Pennsylvania Debates the Fate of Distressed District

Pennsylvania lawmakers and Gov. Tom Corbett are debating what to do with Chester Upland’s teetering school district, in a case that has drawn statewide and even national attention.

“Where do we stand? That’s an interesting question,” Sen. Daylin Leach, D-King of Prussia, said Tuesday, one day after he and 10 other Delaware County Democratic and Republican legislators met with Corbett and his education secretary, Ron Tomalis, in Harrisburg to discuss a district that for now lacks the money to last out the school year.

Last week, Judge Michael Baylson of the United States District Court for the Eastern District of Pennsylvania approved $3.2 million in a month’s worth of temporary funds after the state denied a request for an $18.7 million state-aid advance.

According to Leach, Corbett, a Republican, said at Monday’s meeting that the district would receive funds through the end of the year, though Tomalis seemed to contradict that in a Philadelphia Inquirer story that quoted him as saying there was no commitment on funding. Messages seeking comment were left with spokesmen for Corbett and Tomalis.

“The governor said he would not let the schools close,” Leach said.

The Senate’s education committee on Tuesday was to further discuss the district, which sits 15 miles southwest of Philadelphia and includes mostly the impoverished city of Chester as well as the borough of Upland and Chester Township.

Should Corbett orchestrate a supplemental funding package and possibly a state takeover mechanism, Senate Majority Leader Dominic Pileggi could run point. Pileggi, a former Chester mayor, did likewise for a horseracing-casino and a soccer stadium in the city.

Pennsylvania last year advanced money to the school district to keep it from defaulting on bond payments. The district has no underlying bond rating, though it has a “pre-default” credit enhancement through the Pennsylvania State Aid Intercept Program. Under that program, the state’s education secretary automatically withholds state aid from the school district and forwards it to the bond trustee, thus assuring on-time debt service payments.

The program is rated Aa1 by Moody’s Investors Service, AA by Fitch Ratings, and AA-plus by Standard & Poor’s.

“I don’t think there’s any school district in Pennsylvania that’s as distressed as Chester Upland,” said Alan Schankel, a managing director at Janney Capital Markets in Philadelphia.

Many teachers in the district have said they would work without pay, if necessary, to keep the schools open. One of them, Sara Ferguson, was a guest of First Lady Michelle Obama at Tuesday's State of the Union address.

Chester Upland, though, is not alone. “Other districts are on the precipice, too,” said Leach, who mentioned York, Erie and Allentown, among others. In addition, Moody’s downgraded the city of York on Monday to Baa3 from Baa1.

About 45% of Chester Upland students attend charter schools and the district, which has just over 3,000 students in its mainstream system, now spends about 40% of its budget on payments to charters, which state law pegs as a priority.

Some observers say Chester Upland could provide a test case for Corbett, who has taken a hard stance on education management. He has made deep cuts in state aid and advocated legislation to establish state-appointed control boards with the power to cancel teacher contracts and even convert some schools to charters.

“If the governor is going to tackle a school district, this is the one for him to do. It isn’t the size of Philadelphia,” said David Fiorenza, a Villanova School of Business professor and the former chief financial officer of Radnor Township. “The governor has a lot on his plate and he’s only got a few choices, and he’s not going to want to tackle every city, borough and school district.”

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