Struggling Philadelphia Appoints Chief Recovery Officer

The financial crisis that’s encompassing the state of Pennsylvania has already threatened the future of an entire district. And now, as the Philadelphia School District faces $61 million in cuts, the district’s governing body has made the unprecedented decision to forgo its leadership structure and name a “Chief Recovery Officer” to help the organization manage through the next six months of economic turbulence.

The School Reform Commission (SRC) frankly laid out the district’s financial woes to the public in a dramatic meeting Thursday night, writes Kirsten A. Graham at the Inquirer.

Commissioner Feather Houstoun, chair of the SRC’s finance committee, detailed the severity of the situation, saying that people don’t quite realize how bad it actually is:

“We’re basically going to limp through May and June. We’ll cover payroll. We’ll cover debt service because we absolutely have to.”

Without intervention, “we’re going to have such a pileup of cash deficit that we’re basically not going to be able to pay people in July for work they did in June. If we haven’t fixed this and have a credible plan for next year and the next year, we may not even be able to go to credit markets.”

And the intervention that the SRC saw fit to implement was the appointment of Thomas Knudsen as the newly created position of chief recovery officer. Knudsen will function both as superintendent and chief financial officer.

Knudsen said he shared the SRC’s “sense of urgency and alarm.”

It’s a tough position to be put in. There’s less than six months left in the school year, which leaves little to cut other than all spring sports, all instrumental music, all gifted programs, and half the district’s psychologists.

SRC Chairman Pedro Ramos, said the scope of the current problem was “unprecedented in my adult lifetime.”

The appointment brings a reshuffle. Penny Nixon will become chief academic officer after previously being associate superintendent for academics and Leroy Nunery II, the former acting superintendent, and Michael Masch, former chief financial officer, will both stay on as special advisers but will take pay cuts.

Nunery will report directly to the SRC and focus on examining how business and academic services are delivered to schools – essentially heading an effort to decentralize some district operations. Masch will report to Knudsen and continue to work on financial matters.

Higher-than-expected charter school enrollment exacerbated the already troubled budgets after the district lost millions in federal stimulus money.

Houstoun, formerly New Jersey state treasurer, said the district was “deeply traumatized” by the economic issues of last year and the dramatic exit of former Superintendent Arlene C. Ackerman.

Houstoun outlined that, for starters, she has to face a “structural gap” of $269 million, thanks to wage and benefit cost increases and debt service payments. In the past the district has been able to fill shortfalls with loans and deferred payments — but that’s no longer an option.

The coming months represent an “extraordinary set of circumstances” for the district, Ramos said. And while they chose not to specify all aspects of the plan, some changes were announced:

  • The district’s 500 non-unionized employees will not get a planned raise
  • Staff will take furlough days and start sharing the costs of their health-care premiums
  • Employees who make more than $75,000 will see pay cuts
  • Summer school will be cut to the bare minimum

Along with these changes, the SRC left the door open on further reductions. These could include cuts to psychologists and eliminate all spring athletics, instrumental music, gifted programs, and bilingual counselors. Cutting the school police alone would save $15.5 million.

Ramos and Houstoun indicated that in terms of cuts, much was up to the district’s five unions, writes Graham.

“Houstoun said she had identified $46.3 million in potential labor givebacks – including furloughs, recission of pay hikes, layoffs, and benefit contributions.”

However, if all didn’t go well in negotiations, the SRC has the power to impose the cuts on its unions. But Ramos indicated that they didn’t want to enforce that power, given to them under Act 46.

“What we want to do is bargain to a resolution that works for everybody,” he said.

In a statement, Mayor Nutter said:

The SRC “has taken swift and decisive action to address a very serious fiscal problem. . . . I strongly support this carefully considered plan, and I applaud the naming of Thomas Knudsen as chief recovery officer.”

Criticism for the plan has come mainly from school employees in the district. Members of the Local 32BJ, District 1201 union, which represents 2,700 bus aides, cleaners, building engineers, and mechanics packed out the meeting.

George Ricchezza, 1201 president, said:

“What I see here is a dismantling of the public school system.”

Jerry Jordan, president of the Philadelphia Federation of Teachers, called the forecast “very, very alarming.”