- The Washington Times - Wednesday, March 17, 2004

BALTIMORE — The city Board of Estimates yesterday approved a $42 million loan to Baltimore’s financially mismanaged school system despite the objection of city Comptroller Joan Pratt.

“In my opinion, as a certified public accountant, making this loan is not a wise decision,” Miss Pratt said.

She said she voted against the loan because of a lack of safeguards against the school system requiring additional loans in the future — especially in light of the school board’s track record.

Miss Pratt said she feared that the city’s rainy-day fund could become a “revolving charge account” for schools, hurting Baltimore’s bond rating.

Under the bailout plan, $34 million of the loan will be repaid by Aug. 1, and the remainder will be repaid in June 2006 at 1.5 percent interest.

The plan also establishes a three-member “fiscal operating committee” that will oversee the development and implementation of a financial recovery plan by May 30.

The committee will consist of the city finance director, a member of the school board and a member appointed by the mayor. The committee will include the state superintendent of schools and a member of the City Council as nonvoting members.

The school system is expected to receive the money by Monday.

School board President Patricia Welch said the money gives the school system a reprieve until May, when a definitive recovery plan will be completed.

“We can exhale a little, but we still have a long way to go,” Miss Welch said.

Mayor Martin O’Malley’s decision to use $42 million from the rainy-day fund instead of a state loan prompted one ratings agency to put the city’s debt on a credit watch list earlier this month.

After the decision was announced, Fitch Ratings issued a statement that the move raises “concern that the city could become a regular lender to the schools, diminishing the positive credit effect of the city’s rainy day fund and other reserves.”

Fitch said it was placing the city’s A-plus rating on its approximately $564 million in outstanding debt on Rating Watch Negative, which indicates the reasonable probability that the rating will be lowered after review. Fitch said the review should be completed in a few weeks.

Mr. O’Malley’s decision came as legislative leaders prepared to introduce a bill submitted by Gov. Robert L. Ehrlich Jr. that would have provided a $42 million state loan in return for creating a new authority to run city schools.

That proposal followed weeks of intensive negotiations between city and state leaders that began after teachers rejected proposals that they take a pay cut to help cover a huge deficit in the city school system budget.

The budget was $75 million in the red by the end of January, but cost-cutting measures already implemented are expected to reduce the deficit to $58 million by the end of the fiscal year June 30.

After the Board of Estimates vote, Mr. O’Malley said he would have preferred to find a solution working through the state partnership but said it was doubtful that the Republican governor’s plan would have passed the legislature.

“People are not aware just how crippled that bill was. It set some precedents that made a lot of people uncomfortable,” said Mr. O’Malley, a Democrat.

The mayor said the state’s insistence on a substantial role in governing the system because of the money that would be provided caused concern among other jurisdictions that also rely on substantial state support.

The mayor expressed satisfaction that the restructuring plan makes him directly responsible — and accountable — for the system’s performance.

However, Miss Pratt said she did not think that the city could resolve the crisis without the state’s help. She said the mayor’s apparently poor relationship with the governor was hurting the effort to address the crisis.

“We need to work with the state. We cannot do it without the state,” she said.

Miss Pratt predicted that city officials would end up resorting to the measures upon which the state had insisted — additional layoffs and union concessions.

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