percent increase in 4th-grade achievement in the last year alone. As you embark on this new era of school change, I urge you to believe in our children. They deserve it. All of this didn't happen by 56 6/5/00 - FISCAL STABILITY - RES. 000232 accident. We have full-day kindergarten; We have tripled the number of computers; We have doubled the books and other instructional materials; We have quadrupled the amount of staff development for teachers and leaders and improved the quality; We have 15,000 more school volunteers; We have raised over $150 million to improve academic outcomes; We've implemented reduced class size in kindergarten and the 1st grade in more than 100 of our schools; And last year, for the first time in a decade, we restored summer programs; We raised standards and developed sophisticated accountability systems for educators, students, and citizens; We have world-class standards; We have adopted an accountability system built on student performance; We have stronger graduation and 57 6/5/00 - FISCAL STABILITY - RES. 000232 promotion requirements for students We have the best school-to-career system, preparing students for productive careers of any school district in the nation; We created human being friendlier organizations in smaller communities and clusters; We enrolled 5,000 more children in health insurance, and there are dozens more nurses in schools; Every school has a breakfast program; We provided an average of more than $120 million per year in capital initiatives, building a number of new schools, several little schoolhouses; we have bought and put parochial schools into services; and there are countless new roofs, bathroom replacements, window replacements, and other substantial projects; 25,000 students this year are engaged in service learning projects; Since money belongs in classrooms, and not administration, we've reduced the number of administrators by several hundred; We spend more on instruction and less on other things than is spent on average in the 58 6/5/00 - FISCAL STABILITY - RES. 000232 other 500 Pennsylvania school districts; The GPF Management and Productivity Committee helped us save millions and avoid the expenditure of millions more so that those dollars could go into education. The City and the District have unbelievably strong assets. The stage is set for this next era of school change. While the financial challenges we face are unprecedented, if we solve those and build on the program changes already initiated, Philadelphia will succeed. I don't mean the District will succeed; I mean that Philadelphia will succeed. It's my fervent hope that the Mayor, Council, the Board of Education, and whoever your new superintendent is, will come together in an unprecedented way to pursue a common vision of even deeper change as you push toward having all of our children achieve at high levels. If you do, nothing will stop you.
It's my pleasure now to introduce to you the new CFO of the School District, Rhonda Chatzkel, who brings a lifetime of financial acumen and wisdom, and has done quite a remarkable 59 6/5/00 - FISCAL STABILITY - RES. 000232 job, even in the months leading up to right now, and the District is blessed to have her talent at its disposal. Miss Chatzkel.
Thank you. Good morning, Council President Verna and committee members.
My name is Rhonda Chatzkel. I'm the Chief Financial Officer of the School District. Board President Ramos has talked about our current fiscal situation and the tough choices that the Board has had to make in effecting cuts. The Superintendent has talked about the educational achievements that have occurred during his superintendency, and Councilman Nutter has asked me to talk about the fiscal story that brought us to the situation that we're at today. I have prepared a presentation, not testimony, which I hope you all have. I won't begin until you've got it.
I don't believe we have it. 60 6/5/00 - FISCAL STABILITY - RES. 000232 Do all Councilmembers have a copy? They do not. Please proceed.
What I hope to detail for you -- and please interrupt me with questions. I will focus on a couple of key slides, but I wanted to give an overview of our funding sources over the past ten years, which are primarily from the State and from the City, to talk about how we've spent the fund that we've got, and to talk about how we came to this situation where we have an emerging deficit. If you will turn to the second page, you'll see the components of our funding. As of the date of the lump-sum budget and before the recent adjustments made by the State, our total revenue was just under a $1.5 billion and about 60 percent of that revenue comes from State, about 40 percent comes from local tax sources. With regard to State funding, if you'll turn to the next page, and again, I want to flip quickly through some of these but explain to you the components of our funding. State funding has many components, the 61 6/5/00 - FISCAL STABILITY - RES. 000232 biggest of which is our basic education subsidy, but there are a number of other pieces that are important to talk to because they tie directly to programs that we offer. However, the biggest piece, again, is the basic education subsidy, which is projected to be $635.6 million. It should be mentioned that the Governor's budget increases with, the exception of the Empowerment Act money, are reflected in these monies. There was a $36 million increase in the Governor's budget, and that is in these numbers. Subsequent to these numbers, the Empowerment Act dollars were approved. They will not be shown as revenue in the operating budget. They will pick up operating expenses, but they will come in to us as a grant. But in total, before the package that was talked about last week, there was $64 million -- rather $52 million in new State funding. With regard to the basic education subsidy, I'd like to turn your attention to 4.
Does the figure of 867 at the bottom of still stand? 62 6/5/00 - FISCAL STABILITY - RES. 000232
It does stand, with the exception of the adjustments that were announced last week.
Actually, I'm going to flip forward to , and I think that's probably the most important page to be talking about. Overall, our State funding has tracked with inflation if you look across the District as a whole. Our State funding has gone up since 1995 about 2.5 percent, inflation has been about 2.5 percent. What's happened, though, not just in the past five years, but going back a decade, is that our enrollment has jumped. In the past decade, we've gone up about 23,000 students. And for that reason, it's important not just to look 63 6/5/00 - FISCAL STABILITY - RES. 000232 at State funding as a gross number, but to look at the State dollars we get per student, because that drives how we spend our money. And if you'll look on , the basic education subsidy per pupil, which, again, is important to note, starting in 1991, we took a bit of a dive. At that point, the basic education formula that was in place at the State level changed, and the key driver up until that point had been enrollment. It's not right to say that the basic education subsidy was capped at that point, but it was not as responsive to enrollment growth, and that's why, if you look between 1991 and you see a dip, what's happened effectively is that the basic education subsidy has fallen relative to our enrollment.
Our enrollment actually over the past decade has gone up. It's gone up by 23,000 kids. Our basic education subsidy, at this point, has a very small growth supplement. It's about $400 a child. But in 1991, the old formula was heavily driven by enrollment, was very 64 6/5/00 - FISCAL STABILITY - RES. 000232 responsive to enrollment increases. And, in fact, if that old formula were still in place for the next fiscal year, we would have about $75 million more in basic education subsidy. I mean, that's what was. Just dealing with what is, there is a change in formula, but I thought this chart would be helpful in that it shows you what our basic education subsidy per child is relative to inflation, just the CPI.
The formula used to have a large component. About 60 percent was a fee per child. And then there was a poverty supplement and then there was a tax (unintelligible) supplement. What happened subsequent to that point is that the largest piece of our basic education funding was fixed at 1991-'92 levels. So even though our enrollment continued to increase, at this point, the predominant force -- in fact, 97 percent of what we get in basic education subsidy is driven off of our 1991-'92 levels. So it doesn't fully capture the enrollment growth that 65 6/5/00 - FISCAL STABILITY - RES. 000232 we've had. Just looking at the basic education subsidy --
I know you may not know this, but could you tell us why they -- I mean, you say that that's not a cap, but it is a cap. I mean, why did they -- I know you have to be nice, but it's a cap. So why did they cap it? Do you know? Was it legislatively, was it administratively?
Councilwoman, there was State legislation that changed the formula. And in terms of context, in 1991, 1992, we're talking about the middle of the recession in the country as well as in the State, at a time when it -- when Philadelphia continued to get a large chunk of the State's money and the State was spending a greater proportion of the total education dollars across the State. I believe that that is also true.
The State used to pay the bigger share of the education dollars for 66 6/5/00 - FISCAL STABILITY - RES. 000232 everybody; that share has gone down. And in 1991-1992, I guess -- and I don't know, as a budgetary matter, the formula was in essence, as you say, capped so that the additional benefit to Philadelphia for the 23,000 kids that have been added since that time was limited; whereas if it weren't, if it had just been kept the same, we'd have significant dollars that would have come with all of those additional children. And, you know, as you probably know this, it's a time when the City's population was going down significantly by, you know, probably over 100,000 residents, and the School District population was going up by over 20,000, and generally, a poorer population as well.
Also, I did want to point out as well that that was a different formula. The formula has changed, but just dealing with the formula that we are right now dealing with, I thought that this bar chart was helpful, because it shows what our basic education subsidy per child would be if it had merely kept pace with inflation, forgetting about the 67 6/5/00 - FISCAL STABILITY - RES. 000232 components of the formula.
The present formula -- I'll get back to you with a specific written version, but about 97 percent of it is driven off of that '91-'92 number. That '91-'92 figure has had base supplements. Those base supplements build a base, but they're not driven off of changes within our enrollment or our poverty level. There are for the other small percentage of what we're getting for basic education. There is a piece that is a gross supplement. That's $400 per addition and enrollment. There's also a poverty supplement. But, again, about 97 percent is not responsive to what's going on just within the City with the School District population.
Was the lawsuit -- was the basis of the lawsuit this formula, the change in the formula? SUPERINTENDENT HORNBECK: There have been two particular lawsuits. The issue of both equity and adequacy was in the State lawsuit that the State Supreme Court declined to act on and 68 6/5/00 - FISCAL STABILITY - RES. 000232 sent back to the legislature as a so-called political matter, and that was clearly rooted directly in that formula. The basis for the federal lawsuit arises out of the fact that the way the overall formula works, it ends up having a significant negative impact on school districts that are poor and that are majority minority kids. So that it is the particular result of all of the formulae. The thing to which Miss Chatzkel has been referring is just the basic education subsidy. And in addition to that, there's transportation there's special ed, and there are all these other things. And those other things, for example, have no equalization for the most part in them at all. And so they become disequalizing in places where they're rural or urban, that have lots of poor children. But it was a fact like the fact that in a majority minority school district holding poverty constant, for every percent increase in the proportion of minority kids, we lose $52.88 per kid from the State. And that was the -- that is the basis of the federal lawsuit. 69 6/5/00 - FISCAL STABILITY - RES. 000232
Yes, thank you. Miss Chatzkel, you made reference earlier to the prospect of getting us additional information with regard to the formula. Were you anticipating the written documents that lay out what the formula is, or is there a way to show us in more of a chart form by way of explanation of how the different dollar components come to us by way of the State, and what formula they come from? I mean, I have never -- I've really not been able to understand what the formula is, the significance of '91, and how this formula affects the other 500 school districts across the Commonwealth. I mean, we're all subject to the same formula; is that correct?
Okay. And do some people do better in that than others? Superintendent? SUPERINTENDENT HORNBECK: Mr. Nutter, I 70 6/5/00 - FISCAL STABILITY - RES. 000232 can give you a piece of that answer. The formula is extremely complicated, and I frankly don't understand all of it. But what happened in 1991 is that basically they said that if you spend X-number of dollars -- and that was 4800, I think, was what the number was -- up above that, the State was not going to continue to equalize the dollars.
What does that mean? SUPERINTENDENT HORNBECK: Well, it means basically that up to 4800 -- or whatever that number is, I don't remember what it is -- that the State takes into account how poor you are. And so if you're poor, like we are, you get more money; and if you are wealthier, you get less money.
Right. SUPERINTENDENT HORNBECK: But once you spend above whatever that money is, 4800 or 5,000 or whatever, then basically, that difference is on you, on the district. And since we're in Southeastern Pennsylvania and our costs are much greater, we, of course, are spending above the 71 6/5/00 - FISCAL STABILITY - RES. 000232 $4800. Again, I say whatever that number is, 'cause I don't remember. And, therefore, that piece is not equalized; and thus, you begin to see at that point this disequalization taking place.
Well, would someone be able to lay out for us at a subsequent hearing -- I guess I would like to get better understanding of why we are where we are. I mean, putting some of the politics and some of the personalities and all of that aside, to the extent that you can ever put all of that aside, but I would like to have a better understanding of where things were at a certain point, based on whatever that particular formula was, and then whatever happened in 1991 and what that formula was, and then I need you to show me on either one sheet of paper or a series of documents on a year-by-year basis what the formula has meant to Philadelphia in its calculation, at the same time you have an increasing school age population, and what the bottom line of that financially ends up being as it relates to us. And then I would ask you, if someone has the capacity to do this, show me what that 72 6/5/00 - FISCAL STABILITY - RES. 000232 same formula has done under the same circumstances with a couple other places that are either somewhat like us or not like us at all. SUPERINTENDENT HORNBECK: I have no 6 doubt but that we can do the former, and we'll work hard on producing the latter as well. There are features outside of the formula which need to be a piece of this discussion, like not only the transportation features, but things like the charter school rise in expenses, which has been has been one of our big, big increases, and the increase in payments to approved private schools, and the fact that the Commonwealth doesn't reimburse all of that, and so on. So I think that the Council would be well served to have exactly the answer to your question, and we'll be glad to do that.
We've looked at actually what the change in our funds balance would be if the basic education formula still had been in place. It's about $700 million. Would have an impact of about -- 73 6/5/00 - FISCAL STABILITY - RES. 000232
Cumulative right. And it's about $75 million for next year alone. So we have looked at that. What we haven't looked at is kind of defining the changes in the formula, and I think that's what you're asking for.
Thank you. The Chair recognizes Councilman Kenney.
Thank you, Madam Chair. President Ramos, I think we may all agree that our efforts in lobbying Harrisburg for additional dollars or for dollars that people in the School District believe we deserve, as a result of poverty issues and increased enrollment, has not been a successful effort, I guess, up until some of the breakthrough that we've had 74 6/5/00 - FISCAL STABILITY - RES. 000232 recently. My understanding of the agreement, or the breakthrough, we've had recently is to give us a year to fix that situation, while not having the schools having any interrupted service and having a continuous academic year for the year 2000-2001. What, if anything, is planned, and what are the component parts of dealing with the Governor's Office, the members of the legislature on both sides of the aisle different? What's going to be different in the next year that has not happened in the last five or six years?
I think part of is the information we're getting out of the Governor's Office last week is that there is a shift. I mean, at one point, Councilman, they said that we have -- that Philadelphia has a year to figure this out. I think the context that we've set is that the City and the State leadership are going to work together to figure this out. It's not just you have a year and come back a year later. And I think that you're right, we have made significant progress in the last few months in building relationships. And as you often have said and others, a large part of this is first 75 6/5/00 - FISCAL STABILITY - RES. 000232 about having the relationships, having some sphere of trust where people can work together. I think that some of the sphere of trust that was built up in the last few weeks came at a very -- were critical at the end of last -- in the middle of last week as we were talking to the Governor's Office. There were several points at which trust was required. And it would have been a lot harder if Debra Kahn and I and other members of the Board and the Street Administration hadn't already established not only just official relationships, but we've now been working with representatives in the Governor's Office enough that, you know, you do start getting to know each other a lot better and know kind of what, you know, how much room you have to work with. So I think that part of it we have the new type of relationship with the Governor's Office that still has to be strengthened and built on. And I think there's -- I think of we've built some credibility with the Governor's Office, and now I think we can begin to transfer that to the legislature which, as you said, there's a whole 76 6/5/00 - FISCAL STABILITY - RES. 000232 lot of work to do there. But, you know, I think that we have accomplished establishing some credibility. We have been speaking to staffs of the legislative leadership. Everybody does know and understand the School District's financial crunch. Everybody understands, as you said, that this is really a year to work on a longer-term solution -- and, in fact, probably not even a full year, because what we really are talking about is, you know, probably February and March, when the whole budget process starts all over again. So, I mean, we don't want to relax and think we have a year to do it; it's actually several months. And, you know, we announced this on Wednesday night. Since then, you know, we've probably talked to the Secretary of Education twice and one of the Governor's senior staff people once or twice, so this has been an ongoing process.
Could you elaborate on what has been done, similar to what you've been doing at the Governor's Office and with the Secretary of Education as it relates to the 77 6/5/00 - FISCAL STABILITY - RES. 000232 legislature. Because it's been reported, and perhaps privately discussed, that various elements of the legislature, both Houses, both parties, probably don't feel as connected to the new administration as perhaps the Governor's Office by virtue of your working together in a time of crises.
Well, I think that you would agree that several months ago, the same would have been said about the Governor's Office. And we are -- we have, through a number of initiatives, started working in terms of just getting information out to senior staff, providing them the opportunity to check the numbers themselves to know that we're providing them with credible information. The Mayor has, in recent weeks, I know, spoken to legislators and the legislative leadership on both sides, and we understand that he will continue to do that. And I would defer to George Burrell to share, you know, the greater details with you on what communication exists between the Administration here and the legislative offices. But that, I do believe, is our next 78 6/5/00 - FISCAL STABILITY - RES. 000232 great task, is continuing to build with the Governor's Office while extending that credibility as well as relationships with the legislative leadership. I think that's right.
You had testified this morning that there's planned $30 million in non-instructional cuts that are part and parcel of this recent budget passed by the School Board. And I think you made it clear that none of those cuts, in your opinion, would be affecting children in the classroom in a negative way, or to the best of your ability.
Not directly. I would say that, you know, professional development does affect children in the classroom in a negative way, and that if this were, you know, a permanent approach, I would probably not be able to answer this way. We are, you know, making some very tough decisions about this year.
I guess part of the problem and part of the frustration that I've had over the last number of years in this body as far as our questioning and our relationship with the District over school budget and budgeting is that 79 6/5/00 - FISCAL STABILITY - RES. 000232 we've been told repeatedly that there were no more cuts being made, and that, in fact, I think terms like "The sound you hear is the sawing of bone. We are so close to the bone that there is nothing else left to cut." And then today, we learn that there's 30 million more to cut, even though it may not be the level of funding we would like. But I think you've made it clear that it's not a level of funding that's going to hurt children in any way. And I guess the frustration and the question is, is that if we had done this over the past three, four, five years, would we have not have accumulated not only enough savings to keep our fiscal distress at a minimum, but more credibility and ability to talk to the legislature and the Governor about the things that we've done. And I know that the Governor and the legislature are clear: they don't think we do enough in the way of providing resources for education. But if we were able to continue to make these cuts over the last number of years, would we not be in a better fiscal situation and also be able to point to Harrisburg and say, you know, we 80 6/5/00 - FISCAL STABILITY - RES. 000232 have done things to clean our house and to fix our system. It just seems to be two different stories: on one hand, we can't cut anything; and on the other hands, here's another 30 million, by the way.
Well, Councilman, I think -- you know, would disagree to some extent. I mean, first of all, over the last six years, a number of reductions have been made in administrative expenses being pushed into the classroom, as well as some progress and management and productivity. We just concluded a contract with Local 1201, which represents bus drivers, engineers and others, where the number of crafts went from something like 28 to 4, where we added a third shift so that you don't have automatic overtime for certain times. So a lot has been done in the savings, in the productivity area, and a lot has been cut in the administrative area. I can't really say, Councilman, that there are cuts here that I feel are, you know, that in any way should make any of us feel good. These are cuts made under extraordinary circumstance, you know, as you said, for the 81 6/5/00 - FISCAL STABILITY - RES. 000232 purpose of creating the space in the year to start working on longer-term solution. We are trying to do a number of things here. We are -- we are -- you know, we are -- in the long term, the amount of revenue that's going to be needed to continue making academic progress is going to have to increase, and it's going to have to increase significantly. One of the things we're doing, however, is trying to redefine what money -- what we have to do as a system. We've focused this year on school-based services for children. Some of things you see in here like free adult education, I'd love to be able to provide adults, you know, who are in their 30s, 40s, and 50s who have never completed their high school education a free high school diploma. That's a real substantive educational cut that we cut because it wasn't for children.
Right, we're all paying for 82 6/5/00 - FISCAL STABILITY - RES. 000232 it as taxpayers, but it's coming from somewhere.
Yeah. I can only give you a corollary to my own personal experience. I mean, when I graduated from high school, St. Joe's Prep, which my parents struggled to send me to, at a very expensive rate of tuition, I wanted to go away to school and I wanted to stay in a dorm and go away and have that college experience. And we sat at the kitchen table, and my parents told me, much to their chagrin and disappointment, that they couldn't afford to send me to an away-school at a higher rate of tuition. So I went to LaSalle and I commuted, and I think I got a pretty good education. I guess the question is that there are certain things we would like to do for everyone if it cost nothing or it didn't affect anyone's ability to pay for it, but our own individual personal experiences show that even though we'd like to send our kids to Georgetown or Harvard, and although I would have liked to have gone away to a private, overnight dormitory school, we couldn't afford, and we did the best with what we 83 6/5/00 - FISCAL STABILITY - RES. 000232 had, and I think that I was happy. I went to LaSalle and got a good education, 'cause that's what my parents could afford to give me and would have loved to have given me more.
And, Councilman, I agree 100 percent. You had the opportunity to go to a university that was a fine university, with a lot of strength, a lot of prestige, a lot of history, a lot of community, and you didn't have to pick an accredited college that you never heard of that's struggling and holding together with, you know, tape and rubber bands. And I think we all would be pretty content if this school district, relative to our neighbors, could be as strong as LaSalle is in this college community. That would be a relatively -- you know that would be a very strong position for us to be in, but we're pretty far from saying, you know, that we're the equivalent of LaSalle, among our neighboring school districts. Another metaphor that's often used is, you know, about people in their households having to make ends meet. And this isn't about cutting premium cable; this is about macaroni and cheese 84 6/5/00 - FISCAL STABILITY - RES. 000232 every day, about, you know --
But your testimony on these cuts made it very clear that it would not have a negative effect on the backs of the children in the system.
Either it's going to have a negative effect on them, or it isn't. If it is, then we have to discuss it.
Then let me say this. What we said in March and the commitment we made and we kept was that we would not make cuts in school- based programs for children. That's not the same as saying this doesn't in the end have a negative effect on kids. If we sustain this type of approach and don't find a new way of doing it and you approach the balancing of the budget as slicing and slicing, and you do away with professional development, and teachers don't get, you know, periodic retraining, that will have a negative effect on children.
What effects do you think that the upcoming -- when does the teachers' contract expire? 85 6/5/00 - FISCAL STABILITY - RES. 000232
What role or dynamic do you think -- without getting into the specifics of negotiations, what dynamic and effect do you think it's going to happen on this one-year temporary plan and how it's going to affect what our needs our in Harrisburg? 'Cause I will argue that the last teachers' contract, I think, perhaps wouldn't negotiated as hardly -- as tight and as tough as it could have been, and it's one of reasons why we're in the situation that we're in. And I know -- in my own personal opinion, there were political considerations at the time doling with presidential elections and national politics that put in us a situation not only from a financial standpoint but from a workable standpoint, that gave us no opportunity to really make gains in the area of labor relations and employees. And I know you guys weren't here and it was the last mayor, it wasn't this mayor, but, I mean, what are we going to do 86 6/5/00 - FISCAL STABILITY - RES. 000232 this time differently?
Well, there are a couple of things. I'll let Debbie also respond to part of that. First of all, this -- you know, we have said a number of times that we think, you know, that the teachers' contract should look different. I don't want to get into the negotiating the contract in public.
The -- I -- we also know that, you know, the financial circumstances are what they are, and that we are going to need the leadership in the Commonwealth to be a part of any long-term solution. And we're not going to do something that jeopardizes that. The final observation that I'll make, just in just terms of the context, the fiscal year context, is that the represented teachers just received a 4 percent increase at the end of April through at least the next April 30th, which, I think you know, is something to keep in mind.
One of the greatest advantages that the City had in its dealings with 87 6/5/00 - FISCAL STABILITY - RES. 000232 its labor unions back in 1992 was the existence of the PICA statute which allowed for the neutral arbitrators to determine the City's ability to pay that contract. It really took, I think, some of the political pressure off of members of Council and others to allow the Administration, despite the fact that the unions were upset about it, to get some of the breathing room it need to get the City back on its fiscal feet. Is there some scenario that would allow for a similar PICA arrangement for the School District that would give the protection to the District as it relates to its ability to pay for a negotiated contract? SECRETARY KAHN: Well, let me just say a couple of things. First of all, in answer to your first earlier question, I did speak with Ted Kirschner actually probably first thing Thursday morning, and he did express his relief and his pleasure that, in fact, we could be looking forward to a full-year school, you know, during the next school year, which really does help us, in negotiations at least, to have that certainty. I think the Mayor said earlier, in 88 6/5/00 - FISCAL STABILITY - RES. 000232 responding to that question about additional oversight for the School District, that he would certainly be open to that discussion, he did talk about it previously. There is nothing formal right now that is in the works, but that's something that we would talk about. We know -- I believe that the Federation knows that there are very high expectations for the result of this contract now, and we have a lot of discussions ahead of us between now and August 31st.
Thank you. The Chair recognizes Councilman DiCicco.
Thank you, Madam Chair. Maybe, Mr. Ramos, you might be able to answer this; if not, or someone else could. Does anyone know what the cost of the cluster program is, the cumulative cost?
The total cost is just $14 million, and included in there are some of the 89 6/5/00 - FISCAL STABILITY - RES. 000232 professional development, which is scheduled to cut. After the cuts that are contemplated, the cost will be brought down to about $11 million.
I'm a little confused. In your testimony, Mr. Ramos, unless I'm reading wrong, on , you begin to talk about cuts in the cluster program. I believe you talked about $1.35 million, which will occur within --
All right. And then on the next page, it goes on to 1.2 and then 1.36. I think that's probably a --
A typo. But if I'd adding correctly from through , in those items where you speak about cuts in the cluster offices or professional services, it's approximately about $9 million in cumulative cuts; 90 6/5/00 - FISCAL STABILITY - RES. 000232 is that correct?
You're saying 6.4 million in aggregate cuts will be made from the proposed 2001 budget?
Right. That's not limited in the cluster offices. The other administrative cuts is 6.44.
It's not limited to the clusters, right. It's in places other than in the clusters.
All of the administrative cuts in the aggregate were about $8 million and --
What is the total number of cuts in the cluster system?
22. I mean, depending on who you speak to, and I'm not going to get into the particulars. But since this Council will be mulling over the possibility of granting another $20 million, if the cluster system were done away with completed, that would be $14 million, right?
And I understand your testimony. You believe that it would create some havoc to go back to the original superintendents and whatever.
Right, right. That's right, Councilman. But the other thing to keep in mind is part of that structure is probably a constant anyway. Regardless of whether you call them "regions" or how you do it, there is going to be 92 6/5/00 - FISCAL STABILITY - RES. 000232 a certain level of support you're going to need. You're still going to have, you know, an apparatus for special education at the cluster level, you're still going to have a lot of those same type functions. You might end up having, you know, having one boss instead of two bosses and maybe, you know, one secretary for the boss instead of two secretaries for two bosses. But once you get into the level of service needed to provide -- to service the field, you know, you get some additional savings. But you also are, you know, putting it in a -- you're creating mini 21st Streets throughout the City instead of the opposite of what we're trying to do, which is to create smaller, more manageable --
But I'm hearing that you may have one boss instead of two bosses and one secretary instead of two. And, again, this may be too much for us to talk about now, but if there is a way in which we can, you know, compare some of those numbers, I mean, that's how cuts are made. I mean, I'm assuming that's how you got to some of the cuts that you've already 93 6/5/00 - FISCAL STABILITY - RES. 000232 proposed, because you're eliminating a certain number of personnel from certain various departments. SUPERINTENDENT HORNBECK: We can give you some comparisons. For example, when we had regions, we had in the system as a whole more than 200 more administrators. So if we restored what we used to have, we would have to add administrators to the rolls. The cost of administration then and now is almost the same. And, finally, the achievement children is about 40 percent greater. So there are several things one takes into account. And from a numbers' point of view, we're better off today; from a cost point of view, we're about the same; and from an achievement point of view, we're significantly better.
Okay, I have no 20 further questions at this time. Again, I think that breakout would be helpful.
I don't want to belabor this, but if we have 22 clusters and you say that there are going to be cuts of $2.6 million, is that from the current or proposed 94 6/5/00 - FISCAL STABILITY - RES. 000232 budget?
The proposed budget was actually level with what we estimate for this year, so these are real cuts. It's not just --
So that would be approximately 118,000 per cluster?
And what kind of positions are we talking about?
Again, I think there will be discussions with the cluster leaders and with the Administration over the course of a week, but the intent was to have management within the District and each cluster leader propose an area that he or she felt could best absorb the cut. So I don't believe the District's intent is to make a uniform statement as to what type of position might be cut but allow the manager to work with those dollars.
It would certainly be more than one position if we're talking about cutting $118,000.
Some of it's also 95 6/5/00 - FISCAL STABILITY - RES. 000232 professional development; not just positions, but professional development all through the clusters.
And how much would the professional development be? I mean, I thought you were cutting that throughout, so wouldn't that be included with the cluster? Is that part of the 2.6?
There's a cut in professional development, generally. And that cut is $5 million. Part of the professional development is -- that budget right now is divided up among clusters and downtown, and I don't know whether this includes the (inaudible). And so what when we talk about a $5 million cut in professional development total, the 1.36 million of that 5 is coming out of the budgets that clusters had for professional development.
In addition to their professional development budgets being cut by $1.36 million, the cluster offices were also cut by $1.2 million. 96 6/5/00 - FISCAL STABILITY - RES. 000232
Mr. Ramos, I'm sorry. Where are you getting the 1.3 number from?
Is that different from the numbers that we received the other day on Exhibit G out of the Board Document F-1?
The Exhibit G in the resolution spoke to professional development cuts, I believe, as being separate from cuts just directed at the clusters.
Well, on that document, tell me what the professional development cuts were.
Okay. On Exhibit G, about halfway down the page, "Professional Development," the line reads: "Reductions in professional development to be identified." The total was $5 million.
That was as of Tuesday night. And, again, we went to the management of the District to talk about how to best effect 97 6/5/00 - FISCAL STABILITY - RES. 000232 those cuts. What they came back to us with was that about 1.3 of those cuts would be at a cluster level.
All right. So this has been a discussion that's within a realm of $5 million, and now you're trying to parse out for --
To make distinctions within the $5 million of where these cuts are being made around the system.
So now the calculation that we have is that the cuts for the clusters would be in the vicinity, then, of 54,000, once you have taken away the development, the professional development.
It's -- actually, it's 1.2 million directly from the clusters that may 98 6/5/00 - FISCAL STABILITY - RES. 000232 have been to be effected through staffing changes. And it's $1.36 million that are professional development. We'll have to deal with those cuts in the aggregate. Those cuts are 2.6 million, which means each cluster will have to pick up from their budget more than $100,000 of cuts.
I'm sorry. At this time, the Chair recognizes Councilwoman Tasco. I'm sorry, I know everybody wants to be recognized.
Thank you. I'm just going to temporarily deviate from the cluster. On of your testimony, you talk about the $950,000 in savings that was achieved by budgeting comprehensive day care according to a small increase over actual enrollment. What I am puzzled by is the low enrollment. And if that is so, why, when we had testimony here when we had hearings on the welfare-to-work program and most of the women were complaining that there was not adequate day care. 99 6/5/00 - FISCAL STABILITY - RES. 000232 And am I missing something? Do we not market your capability to provide comprehensive day care and these parents don't know about it? Because we're constantly getting requests for home day care and variance changes at the Zoning Board. So that was on the other day when we had the briefing and I couldn't stay is the question that I'd like to have answered. SUPERINTENDENT HORNBECK: At least one of the reasons that we have that challenge is that there was an amendment put into State law back in 1991? When? Anyhow, ten years ago or so. At a moment when there was an attempt to cut out a bunch of centers that said you always have to have the centers that you have right now for eternity, and some of those centers are in places where the people to whom you refer don't live. And so despite the fact that that may not be the place that would be the best place for those centers if you placed them, where the need was greatest, the law requires that we keep those centers there. Now, what all of the reasons are is probably a lot more complex than that, but that's 100 6/5/00 - FISCAL STABILITY - RES. 000232 one of the reasons.
Well, has there been any attempt by the District to change the law to demonstrate that where -- since they are the ones who enacted the law for women to go to work, they instituted the welfare to work, has there been any collaboration and coordination to say, Well, where the centers are, the people who need the centers are not there, and so we need to change the law so that the centers can accommodate the mothers who need the service. SUPERINTENDENT HORNBECK: I think that discussion would make a lot of sense, and I suspect that that will be part of the conversation that will take place over the course of the next year. There's actually a number of ways in which, in my judgment, the welfare law has been implemented in Pennsylvania over this last couple of three years that could use our intention, and that's just one of them.