ANNAPOLIS – The state delayed its $42 million bailout loan of Baltimore City public schools Tuesday after learning the system’s deficit was $17 million greater than officials said last week.
The loan is on hold until the school system presents the state with more details of its financial situation and takes steps to assure repayment. Failure to meet those conditions could mean stringent state oversight of the system, Gov. Robert Ehrlich Jr. said in a news conference to announce the postponement.
“We are going to get this done on our terms . . . with a partnership,” Ehrlich said.
“Establishment of a receiver authority” and “changes to the system’s permanent organizational structure” could be in store for the system, according to a letter from Budget Secretary James “Chip” DiPaula Jr. to the Baltimore City school board. DiPaula also requested further financial details.
In addition, the letter called for more oversight by State Superintendent of Schools Nancy Grasmick.
A system financial plan requested by Ehrlich failed to include major accountability or long-term restructuring proposals necessary to secure the loan, the governor said, and instead revealed that the schools’ stated $58 million deficit was actually $75.6 million at the end of January.
“These numbers are dramatic,” Ehrlich said. “It’s a dire situation.”
Baltimore City schools have spiraled into a financial crisis over at least the past four fiscal years. School officials have laid off more than 800 employees and said last week the deficit was in addition to a $58 million cash flow shortage.
Loans of $8 million each from the city and the private Abell Foundation were to accompany the state loan to cover the cash flow shortage, which stands at $71 million, according to the figures released Tuesday.
The city’s $8 million loan is moving through the normal approval process and it is unknown if the state’s holdout will effect approval, said Rick Abbruzzese, a spokesman for Baltimore Mayor Martin O’Malley.
Abell Foundation representatives could not be reached to discuss their loan.
The system’s financial plan was diluted by the school board when recommendations from former financial adviser Robert Neall were not adopted, city and state officials said.
Neall called for a 5 percent pay cut to the system’s 12,000 employees, a guarantee to repay the state loan in 15 months and assurances of specific cost reductions, O’Malley said.
The final plan did not include the pay cut, gave the school system 27 months to repay the loan and said only that the board was considering additional reductions.
“I don’t think the plans are too divergent” that a compromise can’t be worked out, O’Malley said.
Neall, a former state senator from Anne Arundel County, resigned Friday because he said steps taken to repair the system’s finances were inadequate and board members were dissatisfied with his work, according to a copy of his resignation letter obtained by The (Baltimore) Sun.
Parents and lawmakers now are calling for school board members’ resignations or removal.
“Maybe it’s just time for them to move on,” said Sen. Nathaniel McFadden, D-Baltimore, chairman of city’s Senate delegation, who has worked in city schools for 35 years as a teacher, principal and facilitator.
“All obstacles to fiscal accountability need to go. If that includes the school board, that includes the school board,” Ehrlich said.
McFadden said emergency legislation is being crafted to provide for more accountability and funds for city schools and could be ready next week.