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The $20 million question: How can city schools cover their deficit?

This article first appeared in the St. Louis Beacon, April 20, 2010 - Here's a lesson you won't necessarily get in Econ 101: When is a budget deficit not really a deficit?

Not surprisingly, like most issues involving the St. Louis Public Schools, the answer is more complex than you might think.

The budget of the city schools was in the news last week when Superintendent Kelvin Adams announced Thursday night that to erase a projected shortfall of $57.5 million for the next school year, the system planned a number of measures, including eliminating 490 positions, closing six schools, cutting some salaries and imposing furloughs.

But even if those proposals become reality -- the district's Special Administrative Board is set to vote on them as early as next week -- the school system still faces a deficit of about $20 million for the fiscal year that ends June 30.

At a meeting last week of the Danforth-Freeman committee, which is looking into how the city schools should be governed in the future, Adams was asked how that shortfall will be covered. He responded that the deficit would be rolled over into next year and temporarily be covered by borrowing from a fund set aside for the area's desegregation program.

Sound simple? Not really.

The fund in question was created as part of the 1999 settlement that spelled out how the areawide voluntary desegregation program would be phased out. Under the agreement, the state would pay $180 million into a fund over 10 years to help the city build and renovate school buildings. The final payment, of $9 million, was made last July.

The theory was that with the deseg program ending, many city residents who had been attending school in St. Louis County or had planned to join the busing program would instead enroll in city schools, so the city would need new facilities to accommodate them.

But that enrollment spike didn't happen. In fact, over recent years, city school attendance has been steadily dropping. The most recent figure is 25,876, compared with more than 40,000 in the 2004-05 school year. Another 1,500 or so students are expected to leave the system next year, either to charter schools or to other opportunities in the city or elsewhere.

So not all of the money designated for building expansion and improvement has been needed or used that way; school officials say $78 million remains in the fund. That is the money that the city schools have been borrowing against at the end of their fiscal year, then repaying to make sure their budget is in balance.

But who authorized the city schools to do that borrowing is not easy to determine.

State education officials say the shift of money was part of an agreement between the city schools and the attorney general's office as part of the deseg agreement. But a spokeswoman for the attorney general's office says it was only a third party in the matter, concurring to a settlement agreed to by the school system and plaintiffs in the case, which stretches back more than 30 years.

Veronica Johnson, an attorney for one set of plaintiffs, was surprised when she was asked about the city schools using the money to help cover their deficit, even temporarily. She said there have been discussions with the district over how to use the funds, but no agreement has been reached.

She said that a few years back, a settlement did allow for the city schools to use some of the money from the fund for a teacher evaluation plan, but not to cover a budget shortfall.

"At no time have we discussed with the St. Louis Public Schools using capital funds to offset the deficit," Johnson said in an interview. "We have discussed with them other purposes for those funds. Perhaps what that they mean by their statements is that if that money is available to them for certain purposes, that will free up other money that could be used to offset the deficit."

No, that's not what the school system is saying, according to Enos Moss, its chief financial officer.

In fact, he said in an interview, the district is allowed to borrow from the deseg capital fund to cover the deficit, so long as it repays the loan by June 30, just as any district may transfer money from capital funds to use as working funds throughout the year.

Moss said the issue was brought up some time ago and has been given the OK by its auditors. By borrowing from the building fund, Moss said, the city schools have not been forced to rely on tax anticipation notes to get through lean months, as other districts have.

"If we need it, we have it to use for working capital," he said. "It's just a normal process that we go through."

In any case, because some districts have extended their participation in the desegregation program until 2014, and any student who enters at that time may continue until graduation from high school, the deseg building fund may be available for as long as another 16 years.

In Johnson's view, any changes in the way the money may be used has to be signed off on by all of the parties involved, including the attorney general's office, the Department of Justice, the city schools and the various groups of plaintiffs whose claims of discrimination led to the deseg plan in the first place. Talks, she added, are ongoing.

"You can understand how difficult it can be to get that many diverse interests into one room and into one agreement," Johnson said.

"But there's no coming back after you've made the agreement and saying, 'Maybe I didn't get the full benefit of the bargain.' "