- The Washington Times - Tuesday, February 24, 2004

ANNAPOLIS — Gov. Robert L. Ehrlich Jr. yesterday refused to loan $42 million in state money to bail out Baltimores mismanaged school system without adequate plans to balance its books and repay the funds.

“I will seek an emergency appropriation when I believe the system is functional and accountable to parents, children and Maryland taxpayers,” Mr. Ehrlich said at a State House news conference where he rejected the Baltimore School Boards debt-reduction plan.

Whats more, the Republican governor said his $42 million loan offer might not be enough to close the school systems budget shortfall.

New estimates show that the Baltimore school systems annual deficit had increased to $75 million as of last month and its cash-flow shortfall soon will hit $70 million, or nearly 8 percent of the systems $899 million budget, said Budget Secretary James C. “Chip” DiPaula Jr.

Previous estimates placed the deficit at $58 million and the cash-flow shortfall at $58 million. That gap would have been filled with a $42 million loan from the state and $8 million loans from the city of Baltimore and the Abell Foundation, a nonprofit group.

The debt accumulated during the past four years and the school system faces the likelihood of bouncing teachers paychecks this year. The schools have laid off nearly 800 employees but still might not have enough cash to make payroll by the end of the school year.

Mr. Ehrlich said he has held the loan because the school boards plan lacks the accountability measures he had demanded. He said he is seeking a legislative remedy, such as dismantling the school board and placing the schools in receivership, before financing the bailout.

Layoffs, furloughs or pay cuts for teachers options that the Baltimore Teachers Union has rejected also appear to figure in the governors plans. He said yesterday that labor costs account for as much as 85 percent of the shortfall and the union had to help solve the crisis.

Maryland has never had a school district in receivership, though the state intervened in the management of Baltimore schools in 1997 and Prince Georges County schools in 2002.

Mr. Ehrlich did not give a deadline for securing a bailout but said state leaders had to work fast.

The governor last week offered the $42 million loan on the condition that the school board devise a plan to fix the school systems finances and improve accountability. He recruited former state Sen. Robert R. Neall, a Democrat, to lead the effort as a special financial adviser for the school system.

Mr. Neall resigned from the volunteer job on Friday after the board altered his report to the governor, including extending the repayment schedule from 15 months to 27 months. The Associated Press reported last night that Mr. Neall agreed to rejoin the effort after Mr. Ehrlich threw out the boards proposal.

“The situation with the Baltimore city school system is unacceptable and will not be tolerated,” Mr. Ehrlich said. “This is not personal, this is not partisan. This is about doing what should have been done a long time ago.”

Baltimore Mayor Martin OMalley, who attended the news conference, said he favors restoring the citys fiscal oversight of the schools. He also said he does not think the crisis is as dire as the governor has portrayed it.

“We are going to get through this,” said Mr. OMalley, a Democrat and potential challenger for the governors race in 2006.

Mr. Ehrlich did not endorse a city takeover but said his administration, Baltimores lawmakers and other legislative leaders would explore every option to save the school system.

Mr. Ehrlich was joined at the podium by Mr. OMalley; Senate Majority Leader Nathaniel J. McFadden and Delegate Salima S. Marriott, both Baltimore Democrats; and House Speaker Michael E. Busch, Anne Arundel County Democrat.

“I want to thank the governor for not dropping the ball,” Mrs. Marriott said.

School board Chairman Patricia L. Welch could not be reached for comment yesterday.

In a letter to the school board, Mr. DiPaula said its financial report failed to:

. Ensure repayment of loans.

. Manage the cash-flow deficit.

. Impose an effective personnel control system.

. Demonstrate reliable or competent fiscal controls.

This article is based in part on wire service reports

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