‘Recycled,’ Not ‘Returned’: How City Schools May Have Actually Lost Out on $66 Million to Fix Schools

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Baltimore City Public Schools headquarters on North Avenue. Image via Wikimedia Commons.

The figure $66 million has popped up again and again during the recent debate on heating and facilities repairs at city schools.

Amid a steep drop in temperatures after New Year’s Day that caused dozens of heating systems to fail and schools to close, and following of picture of students huddled on the floor of their classroom in winter coats going viral, The Sun on Jan. 4 published an article that said Baltimore City Public Schools had returned $66 million in state funds since 2009 “after approved projects ran afoul of state regulations meant to prevent waste.”

The school system could have provided dozens of heating systems with that money, the story said. Critics have cited the $66 million figure to paint the school system as inept, and Gov. Larry Hogan, when he announced proposed legislation for an inspector general to oversee education, said state funds have been “completely mismanaged by the city school system.” He also gave the city $2.5 million in emergency funds to make repairs.

But a review of a memo from City Schools and recent testimony given to the State Senate Budget and Taxation Committee show an incomplete picture. In a memo obtained by Baltimore Fishbowl, and during testimony before the committee, City Schools leaders argue a decision to fund projects over multiple years, rather than annually, makes it harder for poorer school systems to complete them as costs run above estimates.

More well-off districts can “forward fund,” in which they pay for any overruns, and then ask the state to reimburse them. Those counties can then submit those expenditures to the state for reimbursement.

But for Baltimore City Public Schools, which in 2017 got just $17 million from the city budget to put toward maintenance projects, the margins for error are slim. If they were to get, say, a $7 million project approved by the state, and the contracting bids turned out to cost more, the city’s funds wouldn’t be enough to make up the difference, and the project would be rescinded and return to the bidding process.

See, for example, an HVAC project for Historic Samuel Coleridge-Taylor Elementary. In 2014, the cost of the work was estimated at $7.5 million. City Schools asked for $6 million from the state, which came in installments over three years. By the time the funds were delivered, the bid to complete the project had risen to nearly $8.4 million. The project was therefore rescinded and resubmitted for fiscal year 2019 to account for the difference.

A slide created by Baltimore City Public Schools shows how partial funding can hurt the school system. After requesting funding for an estimated $7.5 million, and receiving the state allocation in three installments, the cost increased to $8.3 million when it came time to build. The project had to be rescinded and resubmitted.

In recent testimony, Santelises said the school system adds 2 to 4 percent into project budgets to account for cost overruns, “but over the last two years, the actual increase due to market conditions has been a 13 percent increase.”

David Lever, a former director of the state’s Public School Construction Program (PSCP), the agency that oversees the PSCP and other local education agencies, told The Sun that funds would go back to the state after City Schools mismanaged their request.

“[E]ither the project would be so delayed it would meet up against a rule that said that funds have to be encumbered within two years, or the school system would discover they hadn’t asked for enough money,” he said in the story. “This was particularly true of HVAC [heating and air conditioning] projects.”

But that doesn’t mean North Avenue loses the $7 million. Instead, it goes into a contingency account for use in later years. Santelises wrote in an Oct. 17, 2017, letter to current PSCP executive director Robert Gorrell that the rolling over of contingency account money, also known as recycling funds, hurts the school system because it counts toward the state’s allocation to City Schools for the next year.

In fiscal year 2017, budget documents show, City Schools received $37.5 million from the state, but $10 million of that was money the city had already received in prior years and then recycled.

This has been a trend since at least 2013.

“In the last four years our total annual state allocation has been approximately $37 million,” Santelises wrote in her October 2017 letter, “but the average amount in newly allocated money has only been between $23 million and $27 million each year.”

This also allows more money to go to wealthier districts, she wrote. Over the last 10 years, the amount of new funding that City Schools missed out on because of the contingency account process adds up to the much-discussed figure: $66 million (nearly two years’ worth of state Capital Improvement Program (CIP) funding for City Schools, she noted). In other words, Santelises has argued Baltimore schools have been shorted that amount over the last decade.

A slide created by Baltimore City Public Schools compares requests from 2016. While Baltimore County, Montgomery County and Baltimore City ended up with similar amounts of money from the state, Baltimore and Montgomery counties are at a distinct advantage because of the amount of local money they receive.

There were two times, she wrote, that the school system rescinded substantial amounts of money. The first was when the $1 billion 21st Century Schools program, a city-state agreement to renovate or replace at least 23 schools by 2021, came online, and City Schools put money for facilities slated for closure into the contingency account. The second was when the state began doling out piecemeal project funding, in fiscal years 2016 and 2017.

That presented its own set of problems, which Santelises laid out.

“Partially funded projects impact the district in two ways,” she wrote. “First, due to a low tax base and limited local funding, the district does not have the ability to forward fund projects with a local contribution of $17 million each year.”

“In addition,” she continued, “the lack of certainty of when projects will receive full funding impacts the district’s ability to include adequate escalation rates.”

Asked on Monday whether the city could potentially increase its contribution to City Schools, Councilman Zeke Cohen, chair of the Education and Youth Committee, told Baltimore Fishbowl “the city should do more to support our schools.”

He said he did not want to speculate as to the source of those dollars, but noted, “We are taking a hard look at the budget, and no agency is immune. Everyone deserves scrutiny.”

In 2017, 60 percent of school projects were partially funded, Santelises wrote, and four projects out of a total 18, representing $10.5 million, had to be rescinded because the bids came in higher than the approved amounts.

The day after she sent her letter to Gorrell, Santelises continued to make her case to the Board of Public Works, comprised of Gov. Hogan, Treasurer Nancy Kopp, and Comptroller Peter Franchot.

“And so over the two to three years that it takes to get all of the funding in place, oftentimes the costs increase,” she said, according to transcripts. “So it’s not due to the fact that we’re not projecting correctly at the time what the costs are, but it is due to the fact that because we do not have the benefit of forward funding from our local jurisdiction,
we must wait for full funding to come into place.”

A graph created by Baltimore City Public Schools. The X axis (bottom line) shows the total state allotment in a given year. The yellow line shows recycled funds, and the blue line shows new state money. Because of the increase in recycled money–money the school system was already given once–City Schools argues it has lost out on $66 million.

After congratulating Santelises on the school system’s improvement with getting air conditioning into classrooms, the governor asked, “Is there any hope of getting the city to
increase their investment in the schools?”

Reached by phone, Gorrell agreed that the city’s contribution of $17 million is limiting, particularly because the money allotted by the state does not go toward things such as pre-project engineering, design, furniture, fixtures, and other equipment. Also, as part of the funding process, the city has to pledge a share of money.

In essence, the most that Baltimore City [Public Schools] can contract in any year is somewhere between $30-$35 million, no matter how big their need is,” he said, referring to CIP funding.

That’s not nearly enough. The 2012 Jacobs Report found $2 billion in deferred maintenance to school buildings.

Additionally, Gorrell said City Schools could have amended its list of projects submitted to the state’s Interagency Committee on School Construction (IAC) if bids indicate insufficient funding. For example, if the system has 15 projects and, after bidding, sees it doesn’t have enough money to go forward, it can cut a lower priority project to make sure the other 14 move ahead.

During a hearing last week before the Senate Budget and Taxation Committee, analysts with the nonpartisan Department of Legislative Services (DLS) answered questions about the funding process and found themselves fielding questions about The Sun’s story alleging $66 million in returned funds.

“Help me out, because the newspaper said it was $66 million that was returned,” said state Sen. Nathaniel J. McFadden (D-Baltimore City, District 45). “Is that accurate? Or was it $66 million that was not used at that time?”

“So, to call it ‘returned’ is maybe not the phrase that I would use to describe it,” responded Kyle Siefering, a policy analyst with DLS. “All of that money is money that at one time was not used and was returned to an account–not returned to the state; it was returned to an account–and were subsequently used over the following years.”

In a later exchange with McFadden, Siefering explained that if the money in the contingency account is not used after two years, only then is it sent back to the state.

We did check with the IAC and Baltimore City has not sent money to the statewide account in anyone’s recollection,” he said.

According to testimony from DLS principal policy analyst Rachel Hise, the IAC has agreed to stop partially funding projects over multiple years going forward. (Gorrell confirmed this is true for City Schools, which requested that change; other counties still rely upon partial funding, he said.)

Asked later for other possible solutions, Hise responded: “I guess another one would be to make sure an escalation factor is built into the cost estimates. And I guess a third would be, although it won’t be popular, is not to fund projects if they’re not ready to go. But that comes with its own issues.”

A crowd packs into an overflow room to watch the Baltimore City School Board meeting on Jan. 9. Photo by Ethan McLeod.

When it was City Schools’ turn at the table, school board Cheryl A. Casciani started out by talking about the daunting numbers facing the system.

“Some can question whether we’re keeping up with maintenance, which we need to do, and we do the best [we can],” she said during opening remarks. “But when you have $2 billion in deferred maintenance, which was documented in 2012, and between state funds and local funds you’re getting approximately $52 million in [capital improvement projects], plus the operating dollars that we allocate to maintenance, you don’t have to be a math genius to know that you can’t ever catch up.”

Santelises told the committee she was looking to install mobile thermostats in classrooms and establish a clear protocol for appropriate building temperatures and alerting parents. But she also said that “regardless of the protocols that we put in place, and we will, the fact remains that there has been a cumulative effect of the under-investment of Baltimore City Public Schools buildings that now has a compounded effect.”

Near the end of the hearing, Sen. Richard Madaleno, (D-Montgomery County, District 18), vice-chair of the committee, asked Santelises how much money it would take to prevent another rash of frigid classrooms this winter.

Santelises said her office was still looking into the cost of the thermostats, “but the cost of being able to tell parents that this will never happen again, that cost is closer to the Jacobs Report.”

Committee chair Sen. Edward J. Kasemeyer (D-Baltimore and Howard counties, District 12) told the North Avenue leaders that senators would form a subcommittee and work with the House of Delegates and DLS to look at possible fixes.

During his interview with Baltimore Fishbowl, Gorrell said he thinks his office can play an important role in helping City Schools, which he characterized as being hampered by false starts and underutilized buildings.

He said he hopes to help districts share more information about things like building materials and maintenance so districts can work as efficiently as possible “to increase the efficiency of the spending based on best practices, what works and what doesn’t work, and to ensure that the cost of ownership can be met before we build.”

But there is still a big question facing the city, he said.

“Is $17 million all that they can put in? Why is that all they can put in?”

Baltimore Fishbowl senior editor Ethan McLeod contributed reporting for this story.

Brandon Weigel

Brandon Weigel

Brandon Weigel is the managing editor of Baltimore Fishbowl. A graduate of the University of Maryland, he has been published in The Washington Post, The Sun, Baltimore Magazine, Urbanite, The Baltimore Business Journal, b and others. Prior to joining Baltimore Fishbowl, he was an editor at City Paper from 2012 to 2017. He can be reached at [email protected]
Brandon Weigel


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