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Yesterday’s Dropout Nation report on the efforts of the American Federation of Teachers’ to stop systemic reform in Philadelphia touched upon the traditional district’s fiscal woes. As longtime readers know by now, the district’s efforts to address its virtual bankruptcy — including attempting to force teachers to pay a share of their healthcare costs — is one of the key reasons why the union is devoting so much of its resources there in the first place.

hollywoodmodellogoYet for all the sparring between the AFT and the School District of Philadelphia, the two sides agree on what they consider to be culprit for the traditional school system’s ills: The existence of public charter schools, which now serve 30 percent of the City of Brotherly Love’s school-aged children. But as a Dropout Nation analysis of the district’s latest comprehensive annual financial report shows, both the district and the union are engaging in delusional thinking.

The willingness of mayoral candidate Jim Kenney to fight for a moratorium on charter school expansion is one reason why the AFT is backing his candidacy. The district’s Chief Financial Officer, Matthew Stanski, argued as much to the Philadelphia Inquirer when he complained that the district may have to hand over an additional $96 million in subsidies to charters and that the state should be compensating it for those lost dollars.

Of course, the fact that families are fleeing to charters because of the district’s failures to provide high-quality education, a problem exacerbated by the AFT’s defense of failed policies and practices, never comes to the mind of either the union or the district’s bureaucracy. Nor do they keep in mind that the district isn’t even serving those students, and thus, shouldn’t even be receiving those funds in the first place; the dollars should flow directly to the schools themselves. [There’s also the fact that Philly’s enrollment has been on the decline since 1966, long before charters appeared on the scene. But that’s for a different day.]

But all the carping about allowing families to escape the Philly district’s woeful schools cannot cover up for this reality: That the school system is virtually bust. This is clear from the district’s push for an additional $105 million from Philadelphia’s main city government so it can finance its operations for the coming fiscal year. This is double the $57 million the city lent to the district over the past two years so it could continue operating.

But the district’s annual financial results show that even those dollars won’t help it address its long-term woes.

The district still lost $38 million in 2013-2014. The loss is four times lower than the $165 million loss in the previous fiscal year. But the smaller loss didn’t happen because the district generated more money; the district’s $2.8 billion revenue pull in 2013-2014 is just one percent higher than that for the previous year. What helped was a 33 percent decline in administrative support expenses (from $118 million in 2012-2013 to $78.5 million in 2013-2014) and a 16 percent reduction in student support service costs (from $180.3 million to $151.1 million in the same period).

To achieve those reductions, the district laid off 3,800 staffers during the last fiscal year. By the way: The district has reduced the number of bureaucrats, custodians, and other non-instructional staff by 57 percent between 2004-2005 and 2013-2014; they now account for 39 percent of the district’s 17,332 employees on the payroll. [The percentage of teachers on the district’s payroll, on the other hand, declined by a mere 26 percent during that same period.]

The district’s biggest costs are harder to reduce.

Philly paid out $153.4 million in interest on long-term debt during 2013-2014, little changed from the previous year’s levels. It also paid $71.3 million in interest and principle payments on debt it owes to the Keystone State’s Public School Building Authority, a 45 percent increase over 2012-2013. The district (and ultimately, taxpayers) will continue to pay the price for its fiscally feckless decision during the previous decade to float $871 million in variable-rate interest bonds in order to finance its equally-senseless $1.5 billion effort to build 20 new schools and rehab existing ones. Especially given the district’s move two years ago to shut down 24 half-empty schools and its enrollment declines in the past decade, the building spree made even less sense than ever.

The district spent $2.15 billion on teacher compensation and other instructional costs in 2013-2014, just 1.9 percent less than in the previous year. These are costs that are even harder to control. One reason why? The district’s collective bargaining agreement with the AFT’s Philadelphia Federation of Teachers, whose generous terms contributed to a 53 percent increase in teachers’ benefit costs between 2002-2003 and 2011-2012. With AFT having succeeded in its court challenge against the district’s move last October to cancel the long-expired contract (and require teachers to pay a share of their healthcare costs), and with Pennsylvania Gov. Tom Wolf doing all he can to repay the union for supporting his election campaign, Philly has even less room to maneuver on the cost front.

It isn’t as if Philly has shortchanged teachers on the pay and benefits front. Average salaries for teachers working for the district increased 21.4 percent between 2004-2005 and 2013-2014, according to the district’s own data; starting salaries increased by 20.6 percent within the same period. Put bluntly, AFT’s rank-and-file in Philadelphia are doing better than the taxpayers subsidizing the district and forced to deal with failing schools; median household income has been flat during the same period, according to data from the U.S. Census Bureau. Given the reality of Philly’s fiscal woes, it makes perfect sense for the district to cut generous benefits not in line with reality.

Then there are the contributions Philly must make to the Keystone State’s virtually-insolvent Public School Employees Retirement System. The district contributed $165 million to the pension in 2013-2014, a 27.8 percent increase over the previous year; the district’s pension costs increased by 238 percent between 2004-2005 and 2013-2014. Considering PSERS’ woeful financial condition and the increasing number of Baby Boomers in classrooms heading into retirement, the district’s retiree burden will continue to grow.

It could be even worse if the Keystone State finally forces PSERS to accurately account for its insolvency. A preliminary DN analysis of the pension’s comprehensive annual financial report concludes that it is insolvent to the tune of $41.3 billion for 2013-2014, or 27 percent higher than its officially-reported unfunded liability of $33 billion; taxpayers would have to shell out an additional $2.4 billion (based on 17-year amortization of the insolvency) or 82 percent more than the $2.9 billion in contributions made in 2013-2014. Based on those numbers and whether an effort by State Senate Majority Leader Jake Corman and his fellow Republicans controlling the state legislature can force Gov. Tom Wolf into accepting a pension reform plan, Philly’s contributions could increase by 82 percent, or to $300 million, none of which the district can actually pay.

Finally, there’s the fact that families are avoiding Philly’s failure mills in droves. The district passed through $701.2 million to charter schools in 2013-2014, an 18.6 percent increase over the previous fiscal year, thanks in part to a 7.6 percent increase in the number of kids fleeing the district to the privately-operated public schools. With so many families abandoning the district’s dropout factories — only 17 percent of children zoned to attend the notorious Strawberry Mansion High School in North Philly actually did so in 2012-2013 — the school system can’t simply count on a moratorium on charter school expansion to boost enrollment. Even with Gov. Wolf working hard on behalf of the AFT, such a ban on school choice is likely in the foreseeable future.

No matter who becomes Philadelphia mayor or what the AFT manages to convince its bought-and-paid-for ally to do, the district’s financial (as well as academic) woes are systemic, structural, and longstanding. Not one additional dollar of school funding will help it survive for the long haul.

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