Aug 15 (Reuters) - The city of Philadelphia will borrow $50 million in the capital market for its cash-strapped public schools so they can rehire about 1,000 furloughed employees and open on time on Sept. 9, Mayor Michael Nutter said on Thursday.
The pledge for stopgap funding for the school district, which has about 140,000 students, came a day before a deadline laid out by Superintendent William Hite. He warned last week that without the additional money from the city, the district’s ongoing financial crisis would threaten his ability to open schools on time and safely.
Nutter said he would direct city financial officers to immediately lay the groundwork to borrow $50 million on behalf of the school district.
The city plans to sell municipal bonds, borrowing money from investors for the four-year loan. The structure of the bond deal and other details had not yet been worked out, according to Nutter spokesman Mark McDonald.
Philadelphia’s school system handed out 3,800 pink slips earlier this year as part of an effort to close what had been a $304 million budget gap. The district operates 218 schools.
State lawmakers promised an additional $120 million in state aid. The city pledged another $60 million. But the remainder was to come through contract concessions from the teachers’ union.
The teachers’ contract expires Aug. 31.
Governor Tom Corbett reiterated on Tuesday that he would not release a $45 million, one-time chunk of state funding that has been allocated to the Philadelphia school district until a new collective bargaining agreement is in place “that makes substantial progress” toward savings and academic reforms.
State law requires that the school district begin implementing fiscal, operational and educational reforms before the money is released, he said in a statement.
In response, Philadelphia Federation of Teachers President Jerry Jordan said his members have already “reached into their own pockets to fill in the gaps left by cuts to public education funding.”
With the loan from the city, the district can begin to hire back about 1,000 laid off counselors, assistant principals, hallway and lunch monitors and other employees, according to Nutter and Hite.
To repay the bonds, the city would have to extend a sales tax hike that was supposed to be temporary. That could bring in $15 million a year for debt service, Nutter said.
The city council would have to pass legislation authorizing the borrowing. Nutter said he would give city lawmakers that legislation on Thursday, and that a majority of council members appeared to support some kind of measure to rescue the city’s schools.
The loan would have “virtually no financial impact” on the city as long as the sales tax measure passes, Nutter said in a press statement.
Otherwise, the city might have to dip into its general fund to repay the loan. The fund is already projected to decline to $86.5 million in fiscal 2014 from about $189 million in fiscal 2013, which ended on June 30, according to McDonald.