State's rejection of its financial plan narrows options

With a jolt, the Erie School District has quickly reached the same position that it was in a year ago.

The district must look to the General Assembly as its last hope for relief from its budget crisis.

Otherwise the district will have to make massive cuts — the amount could be close to $10 million — if it wants to stay solvent.

The need for legislative help became starkly clear on Monday, when the Pennsylvania Department of Education rejected the Erie School District's $31.8 million plan for financial recovery.

The department gave the district two months to submit a revised plan, but one of the department's top officials said the new plan cannot include a request for state aid, as the rejected plan did.

The district in that plan said it needed $31.8 million more in annual state funding to balance its budget and improve programs. The additional money, the district also said, would make its level of annual state aid more commensurate with the levels for more affluent school districts.

The revised plan instead must show how the district plans to stay solvent by cutting programs and raising local property taxes.

"It is a disappointment. They are kind of forcing our hand," Erie School Board President Frank Petrungar Jr. said. "They are not leaving us much of a choice here. I am very frustrated and dumbfounded."

Without the promise of additional state funding, Petrungar said, the district must start to plan for $10 million in cuts to offset a projected $10 million budget deficit in fiscal year 2017-18, which starts July 1.

At risk to be eliminated, Petrungar said, are arts programs, sports and other extracurricular activities, and full-day kindergarten and many other offerings. Also possible, he said, is closing of all the district's four high schools and sending more than 3,000 students to other high schools in Erie County.

The School Board had moved away from that option over the past several weeks, favoring the consolidation of high schools. But after Monday's report from the state, Petrungar said, "closing the high schools isn't off the table. We need to look at everything."

He said the district would continue to lobby local lawmakers, many of whom have been receptive to the 11,500-student school district's request for more money. The district received $4 million in emergency state funding in July to help balance its 2016-17 budget, and a similar infusion still could happen this year, said state Rep. Pat Harkins of Erie, D-1st Dist.

"I am confident that at the end of the budget negotiations we will have a dollar amount that works for the Erie School District," Harkins said. "It is going to be just enough to keep us in order. It will be enough to keep the school district afloat."

Until that money arrives — and the state budget is rarely passed by the July 1 deadline — the Erie School District will start formulating "an austerity budget," Erie schools Superintendent Jay Badams said.

"We are basically being told to make $10 million in cuts," Badams said. "That is the direction we are getting."

The Department of Education turned down the $31.8 million plan, which the district submitted on Dec. 6, mainly because it asked for additional funding, David Volkman, the department's executive deputy secretary, or second-highest official, said in an interview Monday.

He spoke to the Erie Times-News after he told Badams, in a phone call, that the department had denied the plan.

"Pennsylvania law does not authorize the secretary (of the Department of Education) to appropriate additional funding for the district," Volkman said.

Volkman said the Department of Education has given the Erie School District two months to submit a revised plan that focuses on how the district can save money and increase revenue, including by raising taxes.

"They need to go back and take a look at the plan and give us their best estimate of what they could do to try to save programs," Volkman said.

He said any decision on whether to give the Erie School District additional revenue would rest with the General Assembly. He said the Department of Education, if it approves the district's revised financial plan, would share it with lawmakers for their review.

But Volkman stopped short of saying whether the Department of Education would advocate for more funding for the Erie School District in light of the revised report. He said that decision would have to come from Gov. Tom Wolf.

"That would be something that we would have to discuss with the governor's office," Volkman said.

A spokesman for Wolf, J.J. Abbott, said Monday night that the governor "is committed to working with struggling school districts across Pennsylvania, including Erie, after decades of underfunding and inequity."

Abbott also said, "the reality is that the governor cannot allocate extra school funding without the General Assembly's approval."

Volkman said the Department of Education will continue to work with the Erie School District on developing a financial plan. The state's financial adviser, Public Financial Management Inc., of Philadelphia, helped the district assemble the original plan.

"The department will be fully engaged going forward," Volkman said. "We are going to continue to work on the problem. We want nothing more than a win-win situation."

The Erie School District had to submit the plan because the state in July put it in what is known as financial watch status in light of its budget crisis. In exchange, the General Assembly gave the district the $4 million in additional state aid.

Wolf, who is running for re-election in 2018, has made increasing education funding a centerpiece of his administration. And though Wolf has changed the state's funding formula to benefit urban school district such as Erie's, the Erie School District has argued that it needs immediate help, mainly because the state has underfunded it for years.

Volkman, a former superintendent, said he and Education Secretary Pedro Rivera, also a former superintendent, understood the Erie School District's plight. But he said, under the law, the department can only ask the Erie School District to propose balancing its budget by making cuts and with its own resources, such as tax revenue.

"It is painful. It is a painful process," Volkman said. "But in this case the secretary lacks the authority to appropriate money to Erie."

Ed Palattella can be reached at 870-1813 or by email. Follow him on Twitter at twitter.com/ETNpalattella.