Philadelphia School District Plagued by Deficits: Audit

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Mandated cost increases and an inability to raise revenue are hampering the Philadelphia School District, which has persistent budget deficits, according to an audit from Pennsylvania Auditor General Eugene DePasquale.

The 84-page report released Wednesday notes that the district had a structural deficit totaling more than half a billion dollars for the five years covered in the audit. Local revenue comprises only 33% of the district's budget compared with 70% for most other Pennsylvania districts, which DePasquale attributes to it relying heavily on state and federal subsidies that don't adequately cover expenses. The Pennsylvania General Assembly and Philadelphia City Council control the district's taxing authority.

"Our audit shows operational improvements are necessary so the school district can focus on educational issues," said DePasquale in a statement. "But we need to recognize that one of the nation's largest school districts is facing a huge structural deficit and mounting debt payments without the local taxing authority we give every other school district in Pennsylvania."

For the 2013-14 school year, the district paid more than $265 million to cover borrowing payments with over $146 million of that amount on interest. DePasquale said the district consistently pays more each year in interest than loan principal and this practice is "not sustainable."

DePasquale noted that one of the key stressors on the district's budget is state-mandated support for charter schools with tuition expenses rising 107% during the audit period from $333.5 million in 2009-2010 to $701.3 million in 2013-14. Charter schools accounted for 25% of the district's operating expenditures in 2013-14.

"What is needed is coordinated commitment and direction by local Philadelphia elected and appointed officials, the governor, and the General Assembly to work to give the district the tools it needs to deal with its financial issues," he said. "Without such action, the district will continue on an extremely challenging financial path. The current business model clearly is not working."

Philadelphia School District bonds were downgraded five notches in late December to Ba2 as a result of a new Moody's Investors Service rating approach to the Pennsylvania State Aid Intercept Program.

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