Few districts are as mired in financial morass as the School District of Philadelphia. This week, the City of Brotherly Love’s traditional system avoided another round of dire straits when the main city government agreed to lend it $30 million to continue its operations (on top of $27 million lent at the beginning of the last school year just to get the doors open). Pennsylvania state legislators also gave it an assist by increasing state funding by an additional $39 million for next school year.
Yet as a Dropout Nation analysis of the Philly district’s 2013 financial report shows, these emergency bailouts are doing little to address the consequences of Philadelphia’s long-term fiscal and academic fecklessness.
It has long ago been clear that Philadelphia no longer has unqualified status as an academic going concern. A mere 68 percent of the eighth-graders who made up the district’s original Class of 2012 were promoted to their senior year, virtually unchanged from the Promoting Power Rate for its graduating class a decade ago, according to a Dropout Nation analysis of data submitted to the U.S. Department of Education. While the percentage of fourth-graders reading Below Basic declined by four percentage points between 2009 and 2013, as measured on the National Assessment of Educational Progress, three out of every five 10-year-olds were still functionally illiterate. With a mere one percentage point increase (from 15 percent to 16 percent) in the number of eighth-graders reading at Proficient and Advanced levels, Philadelphia is also struggling to prepare kids for success in higher education and life. The consequences of shoddy quality of instruction and curricula on City of Brotherly Love kids explains why the district’s enrollment declined by 24 percent between 2002-2003 and 2011-2012.
The free fall in enrollment, along with the Philadelphia district’s status as a mega-failure mill, has exacerbated financial woes largely of its own making. The district lost $165 million in 2012-2013, more than double the $79 million loss generated in the previous year. Sure, the district’s revenue of $2.8 billion for 2012-2013 was two percent higher than the previous period. But its expenses of $2.9 billion was five percent higher than the earlier period. One reason: An 11 percent increase in interest payments, including on the $871 million in variable-rate interest bonds the district floated last decade to finance its senseless $1.5 billion effort to build 20 new schools and rehab existing buildings. The interest rate swaps, which the district undertook to offset sudden increases in interest rate payments tied to those bonds, is also weighing heavily on its balance sheet. Given that Philly shut down 23 schools this past year, the district’s building boom was a mistake of epic financial proportions.
Then there are the burdens Philadelphia faces as a result of traditional teacher compensation. The district’s instructional costs for 2012-2013 increased by five percent over the previous period thanks to the district’s contract with the American Federation of Teachers’ City of Brotherly Love local and increases in pension contributions. Between 2002-2003 and 2011-2012, Philadelphia’s expenditures for teachers’ benefits increased by 53 percent. Meanwhile Philly’s long-term burdens continue to grow. The district’s unfunded liability for retired teacher and other school employee healthcare costs for 2013 was $388 million, three times greater than the $130 million shortfall in the previous year. If Philadelphia was to liquidated today, its $2.5 billion in assets wouldn’t cover its $4.1 billion in liabilities and long-term debts.
Let’s keep in mind that these numbers don’t include any increases in contributions the district must make to the Keystone State’s Public School Employees’ Retirement System to help address its virtual insolvency. A preliminary DN analysis of the pension concludes that it is insolvent to the tune of $37 billion, or 27 percent higher than its officially-reported unfunded liability of $30 billion; taxpayers having to shell out an additional $2.1 billion a year (based on 17-year amortization) or 90 percent more than the $2.4 billion in contributions made in 2013. Based on those numbers, and on whether Gov. Tom Corbett succeeds in convincing legislators in passing any kind of pension reform plan, Philly’s contributions to the pension could be nearly double the $129 million the district paid last year (or an additional $116 million a year in contributions). In light of the district’s financial woes, and the 78 percent increase in pension contributions it has had to sustain between 2010-2011 and 2012-2013, there’s no way it can sustain itself as an education organization.
Put simply, Philadelphia is virtually bankrupt. This is a problem that an additional $96 million in funding from both the state and the main city government (as requested this week by district Supt. William Hite) cannot fix. It is finally time for reformers and others in Cheesesteak Land to finally let the district wind down its operations, and move toward a model of educational service that actually benefits taxpayers, families, and ultimately, our children.